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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY.

BERNARDINO AMAGO

PAYABLE TO BEARER SEC. 9(B) WHEN IT IS PAYABLE TO A PERSON NAMED


THEREIN OR BEARER

Sec. 9. When payable to bearer. - The instrument is


payable to bearer: I promise to pay X or bearer P1,000.
(a) When it is expressed to be so payable; or Sgd. Y
(b) When it is payable to a person named therein or !
bearer; or So first, for a bearer instrument, it could be payable to
(c) When it is payable to the order of a fictitious or bearer as expressly stated in the instrument.
non-existing person, and such fact was known to
the person making it so payable; or
(d) When the name of the payee does not purport to Example:
be the name of any person; or
(e) When the only or last indorsement is an I promise to pay to bearer P1 M.
indorsement in blank. Sgd. Y
!
So that is an instrument payable to bearer.
SEC. 9(C) WHEN IT IS PAYABLE TO THE ORDER OF A
FICTITIOUS OR NON-EXISTING PERSON, AND SUCH FACT
WAS KNOWN TO THE PERSON MAKING IT SO PAYABLE;
The second possible example of a bearer instrument is
when you name the specified person and then you add
Example: the word bearer.

I promise to pay P1,000 to Superman or order. Example:


Sgd. E
! I promise to pay X or bearer P1 M.
What type of instrument is this? Order or Bearer Sgd. Y
instrument? !
S: Bearer instrument.
If you say, “I promise to pay to bearer X P1 M” is that
If you made this knowing or thinking that Superman negotiable?
exists, will that change your answer? S: No. It only describes X.
S: Yes. It becomes an order instrument.
But how about the word bearer?
Atty: It becomes a non-negotiable, even though you Still no because the word “bearer” there is used as an
really intended to make a negotiable instrument. adjective to describe X. So not considered payable to
bearer then but rather payable to a specified person
The fact that there cannot be one who will make the which is X. So there’s no way you can circulate it around
indorsement upon the issuance of this instrument, then the market as a negotiable instrument because it’s
it cannot be considered negotiable. payable specifically to X the bearer of the instrument.

In fact, you cannot be able to issue this instrument Be mindful as well of the wordings used and the
because to whom will you issue this one? When there is syntax of the language.
no superman.
SEC. 9(D) WHEN THE NAME OF THE PAYEE DOES NOT
It will only be considered a bearer instrument if the PURPORT TO BE THE NAME OF ANY PERSON

person who made this instrument thought that


superman does not really exist. So because he So what about (d)?
wanted to draft a negotiable instrument, then he just Example given by classmate (Note: Wrong illustration)
wants it to be negotiated or circulated in the market, he
drafted it that way. The intention must be for it to be To: X
able to be circulated. Otherwise, he would not have Pay to cash Php 1 million.
mean the instrument payable to superman. Sgd. E
!
This is NOT negotiable because it does not contain
So it is very important that the person making use of a words of negotiability.
fictitious name for purposes of a negotiable instrument,
must know that that person doesn’t exist. Otherwise, it
will render the instrument non-negotiable. So be mindful What (d) actually contemplates is an instrument that on
of the requirements in (c). its face is payable to order and it doesn’t contain a word
“order” on the instrument, so this cannot be considered
as a negotiable instrument.
How about Sec. 9(b)?
Although I understand that the book used this as an
example to describe (d) but you should understand, that

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

(d) there has to contain still words of negotiability. Where the instrument is payable to order, the payee
And cash is not a word of negotiability. must be named or otherwise indicated therein with
reasonable certainty.

