NIL: Chapter 7: Aquino

REAL DEFENSES
1. MINORITY SECTION 22 Negotiation by a minor passes tile to the instrument. MINOR himself is NOT liable and defense is AVAILABLE only to the minor himself. IF: minor negotiates the instrument to other CAPACITATED persons, the same CAPACITATED persons CANNOT raise the defense of minority. Defense is personal to the minor Maker is barred from claiming that the payee is a minor because of his warranties M, maker, ISSUED a negotiable note to a minor P payable to P or order. P indorsed the note for CONSIDERATION to A A to B B to C (who are all legal age) IF: secondary liability of P is enforced by C P can RAISE the defense of minority. HOWEVER – defense of minority of P CANNOT be used by M, A and B. SC: Issuance of checks by an officer of the corporation CANNOT be considered an ultra vires act if the same was done for the purpose of securing a loan to finance the ACTIVITIES OF THE CORPORATION.

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2. Ultra Vires Acts

Rule regarding minors (sec 22) also applies to CORPORATIONS

ULTRA VIRES ACT – one committed outside the object for which a corporation is created as defined by the law of its ORGANIZATION THEREFORE: beyond the power conferred upon it by law. ULTRA VIRES v. ILLEGAL ACT UV: voidable which may be enforced by performance, ratification or estoppel IA: void, cannot be validated A corporation may raise WANT OF AUTHORITY as a real defense BUT: the negotiation of the corporation MAY PASS title to the instrument. Corporation may claim that an act is ULTRA CIRES ACT of the corporation May raise this defense EVEN AGAINST a holder in due course. IMPT CIRCUMSTANCES: 1. Instrument is incomplete 2. Has not been delivered Sec 14 v. 15 14: there is PRIMA FACIE authority to fill up the incomplete instrument because THERE WAS DELIVERY. 15: no such authority is presumed because there was no delivery.

3. NON-DELIVERY INCOMPLETE INSTRUMENT

OF

SEC 15: instrument delivered

Incomplete NOT

Where an incomplete instrument has not been delivered, it 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.

Example: amount to be paid is missing in a NI signed by M M did not deliver the incomplete instrument to P or to any other person AND KEPT THE INSTRUMENT in his drawer. P without knowledge and consent, took the instrument and INSERTED the amount of P2K and negotiated it to A A is a holder in due course A will try to collect from M. M CAN REFUSE. GROUND: sec 15 1. 2. 3. 4. 5.

6.

For safekeeping (incomplete and undelivered) Signed a blank check, left at the top of his desk, stole the instrument (incomplete and undelivered) Signed blank check, stolen then indorsed

4. FRAUD IN FACTUM MMCN

Present when a person is INDUCED to sign an

IF: M was asked to sign what he THOUGHT WAS a receipt and not a NI – REAL DEFENSE AGAINST ANY SUBSEQUENT HOLDER.

Person who signs the instrument LACKS KNOWLEDGE 1 of the character or essential terms of the instrument.

