SEC. 17.
Rules of Construction in Case of Ambiguity or Omission
(1) Sums expressed in words and in figures different
- The sum denoted by the words is sum payable if
they are clear
o The figures in the margin form no part
of the instrument
o It is easier to change figures than when
the amount is written in words
(2) Words ambiguous or uncertain
- If the words are ambiguous, the figures control
(3) Date when stipulated interest to run not specified
- The interest runs:
o from the date of the instrument
o if undated, the date of its issue
(4) Instrument dated
- Considered dated as of the date of its issue
- Issue means the first delivery of the instrument
complete in form, to a person who takes it as
holder.
(5) Written and printed words in conflict
- Written words prevail
o Written words are deemed to express
the true intention of the maker or
drawer because they are placed there
by himself
(6) Whether instrument bill or note in doubt
- The holder may treat either at his election
(7) Capacity in which person signed in doubt
- He is to be deemed an indorser
- Signature/name of the:
o Maker: lower-right hand cor.
o Drawer: lower-left hand cor.
o Holder: back of the instrument
(8) Instrument signed by two or more persons
- Their liability may be either solidary or joint
- Solidary liability I promise to pay
o Anyone of the signers may be held
liable for the whole amount of the inst.
- Joint liability We promise to pay
o There are as many debts as there are
debtors
o Each debt being considered distinct and
separate from each other
SEC. 19. Signature by agent; authority; how shown.
The signature of any party may be made by a duly
authorized agent.
No particular form of appointment is necessary for this
purpose and the authority of the agent may be
established as in other cases of agency.
SEC. 20. Liability of a Person Signing as Agent, etc.
Requisites for an agent may escape personal liability:
(1) He is duly authorized
(2) He add words to his signature indicating the he
signs as an agent
(3) He discloses his principal
If the agent is being sued by the payee, the agent may
introduce evidence that he signed only in a
representative capacity and that the payee knew this to
be the case.
One who signs an instrument in an instrument in a
representative capacity but without disclosing his
principal will still be personally liable although he ass to
his signature words agent or trustee, or
administrator, or guardian, or director, etc.
SEC. 23. Effect of forged signature.
General rule A forged signature is wholly inoperative.
Forgery counterfeit-making or fraudulent alteration
It is done in any of the following ways:
a) Signing in anothers name with intent to defraud
b) Altering the name, amount, description of a person
and the like, with intent to defraud
Cases of forgery:
Where the signature
a) Is affixed by one who does not claim to act as an
agent and who has no authority to bind the person
whose signature he has forged
b) Is affixed by one who purports to be an agent but
has not authority to bind the alleged principal
Effect of forged signature
- No right can be acquired through the forged
signature.
- Forgery is a real defense even against a holder
in due course.
- Only the forged signature in invalid. The
instrument itself and the genuine signatures are
valid.
- Payment under a forged instrument isnt to the
drawers order. In case of a forged instrument
or one that is payable to order, the person
whose signature if forged is not liable; the same
is true for prior parties.
Proof of forgery
- Forgery must be proven with clear and
convincing evidence. It is not presumed.
Exceptions to the General Rule
1. If the party against whom it is sought to enforce
such right is precluded from setting up the
forgery or want of authority.
a) Those who by acts, silence, or negligence,
are estopped from setting up the defense of
forgery
b) Those who warrant or admit the
genuineness of the signatures in question,
namely:
i. Indorsers
- In case of forgery of indorsement of
the payee of the check the drawee-
bank cannot debit the drawers
account and the loss shall be borne by
the drawee-bank. The depository or
collecting bank is liable to the drawee
in case of a forged indorsement
because it guarantees all previous
indorsement. (General rule)
- If the drawers signature is forged, the
drawee cannot charge the drawers
account and cannot recover from the
collecting bank.
ii. Acceptors
iii. Persons negotiating by delivery
Negotiation by delivery means that
indorsement is not necessary because
the instrument is payable to bearer.
2. Where the forged signature is not necessary to
the holders title, in which case the forgery may
be discharged.
Forged Promissory Note
A. Forged Indorsement
(1) Where note is payable to order the party
whose indorsement is forged and parties prior
to him, including the maker, are not liable, even
to a holder in due course (a holder for value)
(2) Where note is payable to bearer the party
whose indorsement is forged and all parties
prior, including the maker, are liable to a holder
in due course but not to a holder who is not in
due course. The instrument can be negotiated
by mere delivery because it is payable to
bearer. Hence, even if the indorsement is
forged, the forgery may be discharged.
B. Forged Signature
The maker is not liable to any holder; it wont
matter if it is a holder in due course or not. The
purported maker is not a party to the instrument
because his signature was forged.