Although there is this one case that talks about an So when is an instrument payable to order?
instrument that is payable to cash. But what is usually S: An instrument is payable to order where it is drawn
practiced is if pro-forma check used in payment and payable to the order of a specified person or to him or
contained as a payee is the word “cash” instead of the his order.
specific name of a person. The check actually starts
“pay to the order of”. So it contains the words of
negotiability. That’s what makes it negotiable. So how many forms of order instruments are there?
For bearer instrument, there are 5 mentioned in section
9.
This one (the illustration), though said in the book as an
example should not be considered as a negotiable
instrument. It must contain words of negotiability. As to form of order instrument, there are 2:
1) Payable to the order of a specified person; or
2) Payable to a specified person or his order
SEC. 9 (E) ONLY OR LAST INDORSEMENT IS AN
INDORSEMENT IN BLANK

The last one (e) talks about the only or last indorsement Illustration 1: Example for the 2nd form: Promissory
is an indorsement in blank, this happens once an note payable to a specified person or his order
instrument has already been negotiated.
I promise to pay P or order Php 10,000 on 30 Aug 2018.

I must have mentioned it when we were talking about Sgd. J


the incidences on the life of a negotiable instrument that !
if the instrument is payable to bearer, you can Note: Nabali pag example. Sir asked for the first form
negotiate it by mere delivery. which his payable to the order of a specified person. But
this is already correct.
Whereas, if it is an instrument that is payable to order,
someone has to sign first, making his order that this is Can a bill of exchange be payable to order?
to be paid to the person to whom he will negotiate the Yes
instrument. So in that case, it requires an indorsement
prior to delivery to complete the negotiation. Can a promissory note be payable to order?
Yes.
So, if at the back of the instrument, it no longer
contains a specific person to whom the instrument Then give me a bill of exchange in its second form
can be negotiated, that only means that this instrument
must be intended to become a bearer instrument. Illustration 2: Example for the first form: Bill of
exchange payable to the order of a specified
So an order instrument then can be converted to a person
bearer instrument IF the last indorsement happens to be
in blank. But take note, that only happens when the To: X
LAST INDORSEMENT IS IN BLANK. I promise to pay to the order of P Php 10,000 on 30 Aug 2018.

Sgd. Y
So don’t get confused later on that the moment you see !
a blank instrument, automatic it becomes a bearer
instrument. NO. Only if the last indorsement is an
indorsement in blank. The operative term there is last. Take note: These are the 2 forms of order instrument.
So that’s when an instrument is payable to bearer. Either (1) payable to the order of a specified person, or
(2) payable to a specified person or his order. Unlike in a
bearer instrument where there could be 5 forms.
PAYABLE TO ORDER
Either of these 2 forms though may contain a payee
Sec. 8. When payable to order. - The instrument is who is not a maker, not a drawer or not a drawee. So
payable to order where it is drawn payable to the in this case, which one is that instrument?
order of a specified person or to him or his order. It
may be drawn payable to the order of: Illustration 1 — payee not the maker
(a) A payee who is not maker, drawer, or drawee; or Illustration 2 — payee not the drawer or drawee
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or This is an example of Sec. 8(a) where the payee
(e) One or some of several payees; or happens to be a person different from maker, just like
(f) The holder of an office for the time being. this promissory note (illustration 1) OR a payee is

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

different from the drawer, and the drawee on this case So because of the conjunction “or” it is considered that
(illustration 2). there are several payees.

But it is also possible that the one who could give the
order could be? THE HOLDER OF AN OFFICE FOR THE TIME BEING

Could be the drawer. [Sec. 8 (b)] To: X


Pay to the order of the commissioner of internal revenue Php
How will you change this then? 10,000 on 30 Aug 2018.
Sgd. J
PAYEE WHO IS THE DRAWER
!
To: X In that case, It is still considered a negotiable instrument
I promise to pay to my order Php 10,000 on 30 Aug 2018. and still payable to order. Even if you don’t mention
what year it is, whoever the current holder of the
Sgd. J position gets the indorsement for the instrument.
!
It can even be to a cashier, treasurer of any organization.
What form of order instrument? Position like president of lex circle. So long as the
Payable to the order of a specified person. person gets to be identified or at least the position gets
to be identified.
Who’s the specified person?
The drawer who is J. “My” there is J. *Asks when is an instrument negotiable again*
Or you could also say “payable to the order of J” then
signed by J.
SIGNATURE BY AGENT
Sec. 19. Signature by agent; authority; how
PAYEE WHO IS THE MAKER
shown. - The signature of any party may be made by
a duly authorized agent. No particular form of
I promise to pay myself or order Php 10,000 on 30 Aug 2018. appointment is necessary for this purpose; and the
authority of the agent may be established as in other
cases of agency.
Sgd. J
!
You could also say “I promise to pay J or order”… The rule is that the person has to sign on the
“myself” being J — the maker of this instrument instrument to be liable on that instrument. So that
when a maker signs to the instrument he renders
himself liable on the instrument.
ORDER OF A DRAWEE