INNOCENT ALTERATION – changers on items other than those required by SEC 1. NIL SPLOITATION – alterations done by a stranger Where a NI is MATERIALLY ALTERED without assent of all parties liable thereon. SEC 125 WHAT CONSTITUTES A MATERIAL ALTERATION Any alteration which changes: 1. education. apparent necessity or lack of it. ability to read and understand the language used 4. he may enforce payment thereof according to its original tenor. ALTERATION MATERIAL SEC 124 ALTERATION INSTRUMENT. 2. representations made to him and his reason to rely on them or to have confidence in the person making them 5. Actual payment GREATER than acceptance. authorized. time/place of MMCN B. or assented to the alteration and subsequent indorsers. Paying.NIL: Chapter 7: Aquino instrument NOT KNOWING its character as a note or a bill. ALTERATION THAT TOTALLY PREVENTS RECOVERY even if HDC cannot recover cannot be enforced even accdg to its original tenor C. drawee bank cannot debit the amount from the drawer’s account) A. EFFECT OF ALTERATION ON PAYEE WHO IS A HOLDER IN DUE COURSE Drawee bank – recourse to the person who altered the instrument i. - . his intelligence. sum payable (principal/interest) 3. 2 5. IN CASE: accommodation maker was ILLITERATE – nature of transaction was not explained to him and there was MISREPRESENTATION that his signature is needed only as a character witness. CONCEPT: Material alteration: if it ALTERS the effect of the instrument. NOT AVAILABLE IF THE PARTY INVOLVED HAD REASONABLE OPPORTUNITY TO OBTAIN SUCH KNOWLEDGE. WILL NOT AVOID THE INSTRUMENT. for acting without delay EXAMPLE: Person inserts entries in the instrument that will make the drawee the drawer of the instrument (MONTINOLA CASE)  Changes its liability  Without consent of the parties liable  Discharges the instrument  Amounts to forgery SERIAL NUMBERS WERE ALTERED – Not a material alteration. RECOURSE: one who made the alteration (not from the drawer. CHANGES THE ITEMS which are required to be stated under SECTION 1 NIL. The person who signs the instrument DOES NOT KNOW that he is signing a negotiable instrument. Unauthorized change in an instrument that PURPORTS to modify in any respect the OBLIGATION of a party Unauthorized addition of words or numbers or other change to an INCOMPLETE instrument relating to the obligation of a party. FACTORS: (to be considered in determining the PRESENCE of a reasonable opportunity) 1. assent to the order of the drawer and recognition of his obligation to pay. Payment of check by the drawee bank (SEC 62) acceptance. it is avoided. not even a personal one. OF: MUST BE: Material alteration before it can be considered a defense OF EFFECT IF: NOT MATERIAL – not a defense at all. Indorsers: warrant the instrument (still liable) ii. IF: Partial REAL DEFENSE – HDC can ENFORCE IT according to its original tenor A. date 2. & business experience 3. BUT: when an instrument has been MATERIALLY altered and is in the hands of a holder in due course NOT A PARTY to the alteration. collecting bank recognized and complied with its obligation in accordance with the tenor of his acceptance. age and sex of obligor 2. PAYEE PROTECTED BY 62. ALTERATION OF AMOUNT Amount payable – material alteration IF: increased by the payee 10K to 20K without assent of the maker HDC: can recover the ORIGINAL TENOR of the instrument MAKER: pay only with respect to that amount and the person who made the alteration and SUBSEQUENT INDORSERS – LIABLE FOR THE BALANCE. Real defense IF: Maker was made to sign a negotiable note upon the seller’s representation that it was a CREDIT APPLICATION. EXCEPT as against a party who has himself made. HOLDER MAY ENFORCE IT ONLY ACCDG TO ITS ORIGINAL TENOR: 1. presence/absence of any third person who might read/explain the instrument to him or any other info 6. IF: check is involve and the same was DEPOSITED by the holder in a collecting bank – COLLECTING BANK will suffer the loss in case of material alteration BECAUSE the warranties of the collecting bank are that of GENERAL INDORSER.

9. Collecting bank – bears the loss When a check is deposited with collecting bank. is a MATERAIL ALTERATION.. 14. DRAWEE BANK HAD NO RIGHT TO RECOVER WHAT IT PAID. Changing I promise to pay to we promise to pay (2 makers) Adding the word ANNUAL after the interest clause Adding the date of maturity as a marginal notation Filling in the date of the ACTUAL delivery where the makers of a note gave it with the date in blank “July…. 5. IMMATERIAL ALTERATIONS: 11. iii. (collecting bank to return to the drawee bank) – responsible for its own actions. v. 2. 3. 16. 1. EXAMPLES MATERIAL ALTERATIONS: 1. BANKS better position to VERIFY with the drawer the matters stated in the instrument. iv. 2. PH – not subscribe to common law (paid by mistake does not apply here: PH) IF: collecting bank RETURNED the amount to the drawee – COLLECTING BANK cannot debit the money paid by the drawee bank from the payee’s account. 15. vii. payment number of relations of the parties medium or currency in which payment is to be made Or which ADDS a place of payment where no place of payment is specified. OPPOSITE VIEW: Obligation to return the amount of the altered check. (principal-agent relationship of payee and bank) COLLECTING BANK cannot be considered to have acted as the rep of the drawee bank when it debited respondent’s account. viii. or any other change or addition which alters the EFFECT of the instrument in any respect. RESTRICTIVE INDORSEMENT: for purpose of collection (sec 36) Tenor of the acceptance is determined by the terms of the bill as it is when the DRAWEE accepts and that is a bill for the raised amount. 17. stability and currency of NI without seriously endangering accepted banking practices. 19. 8. Blank for the place – filling in the blank Adding indorsee’s name the abbreviation CASH – when it had been agreed that the draft should be discounted by the trust company of which the indorsee was cashier Extension of time GIVEN by a holder of note to the principal maker without consent of the surety comaker Payee HDC – relied on the drawee bank’s clearance and payment of the draft not being negligent. 5. 20.%” Reference memorandum of a promise made by him to the principal maker at them time the words were written to extend the time of payment. 4. - 18. PAYMENT OF THE BANK closed the transaction. SEC 124: altered instrument is NOT AVOIDED as against a party who has himself made. 13. payee protected by 62. Collecting bank CANNOT invoke warrantee of payee/depositor who indorsed instrument for collection to shift burden upon itself. 7. THE BILL THAT HE ACCEPTED and no other and according to its tenor HE NGAGED THAT HE WILL PAY IT. vi. it takes a risk on its depositor Bank be held accountable for checks deposited by its customers Collecting bank’s right of recourse against the 3 MMCN . 10. Payee should be protected – HDC (protection from 124) HDC – entitled to the original amount in the check has been altered. Reasserts the usefulness. 6. 6. authorized or assented to the alteration and subsequent indorsers.NIL: Chapter 7: Aquino 4. Substituting the words “or bearer” for “order” Writing “protest waived” Change date where interest is to run Change in the figure + “with interest” or “without fixed rate” maturity – extended or curtailed addition of another word to the name of the person payable Without consent struck out the name of payee and inserted the name of the maker of the original note Striking out the name of the payee and substituting that of the person who actually discounted the note Substituting the address of the maker for the name of the co-maker.” Marginal figures of a note where the sum stated in words in the body remained unchanged Insertion of legal rate o interest “Interest at…. 12.