Forged Bill of Exchange
A. Forged Indorsement
(1) Where note is payable to order the party
whose indorsement is forged is not liable to any
holder, even a holder in due course
(2) Where note is payable to bearer the drawee
may debit the drawers account in spite of the
forged indorsement because the forged
indorsement is not necessary to the title of the
holder. The drawee cannot recover from the
holder.
B. Forged Signature
(1) With drawees acceptance: the drawee bears
the loss; he is bound by warranty. The drawer is
not liable; the signature is inoperative
(2) Without drawees acceptancebut paid by
drawee: drawee cannot recover from the
drawer or the recipient of payment; no
warranty, however, he is constructively
negligent
SEC. 25. What constitutes value.
Value is any consideration sufficient to support a
simple contract.
o A valuable consideration need not be
adequate. It is sufficient if it is valuable one.
o An antecedent or pre-existing debt is a valuable
consideration.
SEC. 26. What constitutes holder for value.
Holder for value one who has given a valuable
consideration for the instrument issued or negotiated
to him
(1) The holder is deemed as such not only as regards
the party to whom value has been given by him but
also in respect to all those who became parties
prior to the time when value was given.
(2) The holder of a negotiable instrument is presumed
to be a holder for value until the contrary be shown
by any party who claims otherwise.
SEC. 27. When lien on instrument constitutes holder
for value.
One who has taken a negotiable instrument as collateral
security for a debt has a lien on the instrument.
(1) Amount of instrument more than debt secured the
pledgee is a holder for value to the extent of his
lien. He can collect the full value of the instrument,
and apply the same to the payment of the debt but
he must deliver the surplus to the pledgor
(2) Amount of instrument less than or the same as the
debt secured the pledger is a holder for value for
the full amount and may, therefore, recover all.
(3) Party liable has defenses
o Existing defenses the pledgee can collect on
the instrument only to the extent of the
amount of the debt
o Real defense (ex. forgery) the pledgee can
recover nothing upon the instrument
SEC. 28. Effect of want of consideration.
Absence of consideration means a total lack of any
valid consideration for the contract
o Absence or failure of consideration is a matter
of defense against any person not a holder in
due course.
Failure of consideration failure or refusal of one of
the parties to do, perform or comply with the
consideration agreed upon.
o Partial failure of consideration is a defense pro
tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
SEC. 30. What constitutes negotiation.
Methods of transfer as a negotiable instrument
(1) Issue
- first delivery of the instrument complete in form
- first transfer of an instrument to a payee
(2) Negotiation
- the transfer of a negotiable instrument from one
person to another in such manner as to constitute
the transferee the holder thereof
- There is no negotiation if the transfer does not
make the transferee the holder of the instrument
(3) Assignment
- Transfer of rights under a contract
- The transfer of a non-negotiable instrument always
constitute an assignment
- transfer also used in referring to assignment
- When a negotiation takes place, the transferee
becomes a holder.
Methods of Negotiation
Depends whether the instrument is:
(1) Payable to order payable to the payee named
therein or to the indorsee or the person ordered or
authorized by the payee to collect
Steps:
1. Indorsement be the payee or present holder
2. Delivery to the next holder
(2) Payable to bearer instrument is negotiated by
mere delivery alone without indorsement
o Bearer the person in possession of a bill or
note which is payable to bearer
o Delivery transfer of possession, actual or
constructive, from one person to another
o Holder the payee or indorsee of a bill or note, who prior parties prior parties unless
is in possession of it, or the bearer thereof expressly stipulated or the
insolvency is known to him
Payment of instrument (check or other bill) by drawee is Indorser not liable unless Assignor liable even
not a negotiation and does not make the bank a holder. there be presentment and without notice of dishonor
notice of dishonor
- The bank is neither the payee nor indorser. Governed by the NIL Governed by Articles
- Writing of the name of the holder on the back of 1624-1635 of Civil Code
the check is not an indorsement. Such signature
merely serves as a receipt for the money.