To: X A drawer is likewise the same. When he signs on the


I promise to pay to the order of X Php 10,000 on 30 Aug 2018. instrument, he holds himself liable on the instrument.

Sgd. J
The reason also why you need to present the instrument
! for acceptance to the drawee is so that he may be
It could also be “pay yourself or order”… informed of his possible obligation should he accept
“yourself” being X — drawee of this instrument the instrument and this is indicated by the fact that he
signs on the instrument.
ORDER OF TWO OR MORE PAYEES JOINTLY

Now, it is also possible that the person signs on the


I promise to pay A and B or order Php 10,000 on 30 Aug 2018. instrument but he doesn’t hold himself liable to it. Is
that possible?
Sgd. J Yes sir, it is possible.
!
And when is that possible?
What’s the requirement if there is a joint payees? This When he is an agent of the maker/drawer
being an order instrument?
The requirement is that both A and B will make the
indorsement. Can a minor sign an instrument?
Yes but he will not be liable or bound by the instrument.

ORDER OF ONE OR SOME OF SEVERAL PAYEES


Even if the instrument is a bearer instrument, where it
To: X gets negotiated from one hand to another? The
instrument is still considered invalid? If the minor did it
Pay to the order of A, B or C Php 10,000 on 30 Aug 2018. and was able to get money out of it, still considered
invalid?
Sgd. J
!
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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

In that case, I think the instrument is valid but as to the have to issue a board resolution authorizing a
minor, he cannot be held liable on the instrument. particular person to engage in such transaction.

Okay, he cannot be held liable on the instrument even if It could state that:
he signs the on the instrument because he is a minor.
The corporation hereby resolves that the corporation shall
enter into a loan transaction and execute a promissory note in the
It’s different though when it comes to other parties. Even amount of Php1M. Resolved further, that the President Mr. X, is
it was signed by a minor and that instrument passed authorized to sign for an on behalf of the corporation in relation to
through other parties who are actually of age and not the foregoing authority.
acting in good faith. They could still be held liable. More !
so if they know that the minor is a minor and still
accepted the instrument. There’s reason for them to be
So in that case, there was an authority for the
liable.
corporation to enter into a loan in a promissory note and
it will be Mr. X who’s supposed to represent the
But as to the minor himself he is not held liable. Can corporation.
corporation sign a negotiable instrument?
Yes, Sir. They can sign through its agent. So if you are Mr. X, in order to get away with the liability
otherwise it will become a personal obligation, then you
will have to sign as an agent of the corporation.
Through an Agent. So what will it state?
For example, Sir. It is stated signed by Janen Gabunada
as a President of a certain corporation If he want to get away of this obligation, then he needs
to sign and put the name of the corporation plus his
capacity for signing. Otherwise, he may hold himself
So because a corporation has no physical body, it can liable.
only sign only through its representative or it could be
an agent but what is necessary for an agent to be able
to get away with the liability on the instrument? In all instances, if you’re signing as an agent you must
He must mention therein on what capacity he is signing not only place the name of your principal (Sec. 20 of
therein. After his name, he can state that he is an agent NIL) but also your capacity for signing such an
of a certain corporation. instrument. Otherwise, you will hold yourself personally
liable.
Give me an example, just the portion on the signature
“XYZ Corp. through JG as representative” Now of course, this will not happen with a representative
of a corporation. It could just be a person representing
Or you can just make it simple by saying: another person. So in that case you will have to place
the name of your principal and your signature
….. including and specifying the certain terms which
XYZ Corporation
By: JG (sgd.) could mean you are just signing as an agent or
! representative. So those terms which can really inform
third parties that your are only signing as an agent.
This is now considered as a proper signature of an
agent who can get away with the liability, AN INFANT OR MINOR