Depositor may COMPARE and will reveal any forged checks which have been encashed. MUST BE duly established. 4 MMCN . Maker c. and an action upon a check is ordinarily governed by statutory period applicable to instruments in writing) Written contract: 10 years from the time the right of action acrrues. name of payee and amount. PRESCRIPTION EXTINCTIVE PRESCRIPTION – real defense that may be raised even against a holder in due course PRESCRIPTIVE PERIOD: for the filing of a claim based on NO is 10 YEARS from the time the CAUSE OF ACTION accrued. 4. Rights of the parties will still be determined on the basis of NIL. 1. Fraudulent encashments should have been discovered. Payee d. it is WHOLLY inoperative. should be declared of no effect but the negotiation of RL to AD. obligation to return arises EXAMPLE: Payee did not encash the check for more than 10 years from the issuance SC: impairment of check through his unreasonable and unexplained delay Article 1249: check implies an undertaking of due diligence in presenting it for payment. A PARTY whose signature to an instrument was FORGED – WAS NEVER A party to such instrument. PRIOR PARTIES: liable only when they are PRECLUDED from setting up the defense of forgery either because of: a. Petitioner requested the drawee bank to discontinue to furnishing of bank statements and debt and credit through mail but instead deliver the same to a certain person. 2. depositor-payee JAI ALAI – if something is received through mistake. Forgery cannot be presumed. CHECKS – action of the depositor against his drawee bank commences to run from the time HE IS GIVEN NOTICE OF PAYMENT. and NO RIGHT to retain the instrument. 7. CUT-OFF RULE: parties PRIOR to the forged signature are CUT-OFF from the parties after the forgery IN THE SENSE: that prior parties CANNOT be held liable and can raise the defense of forgery. warranties b. should be considered valid and enforceable BARRING ANY CLAIM OF FORGERY. NEGLIGENCE: 1. BASIC: whoever alleges MUST prove such fact. FAILED TO RECONCILE THE BANK STATEMNET WITH PETITIONER’S RECORDS. Only the negotiation based on the forged or unauthorized signature which is inoperative. or to give a DISHCARGE therefor.NIL: Chapter 7: Aquino 6. 3. DUTY to report any errors WIHTOUT unreasonably delay. negligence PARTY whose signature is forged was NEVER A PARTY and NEVER GAVE his consent to the contract which gave rise to the instrument. or to enforce payment thereof against any party thereto. Only the negotiation predicated on the forged indorsement that should be declared inoperative. Drawer b. Any other party WHOLLY INOPERATIVE and no once can gain title to the instrument through such forged signature AGAINST parties prior to the forgery. Cannot be held liable: IF as a: Maker (PN) Drawer (check) – drawee bank cannot charge the amount against EXAMPLE: ML original payee to RL. HOLDER: enforce the instrument against the parties who BECAME such AFTER the forgery. 3rd indorser and AD to defendant who did not know of the forgery. IF negligent – cannot complain. UNLESS the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority. and he from whom it is received sustains LOSS by want of such diligence. The lapse of 10 years will bar any action based on the check. can be acquired through or under such signature. he should fill to the check stub to which the check is usually attached. This is properly kept and will contain the number of the check. it will be held to operate as actual payment. the instrument is still NEGOTIABLE. FORGERY AND WANT OF AUTHORITY SEC 23: FORGED SIGNATURE. date of issue. 2nd indorser. Not even if it was the maker or drawer’s signature which was forged. EFFECT OF When a signature is forged or made WITHOUT the authority of the person whose signature it purports to be. representations c. Each time a person ISSUES a check. STATUTE OF LIMITATIONS begins to run when the bank gives the depositor NOTICE OF PAYMENT (when the check is returned to the alleged drawer as a voucher wit a statement of his account. 2. FORGED SIGNATURE: a.