Negotiation to payee
- Upon payment, the check becomes merely a
voucher. (1) First delivery of instrument to payee the
- Payment effects a discharge of the instrument, not payee, first holder, acquires title by issuance
a transfer of title. (2) First delivery of instrument to other than payee
the payee acquires title by negotiation
Effect of delivery of order instrument without
(3) Delivery of instrument to the payee by last
indorsement:
holder the indorsement of the last holder is
(1) Transfer operated as an ordinary assignment not necessary and all intervening parties are
the assignee is merely placed in the position of discharged from liability
the assignor, the former acquiring the
Classification of indorsement
instrument to all defenses available against the
latter. (1) As to the methods of negotiation:
a. Special
(2) Transferee does not become holder of
b. Blank
instrument (2) As to the kind of title transferred:
(3) Where indorsement subsequently obtained a. Restrictive
the transfer operates as a negotiation only as of b. Non-restrictive
(3) As to scope of liability of indorser:
the time indorsement is actually made. The
a. Qualified
assignee acquires the right to have the b. Unqualified or general
indorsement of the assignor. (4) As to presence or absence of limitations:
a. Conditional
Negotiable instrument may either be negotiated or b. Unconditional
(5) Other kinds of indorsements:
assigned
a. Joint
b. Successive
Non-negotiable instrument can only be assigned or
c. Irregular or anomalous
transferred, not negotiated. d. Facultative

Negotiation Assignment Note: once an instrument as issued satisfies all the

Refers only to negotiable Refers generally to an requirements of negotiability, no indorsement, even
instrument ordinary contract restrictive one, can negate its negotiable status.
Transferee is a holder Transferee is an assignee
Holder in due course Assignee subject to both name of the payee is specified
subject to real defenses real and personal defenses Special (1) to whom the instrument is to be
Holder in due course Assignee merely steps indorsement paid
may acquire a better tittle into the shoes of the specific (2) to whose order the instrument is to
indorsement or
or greater rights than assignor indorsement in be payable
those possessed by the full In either case, the instrument must
transferor or prior party be followed by the signature of the
General indorser Assignor does not indorser.
warrants the solvency of warrant the solvency of Specifies no particular indorsee
 Consists only of the signature of the
payee or indorser
payable to bearer
One of the most common methods of
Blank creating a bearer paper is to make a
indorsement check that already has imprinted Pay
to the order of read: Pay to the
order of cash
Conversion: blank indorsement special indorsement
By writing over the signature of the indorser in blank
any contact consistent with the character of the
indorsement
An instrument made payable to order on its face
becomes payable to bearer if the only or last
indorsement is in blank
Prohibits the further negotiation
Indorsee has only authority to deal
Restrictive with the instrument
indorsement All subsequent indorsees acquire only
the title of the first indorsee
Constitutes the indorser a mere
assignor of the title to the instrument
- Transfer title without guaranteeing
payment
w/o recourse etc.
Recourse: resort to a person who is
secondarily liable after the default of
the person who is primarily liable
Qualified
Warranty liability is still present even
indorsement
if the indorsement is qualified, unless
stated therein
Qualified indorser is not liable to the
indorsee if the instrument is
dishonored.
It does not impair the negotiability of
the inst.
Conditional The indorser imposes some other
indorsement condition to his liability, or on the
indorsees right to collect the
proceeds of the instrument
It does not prohibit the further
negotiation of the instrument,
regardless, of whether the condition
has been fulfilled or not
It does not destroy negotiability
A condition appearing on the face of
the instrument renders the
instrument non- negotiable
Combinations of indorsement:
(1) Special & restrictive: Pay to A only. (Sgd.) P
(2) Special & qualified: Pay to A w/o recourse. (Sgd.) P
(3) Special & conditional: Pay to A if he marries before he
reached the age of 25. (Sgd.) P
(4) Blank & restrictive: For collection only. (Sgd.) A
(5) Blank & qualified: Without recourse. (Sgd.) A
(6) Blank & conditional: Payable upon completion of my
house in Manila. (Sgd.) A
(7) Special, Unrestrictive, Unqualified: Pay to B. (Sgd.) A
Instrument is payable to the order of two
or more payees or indorsees who are not
partners
- All must indorse
- May be negotiated irrespective of the
share corresponding to each
Joint - Anyone of such parties in possession is
indorsement the holder
Exceptions:
- Where the only indorsing has authority
to indorse for the others
- Where the payees/ indorsees are
partners
A holder who negotiates an
instrument subsequently reacquires it
If reacquired before maturity, he may
negotiate the same further
Limitations:
(1) Where it is payable to the order
of third person and has been paid
Successive by the drawer
indorsement
(2) Where it was made or accepted
and paid by the party
accommodated
(3) Where the instrument is
discharged when acquired by a
prior party
Irregular or Where a person, not otherwise a
anomalous party to an instrument, places
indorsement thereon his signature in blank before
delivery, he is liable as indorser
Payable to the order of a third person:
he is liable to the payee and to all
subsequent parties
Payable to the order of the maker or
drawer or 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
Facultative Waiver of protest deemed to be a
indorsement waiver not only of a formal protest
but also pf presentment and notice of
dishonor
Protest formal instrument executed
usually by a notary public certifying
that the legal steps necessary to fix
the liability of the drawee and the
indorsers have been taken