GRANTING that JG is duly authorized for this Now as already mentioned, an infant or a minor is able
transaction and that XYZ Corp. has the authority to act to sign an instrument BUT it will not hold himself
in this capacity liable.

A corporation can only act in accordance in the primary A Corporation as well may be able to sign the
and secondary purpose as stated in its Articles of instrument. But is such corporation is not authorized to
Incorporation. And of course, there may be implied engage in such a transaction, then it will also not be
incidental powers of a corporation. liable. The one who gets to sign will be liable.

If the corporation borrows money, if it can justify that it is So, in the example that I provided awhile ago, it so
incidental to its business then it has to act through its happen that there really was a board resolution to enter
BOD or depending on the amount together with the in such transaction.
stockholders and issue a RESOLUTION AUTHORIZING BUT if the corporation did not issue any resolution to
such act. But let’s just say it only an ordinary loan for the that effect but the president on his own acting for and in
financing of a certain building. behalf of the corporation entered into a transaction
involving a negotiable instrument, the corporation
If the corporation is required by the bank to issue a SHOULD NOT be held liable for it because it was not
promissory note, as a security, then the corporation will authorized by the BOD or whoever is supposed to make
the authorization.

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

and it requires him who is dealing with the instrument


Although, the usual practice call is that president acts on to inquire into the limit of his or her liability
its own when he owns the entire corporation and all the • Does not apply to general agency, only to one that has
rest are just nominal stockholders to qualify as members a certain limit
of the board. Iya nalang na ipa ratify later on. Kinsa man • [Must have been a practice before but it is never used
say mu question na siya man tagiya sa corporation. Ug now]
malugi ang corporation kinsa man malugi? Siya lang.
That is acceptable in practice.
OMISSIONS
But we have to be strict about it so to get away with the Sec. 6. Omissions; seal; particular money. — The
liabilities or the possibility or to lessen the risk later on, validity and negotiable character of an instrument
before a corporation can be held liable it must always are not affected by the fact that —
be authorized first. And authorization can only be done (a) It is not dated; or
by the BOD sometimes it needs to be ratified by the (b) Does not specify the value given, or that any
value had been given therefor; or
stockholders.
(c) Does not specify the place where it is drawn or
the place where it is payable; or
If you’re dealing with a corporation and it behooves you (d) Bears a seal; or
to require the presentation of a board resolution or a (e) Designates a particular kind of current money
Secretary Cert. Sec. 22 meant that a Corporation or in which payment is to be made.
infant may incur no liability thereon, the corporation But nothing in this section shall alter or repeal any
statute requiring in certain cases the nature of the
there is one who did not authorize to engage in such a consideration to be stated in the instrument.
transaction so whoever signs for and in behalf of the a) It is not dated; or
corporation, who was not authorized to do so, is
actually the one personally liable even if he put the ◦ Presumption provided by law that the date is
name of the corporation and put his capacity in signing. when the instrument was issued
So it will be considered an Ultra Vires act of the
corporation meaning outside of the authority b) Does not specify the value given, or that any value
has been given therefor; or
SIGNATURE BY PROCURATION ◦ Consideration is presumed for all instruments
Section 21. Signature by Procuration; Effect of. — issued
A signature by "procuration" operates as notice that
the agent has but a limited authority to sign, and c) Does not specify the place where it is drawn or the
the principal is bound only in case the agent in so
signing acted within the actual limits of his authority place where it is payable; or
◦ Presumption is that it the residence or principal
place of business of the person principally liable
What do you mean by signature by procuration? to the instrument
Is it signing of an agent, which also serves as a
warning that the authority of the agent is limited, and ■ Maker; or
that he can only bind the principal if he acts within the ■ Drawee-acceptor
limit of his authority.
d) Bears a seal; or
So it is not an ordinary agency but one which is limited. ◦ [Copied from the US; has no bearing on Philippine
So that’s what pre procuration means. So you can sign instruments since an instrument to be negotiable
of course as an agent and the requirement in signing as need not be notarized so it need not contain any
an agent will have to be complied with otherwise he seal]
becomes personally liable. And addition to that, his
signature should also contain the words “Pre e) Designates a particular kind of current money in
Proc”which means that whoever is dealing instrument which payment is to be made
would know that this person is only signing based on a
limited authority. And it requires him who is dealing with ◦ Refers to a foreign instrument issued abroad
which is payable in the Philippines thus there is a
the instrument to inquire as to the limit of his or her
need to exchange the currency into Philippine
liability.
currency as payment to payee or bearer of the
instrument
• Signature based on an agency but one which is ◦ Does not mean that you need not indicate the
limited in its authority currency involved otherwise you will not know
• You can sign of course as an agent and the what to pay to the payee of the instrument
requirements for such must be complied with ◦ [No longer practiced because we are now allowed
otherwise you become personally liable but in addition to make payment in whatever form depending on
to that your signature must contain “pre proc” so that the agreement of the parties]
whoever is dealing with the instrument will know that
this person is only signing based on a limited authority