drawer will be deemed to have ratified the forgery if he failed to act on such information despite opportunity to do so.g. SAMSUNG: in the absence of proof to the contrary. FORGERY IN BILLS OF EXCHANGE a. (bearer) IF: NOT HDC – Maker can raise the defense of non-delivery of a complete instrument. i. Parties who warrant or admit the genuineness of the signature in question and (e. MUST BE RETURNED 24 hours from presentment. INDORSERS after – liable because they warrant that they have good title to the instrument. by their acts. SEC 60. the presumption is that there was no negligence on the part of the DRAWER. express/implied) FORGERY IN NOTES: a. 3. MAKER still be liable to a holder in due course even if an indorsement was forged after the issuance of the note. RATIFICATION: IF: drawer is already informed that a check bearing his forged signature is being encashed. FORGED – breach of warrant and will be accountable to the drawee.superior position to detect a forgery because he has the maker’s signature and is expected ti kw and compare it. Those who. ii. WHEN: indorsement is forgery in a bearer instrument only the person whose signature is forged can raise the defense of forgery against HDC. IF PAID BY DRAWEE BANK: collecting bank must return the money paid by the drawee because it was paid wrongfully. Even if the signature is genuine-like or clever – IMMATERIAL 8-9 months before the depositor discovered forgery – NOT RATIFICATION. PERSONS PRECLUDED FROM SETTING UP FORGERY: (Exception to Sec 23) 1. (warranty) [cannot claim that instrument not genuine] Forger in effect the PRINCIPAL DEBTOR (wrongdoing prevented recovery from M) INDORSER’s SIGNATURE ORDER –CANNOT be enforced against the payee and the maker. DRAWER’s SIGNATURE – not liable whether it is a bearer or order instrument (he did not promise to pay anybody) DRAWER’S ACCOUNT cannot be debited if his signature in a check was forged. DUTY: COLLECTING BANK – ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an 5 b. Such forged indorsement CUTS OFF the rights of all subsequent parties as against PARTIES PRIOR to the forgery. silence or negligence are ESTOPPED from setting up the defense of forgery. including forged indorsement. Drawee. (IF BANK ENCHASES A FORGED CHECK – drawer can recover from bank) MMCN DRAWEE may be barred from raising the defense of forgery of endorsement against the COLLECTING BANK if it did not comply with the rules/agreement on the return of checks. IF: Committed by employer – bank still bears the loss. undertaking of the maker to pay the instrument ACCDG to its TENOR.NIL: Chapter 7: Aquino drawer’s account Indorser – Prevents subsequent party from acquiring any right as against any party whose name appears prior to forgery. BEARER – signature of payee/holder is UNNECESSARY to pass title to the instrument. sec 62) 2. Every person remains that every person takes ordinary care of his concerns and that ordinary course of business has been followed. Forged indorser’s signature (order instrument): Drawee bank can seek reimbursement or return of the amount it paid from the PRESENTOR BANK or person. drawee is barred if it did not comply. Bank is held liable. Presentor bank can DEMAND REIMBURSEMENT from the person who indorsed the check to it and so on. indorsers. MAKER’s SIGNATURE – maker not liable to subsequent parties (whether order/bearer) HOWEVER – indorsers after forgery still SECONDARILY LIABLE. IF: bank pays a check on which the depositor’s signature is forged. Collecting bank (general indorser) indorses check bearing a forged indorsement and presents it to the drawee bank GUARANTEES all prior indorsements. . DRAWEE-BANK liable if it enchased checks bearing the forged signatures of the drawer. (acts/omissions that amount to ratification. bank has failed to comply with its contract on this respect. Loss falls on the party who took the check from the FORGER HIMSELF. Drawee-bank BOUND to know the signature of his client.

