Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
Well this subject is composed of so many laws.
You have negotiable instruments law, you
have transportation law, corporation law,
insurance law, banking laws, revised securities
act, intellectual property and then the small
laws. For small laws we have trusteeship law,
letters of credit, well the banking laws are so
many, Chattel mortgage law, real estate
mortgage law. We will first tackle the big laws.
There are 7 of big laws. Well don’t worry we will
finish before the end of the semester. That’s
why we have to budget our time for Nego, we
have 2 meetings only, for transpo: 1 meeting
only, for insurance: 2 meetings, for corporation
marami ito we shall have 3, banking laws: 1,
Revised securities act: 1, intellectual property
code: 1, we have 11 Saturdays. Can you check
your calendar kung kelan yung pang 11? You
remove the holidays. Don’t include today.
When will that be? February 11. When are the
final exams? March 10. Okay so we are within
the schedule because the rest will be devoted to
small laws and special laws related to
commercial laws. Okay first subject we shall
tackle before transportation is negotiable
instruments law. In the meantime, I will give
you a syllabus of the 3 subjects. Kaya lang this
is not really a syllabus. These are my notes of
the subjects. These are the important features
of the 3 subjects. You take care of the rest. You
must have a codal. Vol 1 and 2 of Commercial
Law. Just the codal. You know why because of
the multiple choice. But you should not be
absent because during my lecture, in my
examples and discussion I will be discussing
some decisions of the Supreme Court. My
examples are lifted from decisions of the SC.
Talaga yung secretary ko mahilig sa text.
Anyway bahala na kayo mahilig naman kayo sa
text eh. Well these notes does not mean na eto
lang pagaralan nyo. I just gave the important
features of the subject which you should
remember but it does not mean that these are
what you will only study. Kaya nga I said you
should have a codal. Well since you are my
students you already know my style: Recitation,
Lecture, Exams, Surprise Quiz. During
recitation, close notes. Nobody will open notes
or books. Okay for now pagbigyan ko kayo
although I gave you an assignment. Who was
your professor in Nego? You po. Lahat ba kayo?
Yes. Eh di na natin idiscuss.
Transcribed by: JMQuibolen
Okay reminder na lang. I emphasized Sec 1
which you should memorize from the very
beginning. You should memorize that because
now there are so many commercial documents.
And the negotiable instrument is one of them.
There are so many commercial documents and
you may not be able to determine whether this is
negotiable or not, that is why you have to
memorize Sec 1 because these elements are
concurring. Meaning, the absence or defect of
one element would render the instrument non-
negotiable. And if you recall our discussions
before there are so many commercial
documents, you have credit cards, letters of
credits, warehouse receipts, treasury bonds.
These are not negotiable instruments although
they are commercial documents and valid
contracts also. So that all negotiable
instruments are contracts but not all contracts
are negotiable instruments. Because of that you
have to apply Sec 1 because negotiable
instruments are commonly and widely used now
because of its convenience and the ease of
transferring. The words negotiable makes that
instrument very easy to transfer by indorsement
lang. So for other contracts, contracts can also
be transferred from one person to another kaya
lang you have to execute a separate document or
deed or separate contract to transfer that
contract like deed of assignment, deed of sale,
deed of donation. So there are so many kinds of
deeds to transfer a contract. But if it qualifies
as a negotiable instrument because all the
elements of Sec 1 are present, then the mode of
transferring that would be by simply by
indorsement. Although there are many kinds of
indorsement which we have discussed before
but the fact that indorsement is one of the
modes of transferring of instrument, there is a
need for the transferor or indorser to sign that in
order that the indorsee has the right to retain it
or enforce it against prior parties and has the
right to be given discharge of the instruments.
Okay that is the beauty of negotiable
instruments, the accumulation of several
contracts and how will you accumulate? By the
mere indorsement that is already accumulation
of contract because when you indorse a
negotiable instrument there is an agreement
between you and the transferee or indorsee. It is
Page 1 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
very important that you memorize Sec 1.1
Remember that these are concurring elements
such that in a multiple choice, supposing the
elements are there. The following are requisites
of a negotiable instrument: a, b, c, d, e, any of
the above or all of the above. Alin any of the
above or all of the above? All of the above kasi
concurring, all must be present hindi pwede
yung any of the above.