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

TERMS
▻ EX. Antedating for purposes of gaining more
Sec. 10. Terms, when sufficient. - The instrument interest, postdating a check to make it
need not follow the language of this Act, but any
terms are sufficient which clearly indicate an appear that you have funds but you had no
intention to conform to the requirements hereof. intention to pay, antedating to hasten to date
of maturity

To: X
Please pay to P or order Php 10,000
Sgd. Y If the act of antedating and postdating is done with the
! taint of fraud or any illegality then it may be considered
Still negotiable as long as there are words of invalid.
negotiability because you can always be polite with But take note that invalidity is different from negotiability
your order or demand of an instrument, which is determined by what is written
on it’s face and on the provisions of sec.1 of the NIL law.
UNDATED
In case the instrument is not dated then there is a
Sec. 13.  Par. (1) When date may be inserted. - presumption that it commences on the date of
Where an instrument expressed to be payable at a issuance. (I forgot the provision)
fixed period after date is issued undated, or where
the acceptance of an instrument payable at a fixed
period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the What is the consequence of an insertion of a date in
instrument shall be payable accordingly. The such instrument?
insertion of a wrong date does not avoid the It becomes the true date (Sec. 13 in relation to Sec. 11
instrument in the hands of a subsequent holder of the NIL)
in due course; but as to him, the date so inserted is
to be regarded as the true date.
In these instances it is necessary to insert the date to Is that always true for all parties?
know the date of maturity. NO. If the holder is NOT a holder in due course (sec. 52
NIL) then the maker or drawer can set up the personal
defense of insertion of a wrong date (Sec. 13 NIL)
Sec. 13. Par. (2) The insertion of a wrong date does
not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, On Dela Cruz’s example of the maker refusing payment
the date so inserted is to be regarded as the true
date. simply because of a subsequent insertion from another
person basing on the ground that since the person
◦Relates to Section 11: Where the instrument is dated,
collecting knew about the supposed wrong insertion the
such date is deemed prima facie to be the true date date of issuance should be the true date (Sec. 11)
ATTY countered that it is also in the provisions of the NIL
ANTE-DATING AND POST-DATING that any date inserted becomes the true date. (Sec. 13)
Section 12. Ante-dated and post-dated. – The
instrument is not invalid for the reason only that it
is ante-dated or post-dated, provided this is not The appropriate legal basis is sec. 13 of the NIL in
done for an illegal or fraudulent purpose. The person relation to sec. 52.
to whom an instrument so dated is delivery acquires
the title thereto as of the date of delivery.
Sec. 52 defines the conditions where one is a holder in
• Postdating: making it appear that the instrument was due course.
issued at a date later than when it was actually issued Sec. 52. What constitutes a holder in due course.
— A holder in due course is a holder who has taken
◦ EX. Today is August 23, but you made it appear the instrument under the following conditions:
that the instrument was issued on August 30 (a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
• Antedating: making it appear that the instrument was overdue, and without notice that it has been
previously dishonored, if such was the fact;
issued at a date earlier than when it was actually (c) That he took it in good faith and for value;
issued (d) That at the time it was negotiated to him, he had
◦ EX. Today is August 23, but you made it appear no notice of any infirmity in the instrument or
that the instrument was issued on August 16 defect in the title of the person negotiating it.