A COLLECTING BANK where a check is deposited and which indorses the check upon presentment with the drawee bank is such an INDORSER.A check drawn against the account of an individual customer that is signed by someone other than the customer. DRAWER CANNOT RECOVER Warranty of COLLECTING BANK – instrument is genuine and in all respect what it purports to be covers all the defects affecting the validity. payable to cash (unusual for such amount). subsequent holder CANNOT enforce payment thereof against the drawee. collecting bank is bound by his warranties as an indorser and CANNOT set up the defense of forgery as against the drawee bank. b. IF: encahses forged check cannot debit the drawer’s account HOWEVER: if drawee bank can prove a failure by drawer to exercise ordinary care that substantially contributed to the making of forged instrument – drawer is PRECLUDED from asserting the forgery. strict liability to pay the check to the order of the payee. is not properly payable and is not chargeable to the customer’s account Negligence of drawee – SAMSUNG: Check was made out in the amount of nearly 1 million pesos was UNUSUAL enough to require higher degree of caution. i. Drawee-acceptor’s warranties – Sec 63 (acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance and admits the existence of the drawer.NIL: Chapter 7: Aquino i. 6 assertion that the party making presentment has done its duty. drawer or the payee. DRAWEE – bank which a check is drawn. IF: delays in informing that there is forgery – CANNOT RECOVER and deemed negligent Payee can claim against COLLECTING BANK Possession of the check on the forged indorsement is WRONGFUL and when the money had been collected on the check. Payee can claim against COLLECTING BANK – collecting bank liable to the payee and must bear the loss because it is its legal duty to ascertain that the endorsement of the payee was genuine before cashing the check Drawer and COLLECTING BANK – no privity contract. IF: check deposited by the bank’s client is forged. the genuineness of his signature) SAME WARRANTY IS GIVEN BY A DRAWEE WHO PAYS THE CHECK WITHOUT ACCEPTANCE . the BANK/other person or corporation can be held as for moneys had and received and proceeds are held for the rightful owners who may RECOVER them Position of the bank taking the check is the same as if it had taken the check and collected the money WIHTOUT endorsement. PRIVY TO THE DEPOSITOR WHO NEGOTIATED THE CHECK (address can promptly inform that forgery is discovered) DRAWEE – verify the genuineness of the drawer’s signature and not of the indorsement because the drawer is its client. presented for payment by a person not designated as payee (no written proof that was authorized by drawer) INDORSER’s SIGNATURE ORDER – indorsement of the payee in a bill of exchange was FORGED after delivery of instrument by the drawer to the said payee. and without authority. ii. Payment under a forged instrument is not the drawer’s order. IF: instrument is a check – drawee has the right of RECOURSE against the collecting bank. a) b) c) MMCN . (PARTIES PRIOR TO THE FORGERY –CUT OFF) Indorsers after the forgery may still be secondarily liable to the holder but indorsers prior to said forgery are not liable.

A bearer instrument is always a bearer and can be negotiated by MERE DELIVERY even if already specially indorsed. As between IMMEDIATE parties and as regards a REMOTE party other than a holder in due course. UNDELIVERED AND DELIVERED COMPLETE INSTRUMENTS SEC 16: DELIVERY. DEPOSITOR – reimburse collecting bank if it is established that he received the proceeds of the check. MUST be made either by or under authority of the party (a) making. WITHOUT THE DELIVERY. DURESS AMOUNTING TO FORGERY PERSONAL DEFENSES 1. NO PERSON SHOULD BE ALLOWED TO UNJUSTLY ENRICH HIMSELF AT THE EXPENSE OF ANOTHER. in order to be effectual. d) ii. MMCN RULES: Sec 16: COMPLETE but UNDELIVERED (It has ALL the matters specified in Sec 1 and other MATERIAL particulars that are necessary to complete instrument) 1. (d) indorsing as the case may be. when presumed Every contract on a negotiable instrument is INCOMPLETE and REVOCABLE until delivery of the instrument for the purpose of giving effect thereto. Recourse of COLLECTING BANK – may recover from depositor who had not given the value for the money paid to him has no right tor retain money he received. II. MAY BE: made by an AUHTORIZED AGEN/REP Example: 7 2. EXCEPT: issuance of check itself was attended with negligence (collecting bank generally held liable. AS BET. transfer is incomplete. when effectual. accepting d. if there was negligence. 4. THE DELIVERY.DELIVERY: transfer of possession of the NI by one person to another with the INTENTION to transfer title to the instrument. IF: no delivery – instrument is incomplete and revocable. (ISSUANCE) ORDINARILY: transferee will acquire NO RIGHT if the instrument was NOT delivered to him. Drawee can CHARGE the account of the drawer. IN EFFECT: already the owner of the instrument. . 3.NIL: Chapter 7: Aquino LAST INDORSER – liable for the amount indicated in the NI even if previous indorsement was forged. NEED FOR DELIVERY . AUTHORITY TO DELIVER DELIVERY OF NI: may be made personally by the person who is SUPPOSED to transfer  maker  drawer  indorser Maker to the payee when he issues the instrument. There MUST be delivery whenever the instrument is ISSUED or NEGOTIATED. IF: no longer in the hands of the MAKER/DRAWE – PRESUMED to have already delivered the instrument to another (payee) for the purpose of ISSUING the same. (c) accepting. making b. NI must be delivered. b. IF: no longer in the hands of the INDORSER – he is PRESUMED to have delivered the same to the indorsee for purposes of transferring title. person issuing the check is just as liable or more liable than collecting bank. IMMEDIATE PARTIES & REMOTE PARTIES I. (b) drawing. 8. a. Delivery: under authority of the party a. IF: the person who exerted the same is practically WRITING THE NOTE itself by holding the hands of another. BEARER – same with bearer PN Holder can still recover from the drawer if a SPECIAL indorsement was forged because the forged signature is unnecessary for his title. IF: not delivered – contract concerning the instrument is INCOMPLETE and REVOCABLE. indorsing the instrument. drawing c.