So, there are 2 general classifications of
negotiable instrument, you have the negotiable
promissory notes and negotiable bills of
exchange. I specified negotiable because a PN
could also be a valid contract but not negotiable.
So what makes it non-negotiable. Supposing
you failed to pay your tuition fee and the school
would require you to execute a PN. It is a very
simple PN: I promise to pay PLM or order the
sum of P21,000. Sgd. Negotiable or not?
Answer: Negotiable. The fact that it did not state
whether it is payable on demand or at a fixed
determinable future time, that is considered as
payable on demand.2 Because under Sec 7 the
fact that it is not dated or does not specify the
date when it is to be paid, it is still payable on
demand or the owner can always insert the true
date of issue or indorsement, that will not render
the instrument not negotiable. It would be
otherwise, if I promise to pay PLM P21,000.
That is not negotiable but it is a valid contract
between you and PLM. I would like to
emphasize that.
1
Sec 1: Form of negotiable instruments. An instrument to be
negotiable must conform to the following requirements:
a. It must be in writing and signed by the maker or
drawer;
b. Must contain an unconditional promise or order to pay
a sum certain in money;
c. Must be payable on demand, or at a fixed, or
determinable future time;
d. Must be payable to order or to bearer: and
e. When the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
2
Sec 7: When payable on demand. An instrument is payable on
demand:
a. When it is so expressed to be payable on demand, or
at sight, or on presentation, or
b. In which no time for payment is expressed.
Where an instrument is issued, accepted or indorsed when
overdue, it is, as regards the person so issuing, accepting or
indorsing it, payable on demand.
Transcribed by: JMQuibolen
If you recall our study before, negotiable
instruments are only substitutes for money,
these are not legal tender and the Civil Code and
even Banking Laws provide that obligations
should be paid in Philippine currency and no
person can be compelled to accept a PN, a BE or
any negotiable instrument. You cannot be
compelled to accept. Eh bakit pa natin
pinagaaralan? Because it is now widely
accepted or used and very convenient to use as
a substitute for money. Anyway, when the
instrument matures, you can now proceed and
present it to the principal and have it paid. Well
this very old. Older than the first constitution.
1911. Matandang matanda na itong law na to
that is why I discussed it first. And yet it is
widely used and there are so many controversies
regarding its usage and that’s why the SC is
replete with cases regarding negotiable
instruments. So like bouncing checks. Checks
are special BE. Now if you know how the checks
operate, all negotiable instruments are also
transacted that way. The only difference is that
a check has limited indorsement because banks
do not allow 2nd indorsement except for valued
clients. So checks being negotiable instruments
have limited negotiation but for other negotiable
instruments they can be transferred so many
times even 100 times especially if the
instrument is payable to bearer because it does
not need indorsement, so the transfer, the
negotiation would be more than what you expect
because it is a substitute for money. Well our
Philippine peso is legal tender, however, it is also
a PN, payable to bearer. If you read what is
written in your Philippine bill, “ang salaping ito
ay bayarin ng bangko sentral”. So it is a bearer
PN of the Bangko Sentral, the negotiation or
transfer is by mere delivery. Pinipirmahan ninyo
ba yung peso pag itransfer nyo? Di ba it is a
bearer instrument. You don’t transfer by
indorsement bawal pa ngang sulatan yang bill
nay an eh. Now if the state decides later on to
demonetize the Philippine peso or to change our
legal tender into Philippine dollar, you will
surrender your bills and these will be paid by
Bangko Sentral through the commercial banks.
Because that is a bayarin ng Bangko Sentral, a
PN of the Bangko Sentral. Well you can make
your own negotiable instrument that is why
there are not so many forms of negotiable
instruments, you can make your own because
Page 2 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
you just comply with the requisites and that is a
negotiable instruments as long as you comply
with the requisites If you recall again there are
more negotiable instruments in circulation than
our Phil peso or legal tender. Do you believe
that? Yes. There are more NI in circulation that
the Phil peso. Okay just to give you 1 example,
if you buy a car, let’s say 1M. You just made a
downpayment of 100,000. The balance in
installments, 5 yrs, 3yrs or 2 yrs depende. So
the dealer would ask you to sign a 2-page PN.