■ GR: Allowed, instrument is still valid Holder in due course: [COFI] — MEMORIZE!!
—XPN: Illegal or fraudulent purpose (a) That it is complete and regular upon its face;
▻ Effect: invalid and illegal but doesn’t affect (b) That he became the holder of it before it was
negotiability overdue, and without notice that it has been
✥ Negotiability is determined by the face of previously dishonored, if such was the fact;
the instrument and Section 1 (c) That he took it in good faith and for value;

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

(d) That at the time it was negotiated to him, he had no 2) Holder Not in Due Course (sec. 58) – Need to refer
notice of any infirmity in the instrument or defect in to the correct date / vulnerable to personal defense.
the title of the person negotiating it. 3) Holder through a Holder in Due Course (Sec. 58)
— shelter principle
If you are a holder in due course then personal defenses
like insertion of a wrong date cannot be used against What type of defense and why?
you. (Sec. 13 NIL) Personal defense — cannot use against holders in due
course and holder through a holder in due course. It
Failure to satisfy the requirements makes you a holder must be inferred by the particular provisions in the NIL.
not in due course and subject to personal defenses
(Sec. 58 NIL)
SHELTER PRINCIPLE

“SHELTER PRINCIPLE” - The immediate subsequent


Going back to Dela Cruz’s example of the holder having holder who derives his title from a holder in due course
knowledge of the insertion of the wrong date it fails to and that HE IS NOT A PARTY TO ANY FRAUD OR
satisfy not the first requirement since it only refers to the ILLEGALITY affecting the instrument has all the rights of
form of the instrument to which it fully complies rather it the prior holder as to any prior parties.
fails to satisfies the last requirement that he was aware
of any infirmity (THE WRONG INSERTION) in the
Even if the subsequent holder knew about the wrong
instrument at the time it was negotiated to him. date as long as he is not party to the one directly
responsible for the fraud then he still is a holder through
Atty A: Now you know the rule is that if there is a blank the holder in due course.
on the instrument there is actually AN AUTHORITY TO
PUT THE DATE on the instrument if it is necessary to
Thus his knowledge of the fraud may not make him
determine it’s maturity (either date of issue or date of
qualify as a holder in due course under sec. 52 but he
acceptance). can still be a holder through a holder in due course
under sec. 58 because he is not a party with the one
When is that? directly responsible for fraud, provided that the prior
1) Instrument payable on a fixed period after date is person who negotiated the instrument to him was a
issued undated holder in due course.
2) Acceptance of an instrument payable at a fixed
period after sight is undated
A holder in due course or a holder through a holder in
due course can also go after other parties aside from
In all those instances if you receive such instrument that the maker/drawer himself prior to the infirmity. If he is
does not contain a date you are supposed to put a not such then the other parties can put against him the
date. You have blanket authority but you must put personal defense of insertion of a wrong date.
the true date.
But If you inserted the wrong date, it does not AVOID Ultimately, any kind of holder can go after the party who
(DILI MA VOID) the instrument in the hands of a perpetrated the fraud because the law does not tolerate
SUBSEQUENT HOLDER IN DUE COURSE. (Sec. 13 (countenanced) fraudulent acts in commercial
NIL) transactions.