PROVIDEDL proper proceedings for dishonor is duly taken INDORSER is liable for breach of warranties. MATERIAL PARTICULAR In connection with (a) what should be MISSING in the 8 2. PRESUMED DELIVERY IF: instrument is NO LONGER in the hands of the maker/drawer/indorser – PRESUMED to have already delivered the for the purpose of issuing the same. D is an immediate party. a VALID DELIVERY thereof by all parties prior to him so as to make them liable to him is CONCLUSIVELY PRESUMED. Delivery of the secretary WHO WAS NOT authorized to deliver renders the transfer incomplete. when may be filled RULES: (separate rules) . and NOT for the purpose of transferring the property in the instrument. P if NI is now with P but we do not know if M actually delivered the instrument to P. (NOT HDC) – delivery of a complete instrument may be established to be CONDITIONAL or for a SPECIAL PURPOSE and not for the purpose of transferring title. D is NOT HDC. AS BET. ANYBODY who claims that there was NO DELIVERY must establish that there was no such delivery. D is an immediate party. Delivery is CONCLUSIVE as to HDC if he is in possession. Delivery is CONSLUSIVELY presumed to be UNCONDITIONAL and for the purpose of transferring title WITHOUT any reservation/condition. CONDITIONAL DELIVERY AND DELIVERY FOR SPECIAL PURPOSE IMMEDIATE PARTIES and REMOTE PARTIES IMMEDIATE: refer to the position of the parties in the chain of negotiation but immediate refers to persons WHO ARE FAMILIAR with the circumstances regarding the transfer. or for a special purpose only. Instead of keeping. we should presume that M delivered the instrument to P. he WARRANTED that the instrument in all respects what it purports to be and that he has good title to it. the delivery may be shown to have been conditional. III. WHEN: thief indorsed the instrument in an assumed (fictitious name). stolen then indorsed - - CANNOT enforce against the maker/drawer may raise the defense of INCOMPLETE AND UNDELIVERED. 6. stole the instrument (incomplete and undelivered) Signed blank check. AND where the instrument is NO LONGER in the possession of a party whose signature appears thereon. May deliver through his employee (IF EMPLOYEE is unauthorized – transfer is incomplete) EXAMPLE: Secretary of the maker. EXAMPLE: IF: proof that delivery to C was for a special purpose only can be ADMITTED AGAINST D. a VALID & INTENTIONAL delivery by him is presumed UNTIL the contrary is proved. bec. WON: holder is HDC or not (trying to collect) EXAMPLE: Payee delivered the bearer instrument to C for SAFEKEEPING. DEFENSE that delivery was for a special purpose CANNOT defeat the right of D as HDC. IF: D was NOT AWARE of the purpose of delivery and all the other requisites of a holder in due course are PRESENT. BUT: where the instrument is in the hands of a holder in due course. - For safekeeping (incomplete and undelivered) Signed a blank check. EXAMPLE: M made an instrument that is payable to the order of Mr. IMPT (immediate party/remote) in sec 16 IN ORDER TO DETERMINE if it can be established as against them if the delivery was conditional or for special purpose. delivered the complete NI to the payee. IV. BUT: the person who is wrongdoer should always be made liable for any damage that was PROXIMATELY caused thereby.NIL: Chapter 7: Aquino And IN SUCH CASE. payee or prior party like a maker CANNOT PROVE that the delivery was for a SPECIAL PURPOSE. AS TO HDC: it CANNOT be established that the delivery was conditional or for special purpose a. PREUSMPTION STANDS. D is AWARE that C obtained the instrument from payee only for SAFEKEEPING. C delivered it to D. 5. left at the top of his desk. FILLING UP BLANKS BEYOND AUTHORITY MMCN SEC 14: BLANKS. IMMEDIATE PARTIES & REMOTE PARTIES (NOT HDC) – may be established that there was NO deliver at all of the complete instrument. c. b. PROBLEMS: a. 7. AS TO HDC: cannot be established that there was no delivery a. WITHOUT THE KNOWLEDGE and CONSENT of the maker. LIABLE for BREACH OF WARRANTY. IF: no proof that there was no such delivery. I.