And if you examine carefully the document you
sign, it is a NI. Hindi naman ilalagay dun na
negotiable PN. Nakalagay lang dyan PN. It will
not state whether it is negotiable PN or not but
you have to read carefully kung negotiable ba to
or hindi that’s why you need Sec 1 although
there are many negotiable instruments. Bonds
for example, bonds issued by the Bangko
Sentral, bonds issued by big corporations. Bakit
bonds? These are modes of generating capital
for a certain corporation. Corporation issues
bonds. The public will not be induced or enticed
by bonds kung hindi naman attractive yung
return of investments like yung interest. So if
the interest is big enough, you will be enticed to
buy bonds like bonds of the Bangko Sentral.
Even bonds issued by big companies like San
Miguel, Petron, Shell, mining companies, they
are issuing bonds and these bonds are PNs. So
nakalagay lang dyan bonds but if you read the
contents of these bonds they are negotiable PNs.
Nakalagay dyan I promise to pay _____ or holder.
Well it’s not as simple as what is written in text.
But in actual practice mahahaba yung nilalagay
dun. May nakalagay na interest, penalties,
escalation clauses, collateral, additional
collateral. In fact, if you have signed already a
negotiable PN for the balance of your
installment, some companies would actually
require you to issue post-dated checks, di
negotiable instrument na naman yan. Kaya for
a 1M car, you only paid 100,000, the balance is
PN. O di ba mas malaki, there are more NI in
circulation than the legal tender. House and lot,
ganun din. You buy condominium ganun din.
Definitely you will be asked to sign something.
And that something is a PN, and that PN is
negotiable. That’s why all transactions need not
be settled in Phil currency or peso because of
the use of NI, we are accepting NI as a mode of
paying your obligation, although the civil code or
Transcribed by: JMQuibolen
banking laws, that you cannot be compelled to
accept NI to pay your obligations although if you
recall again there are decisions of the SC also
which stated that in case of foreclosure of
mortgage, if you have a loan and secured by a
REM, when you are in default or unable to pay
your loan, the bank will foreclose and the bank
will sell your property. Buyers will now become
the owner it and you exercise your right to
redeem and you have 1 yr to redeem your
foreclosed collateral w/in 1 yr from the date of
the sale. You can still buy back that property by
paying whatever your obligations with the bank.
So if you tender a check, sabi ng SC, when a
mortgagor redeems his property and tenders a
check to redeem a property, where the Lower
Courts denied the check as a tender of payment
because the lower court that no person can be
compelled to accept a check and all obligation
must be paid in Phil currency so sabi ng Lower
Courts hindi pwede yan, there are laws that
provide that all obligations must be paid in Phil
currency. To make the long story short, when
appealed to SC, anong sbi ng SC. IT reversed
the LCs decision because the tender of a check
is only a mode to exercise a right to redeem. So
the check was not used as payment of
obligation. It is only being tendered for purposes
for exercising the right under the law and that is
the right to redeem. So be careful with this.
Now the words Order or Bearer. Take note that
these are actually the most important elements
although as I said concurring elements, but
these are most important elements because
these are words of negotiability. Meaning,
without these you cannot transfer the
instrument by negotiation. The technical word
negotiation means you transfer that by
indorsement + delivery or if payable to bearer by
mere delivery. That’s why these are very
important in order to determine how will you
transfer that instrument from one person to
another. And in solving problems regarding
forgery, the words order or bearer are very
important.
So we discussed before what forgery means and
remember that the rule on forgery is found
Page 3 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
under Sec 233. And remember that in the case
of forgery, it makes that signature wholly
inoperative. Meaning, only that signature, not
the instrument, it does not render the
instrument wholly inoperative. Anong ibig
sabihin ng wholly inoperative? It is void against
that person. It does not make the instrument
void, it is only void as to that person whose
signature was forged. So because of that forgery
is a real defense of a person whose signature
was forged. It is a real defense of anybody
whose liable in that instrument whether that
person is primarily liable, secondary liable. So
how was it negotiated, how was it transferred.
Was it an order instrument or a bearer
instrument? Because that will determine how
the instrument will be transferred and it will
also determine the liability of the different
parties.