For a holder in due course the date inserted becomes They can also go after the parties subsequent to the
the true date of the instrument. fraud because every indorser is subject to the
warranties under sec. 65 of the NIL.
It is thus important to classify the holders in the
application of sec. 13. Order instruments must be indorsed. (Except under the
circumstances provided in sec.9 )

What does every indorser warrant under sec. 65?


Sec. 65. Warranty where negotiation by delivery
and so forth. — Every person negotiating an
instrument by delivery or by a qualified indorsement
warrants:
(a) That the instrument is genuine and in all respects
what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
! (d) That he has no knowledge of any fact which
would impair the validity of the instrument or
1) Holder in Due Course (sec. 52) render it valueless.

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NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

But when the negotiation is by delivery only, the


warranty extends in favor of no holder other than
ILLUSTRATION IN THE UNDATED PART
the immediate transferee.
The provisions of subdivision (c) of this Sec. do not
apply to a person negotiating public or corporation I promise to pay X or order Php 10,000 7 days after date.
securities other than bills and notes. Sgd. J

1) That the instrument is Genuine and in all respects Original Date: Aug 23, 2018
what it purports to be Wrong date inserted: Aug. 20, 2018
2) That he has Good title to it
J→X→Y→Z
3) That prior parties have Capacity to contract ↓
4) That he has no prior Knowledge of any fact that Aug. 20, 2018
would impair the validity of the instrument. !
What happens if there is insertion of wrong date?
TAKE NOTE: if it is a bearer instrument the warranty will It does not avoid the instrument in the hands of a
only apply to the prior immediate indorser. subsequent holder in due course.
Avoid — will not render the instrument VOID
For now you just have to memorize the first warrant. In case of a holder in due course — it is regarded as the
true date.
In regards to it when you warrant that it is genuine, then
it follows that it should bear the true date. Type of instrument: Order instrument
I promise to pay X or order Php 10,000 7 days after date.
In regards to the parties prior to the infirmity — you Sgd. J
cannot go after them and claim that they did not comply
with their warranty.
Original Date: Aug 23, 2018
Wrong date inserted: Aug. 20, 2018
In regards to the maker — he has a separate warranty
and the succeeding parties prior to the wrong J→X→Y→Z→A→B
insertion cannot be liable also since logically by the
time the instrument was in their hands it was still A — holder in due course
genuine and valid. B — holder through a holder in due course
!
B — considered as a holder through a holder in due
Only when it reached the person who perpetrated the course even if he knew about the infirmity done by Y
fraud that it started to lose it’s genuineness and thus (Sec. 58)
only the subsequent parties could be liable for A — since it was not stated, he is presumed holder in
breaching the warranty. due course (Sec. 59)

So to go after parties before the insertion of the B to X — cannot be liable because he was a party prior
wrong date, one can go after them by being a holder to the infirmity because when he negotiated, it was still
in due course or a holder through a holder in due course genuine (when the holder is NOT a holder in due course)
by relying on the provisions on sec. 13 that as regards
to them the date inserted becomes the true date.
B to J — cannot raise personal defense since B is a
holder in due course.
On the other hand if one is not a holder in due course
then they can only after the parties subsequent to
the fraud on the basis of breach of warranty under sec. PERPETRATOR OF THE FRAUD:

65. Ultimately they can always go after the perpetrator B to Y — Y is the perpetrator of the fraud so he is
of the fraud, as the law does not tolerate fraudulent acts ultimately liable and must be punished by law
in commercial transactions.
SUBSEQUENT PARTIES:

Also there is a presumption that every holder is prima B to Z & A — liable because they are subsequent
facie one is a holder in due course (sec. 59 NIL) parties who warranted the instrument is genuine and in
all respects of what it purports to be (Sec. 65)
- so if the facts in the case does not mention of any
circumstance then apply the presumption.
PRIOR PARTIES:

B to J & X — can be compelled to pay because B is a


holder in due course and they cannot raise the personal
defense of insertion of wrong date (Sec. 66)

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