EX: does not state the amount to be paid (incomplete) MATERIAL PARTICULAR Not limited to Sec 1. WHERE the instrument is wanting in any material particular. - 3. - PAYEE prima facie authority to insert amount (incomplete but delivered).NIL May include: impt detail that affects the tenor of the instrument/rights of the parties + Sec 125:  date  sum payable (principal/interest  time and place of payment  member or the relations of the parties  medium/currency in which payment is to be made  adds a place of payment where no place of payment is specified OR any changes or addition which LATERS the effect of the instrument in any respect. delivery was for the purpose of CONVERTING the paper into NI EXAMPLE: MMCN 9 . AFTER completion. blank paper containing the signature of the person who will deliver 3. is negotiated to a HOLDER in due course. SIGNED BLANK PIECE OF PAPER person to whom the instrument is delivered has PRIMA FACIE authority to FILL IT UP with any amount. IF: maker/drawer CAN PROVE that the inserted amount was in excess of payee’s authority – CAN BE PROVEN AGAINST A HOLDER NOT IN DUE COURSE. MATERIAL ALTERATION II. (or exceeded) 2. a.NIL: Chapter 7: Aquino 1. the PERSON in possession thereof has a PRIMA FACIE authority to complete by FILLING UP THE BLANKS therein. that any such instrument when COMPLETED may be enforced against any person who became a party thereto PRIOR to its completion. BURDEN IN PROVING THAT THERE WAS NO AUTHORITY: placed on the person questioning such authority. the person to whom the instrument is DELIVERED has prima facie authority to fill it up for any amount. b. UP TO THE MAKER/DRAWER: to prove that there was no authority. IN ORDER. IF: person DELIVERS a blank paper to another person CONTAINING his signature for the purpose of converting it into a negotiable instrument. IF: HDC: conclusive that the authority to fill up had been given and that the same was NOT done in excess of authority. MOMENT payee inserted the amount. Person in POSSESSION of an instrument – wanting in a MATERIAL PARTICULAR has PRIMA FACIE authority to complete it by filing up the BLANKS therein (a) strictly in accordance with the authority given and (b) within a reasonable time. it is VALID & EFFECTUAL for all purposes in his hands. instrument is material particular. there must be delivery 2. 3 THINGS MUST BE PRESENT: 1. AND a signature on a blank paper DELIVERED by the person making the signature in order that the paper may be CONVERTED into a negotiable instrument operates as a PRIMA FACIE authority to fill it up as suck for any amount. however. IF: HOLDER of the instrument – AFTER it was filled up is HDC – HODLER may enforce the instrument as if it has been FILLED UP strictly in accordance with the authority given and within a reasonable time. PRIMA FACIE AUTHORITY INCOMPLETE INSTRUMENT IF: MAKER delivers an instrument WANTING IN MATERIAL PARTICULAR – payee is deemed to have prima facie authority to fill it up. and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a REASONABLE time. ONCE: COMPLETED – presumption is that the instrument was COMPLETED with prior authority from the maker/drawer. IT MUST BE FILLED UP strictly in accordance with the authority given and within a reasonable time. FILLING UP BLANKS not in accordance with the authority given is ONLY a personal defense. BUT: if any such instrument.

creditor may hide the actual agreement to pay additional interest by ante-dating it for 6 months. AGREEMENT BETWEEN: holder and drawer – and the holder failed to comply with such agreement IN BAD FAITH – PERSONAL DEFENSE may be raised by the drawer. PROVIDED that this is NOT done for an illegal or fraudulent purpose Post-dated check to answer for a FUTURE INSTALLMENT PAYMENT will not give rise to a defense because the post-dating of the check is NOT made for an illegal purpose. Truck delivered was different from what was purchased and what was reflected on the invoice Note negotiated M has personal defense. a personal defense is available against the holder Holder holds instrument FREE FROM DEFENSES available to prior parties May enforce payment of the instrument for the full amount thereof. EXAMPLE: Feb 10. ANTE-DATING POST-DATING or SEC 12 The instrument is NOT invalid for the reason only that it is ante-dated or post-dated. FRAUD INDUCEMENT IN Person who signs the instrument intends to sign the same as NI but was induced to do so ONLY through fraud his consent to issue a negotiable instrument was VITIATED BY FRAUD. 3. M not liable to P if: P converted said blank paper into NI.NIL: Chapter 7: Aquino IF: M signs his name on blank paper and DELIVERS the said blank paper to Mr P for the PURPOSE OF: providing P a specimen of signature. B – HDC. IF: P to A to B – B. M VICTIM OF FRAUD IN FACTUM. INSERTION WRONG DATE MMCN OF A SEC 13: Where an instrument Insertion of a wrong date MAY BE A personal defense. FRAUD IN FACTUM – real defense. 2003 10 5. not HDC M not liable to B No authority to convert the paper into a negotiable instrument (REAL DEFENSE) III. A to B. HOLDER IN DUE COURSE IF: HDC – view that the last sentence of SEC 14 still applies even if what was delivered was a BLANK PIECE OF PAPER SIGNED by the person delivering the same BUT without authority to convert it into a NI. (valid and effectual) ^ BETTER VIEW: HDC cannot likewise recover from maker. B can still recover from the PURPORTED MAKER because Sec 14. 24% max per annum. P converted into NI payable to HIS ORDER and indorsed it to A. M HAD NO INTENTION to issue PN. 4. IF: for an illegal or fraudulent purpose. HDC – has the right to regard the wrongfully inserted date as true . - EXAMPLE: M delivered a blank piece of paper CONTAINING his signature to P BUT ONLY for the purpose of providing P of his (M’s) specimen signature. HOWEVER: EXAMPLE: purpose of hiding an illegal imposition of GROSSLY EXCESSIVE INTEREST(assuming Usury law is in force) may make ante-dating a defense. IF: committed in the performance of a COLLATERAL OBLIGATION – fraud in inducement. Personal defense. M issued a NI because P the payee FRAUDULENTLY represented that what he was delivering to M is a gold ring INSTEAD of a worthless metal. Instead of getting interest 24% he will be able to COLLECT an addition 12% corresponding the 6 month period reflected the instrument.

IF a check was ISSUED to another in payment or marijuana. 6. The insertion of a WRONG DATE does not avoid the instrument in the hands of a subsequent holder in due course.NIL: Chapter 7: Aquino expressed to be payable at a fixed period date is issued undated. Discharge before maturity. IF: B INSERTED October 10.  Defenses – raised by persons who may have LEGAL CLAIM over the instrument. R & P: similar. threats to a feeble and old person might be DURESS to one while it may not be so to another. ILLEGALITY Duress – relative. but as to him. and the instrument shall be payable accordingly. RESULTING to non-consummation of loan intended to be granted – CONSTITUTES A GOOD DEFENSE AGAINST A HOLDER NOT IN DUE COURSE. Mistake. instrument provides for the payment of interest from the date of issuance.  May also: resist the claim of a holder NOT in due course by raising the defense of non-delivery. Defense to holders NOT HDC Present: seller who received the negotiable instrument because of HIS PROMISE to deliver goods. FAILED TO COMPLY WITH SUCH PROMISE. or where the acceptance of an instrument payable at a fixed period after sight is undated. date. the DATE so INSERTED is to be regarded as the true date. any holder may insert therein the true date of issue or acceptance. REAL & PERSONAL DEFENSES o 11 MMCN . Prior breach of contract by the holder. 2022 is the TRUE DATE. William Britton: (UNIL) Intrinsic difference real and personal o REAL –facts disclose an ABSENCE of one or more of the essential elements of a contract  Admitted contract is VITIATED for all purposes for reasons of PUBLIC POLICY - - - PERSONAL – facts present a TRUE CONTRACT but where for VAIOUS reasons such as Fraud. A issued an instrument payable to the order of B WITHIN 10 months after date and the date was not specified. the instrument is NOT AVOIDED and as to him OCT 10. the transaction involved is illegal but the same CANNOT be raised against a holder in due course. and the like  DEFENDANT excused from his obligation to perform. IF: C is a holder in due course. Defendant did not act as a reasonable man would in RESISTING the coercion exercised upon him will not 8. ABSENCE FAILURE CONSIDERATION OR OF 7. The subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks BUT which condition apparently was not made. DURESS INTIMIDATION AND Duress: there must be an actual or threatened exercise or power possessed by the party benefited thereby. they are invoked for DIFF purposes o One to claim o The other to resist claim of payment EXAMPLE: o From whom a BEARER instrument was stolen may claim the instrument from a holder who is NOT IN DUE COURSE because of his equity of ownership. EXCEPT: Law declares that the NI issued in connection thereto is VOID against ANY PARTY (real defense) Negotiable Instruments Law Chapter 7 – DEFENSES Right of a holder to enforce payment of a NI may be DEFEATED by the defenses that may be RAISED by the person PRIMARILY or SECONDARILY liable. for the purpose of obtaining the note/bill. such as to DEPRIVE the maker of that quality of mind essential to the making of a contract. 2002 in order to gain more % and thereafter NEGOTIATED the same to C – instrument is AVOIDED as to C if HE WAS AWARE of the fraudulent insertion of a wrong date by B. Duress. DEFENSES: personal or real o REAL DEFENSES: raised against ALL HOLDERS (even HDC) o PERSONAL/EQUITABLE: raised only against holders who are NOT HDC Prof.

2. 2.NIL: Chapter 7: Aquino 1. 10. REAL Minority (available ONLY to the minor) Forgery Non-delivery of Incomplete instrument Material alteration Ultra Vires act of Corporation Fraud in factum or Esse Contractus Illegality – if declared VOID for any purpose Vicious force or violence Want of authority Prescription Discharge in Insolvency 1. 7. 3. 5. 9. 5. 12. 8. 3. 7. PERSONAL Failure or absence of consideration Illegal consideration Non-delivery of complete instrument Conditional delivery of complete instrument Fraud in inducement Filling up blank not within authority Duress or intimidation Filling up blank beyond reasonable time Transfer in breach of faith Mistake Insertion of wrong date Ante-dating or post-dating for illegal or fraudulent purpose MMCN 12 . 6. 10. 4. 11. 6. 8. 11. 4. 9.

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