So the most important stage of a life of NI is in
fact, negotiation. Kaya nga negotiable
instruments. That is the lifeblood of a NI. So we
mentioned about forgery. What is that? What is
forgery? How about alteration? Is forgery same
with alteration? Well forgery applies only to
signature, the counterfeiting, simulation of
signature while alteration is simulation or
counterfeiting the material particulars of the
instruments and these are the amount, date,
interest, currency, all these, material particulars
that changes the effect or terms of the
instrument. So forgery applies only to
signatures, alteration to material particulars of
the instrument. Remember the word: wholly
inoperative. So that if the signature is forged
like supposing Maria issued a PN, “I promise to
pay X or order 1M pesos, Sgd Maria”. If the
signature of Maria is forged but it appears that
her signature was signed but that is not her real
signature because somebody forged it. Since
this is payable to order X can transfer this
instrument by indorsment. Supposing may
3
Sec 23: Forged signature, effect of. When a signature is forged
or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefore, or to enforce
payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it
is sought to enforce such right is precluded from setting up the
forgery or want of authority.
Transcribed by: JMQuibolen
utang si X kay A. So X transferred it to A, A eto
na yung pambayad ko sa utang ko. “Indorsed to
A, Sgd X”. And A further negotiated it to B and
then to C. C now is the holder. Can C compel
or demand payment from Maria if C is a holder
in due course under Sec 52? Under Sec 524,
who is a holder in due course? You have to
memorize this just like Sec 1 because in
answering problems. Well you will not be asked
who is a holder in due course. You will not be
asked that simple question. But along the line
you will be asked ano ba to holder in due course
ba ito? First, that it is complete and regular;
Second, that he took it in good faith and for
value, meaning there was a transaction and in
that transaction you offer something at ano ba
yung something nay un, you offered a NI as a
payment or consideration of that transaction so
it could either be for an account or a value, for
account maybe for payment of an existing
obligation, for value maybe may binili ka sa
kanya or for exchange of something. So there is
a consideration always. So you took it in good
faith or for value. But remember that all holders
are presumed to be holders in due course.
There is a presumption. Like a person,
presumed innocent until proven guilty. Ganon
din, all holders are presumed holders in due
course unless proven otherwise. So you must be
a holder of the instrument which is complete
and regular in its face, nung binigay sayo
kumpleto yan. It was signed, it was filled up, all
the material particulars are filled up, so it is
complete or regular on its face. That is not
overdue, tignan mo yung date di pa ba yan
overdue? But kung nakalagay dun Oct 15, 2011
ang date and you still accepted that instrument
despite the fact that it is overdue, you are a
holder not in due course but it does not mean
that you cannot collect. You can still demand a
payment for that instrument kaya lang it will
depend to that person if he will pay you or not.
4
Sec 52: What constitutes a holder in due course. A holder in
due course is a holder who was taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face:
(b) That he became the holder of it before it was overdue,
without notice that it has been previously dishonored,
if such was the fact;
(c) That he took it in good faith and for value;
(d) 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.
Page 4 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
And he can always interpose that no I will not
pay you because you are a holder not in due
course. Something like that. Now, in the case of
a check, if you accepted a check that is overdue,
remember that a check has a life of 6 months
only. So, nakita mo yung date doon Jan 15,
2011. And despite that you accepted it, overdue
na. Again you are a holder not in due course.
Can you demand payment of that instrument?
Of course not, because it is a stale check. But it
does not render your obligation null and void, it
will only render the instrument null and void.
May utang ka pa rin. It only discharges that
instrument because it is overdue. Try to deposit
it to a bank, it will be dishonored. Tatakan nila
ng stale check so di ka mabayaran but the
obligation on the transaction is still there, it will
not discharge your obligation to pay, valid
naman yung transaction. It only discharges that
particular instrument. Alright so that you are
not aware of any defect or infirmity of the
instrument. Eh kung sabihin ni C na hindi ko
naman alam na forged yung signature ni Maria
dahil inindorse lang sakin ni B yan eh
pinambayad nya ng utang sakin. Anong malay
ko na forged signature ni Maria. He who alleges
or if Maria alleges that “No I will not pay you
because you are not a holder in due course.”
You prove that he is really not a holder in due
course. Who proves it? Maria. If she can prove
it then Maria is not liable. But in the case of
forgery. Forgery is a real defense. It is a real
defense on the person liable against everybody,
against the whole world. So whether holder in
due course ka or not, against the whole world.
So he is not liable to anybody. Why? Because it
lacks the very essential element of a valid
contract, which is consent. The fact that this is
forged, she did not meant to be bound by that
instrument. Whoever is the holder, she can
interpose that real defense against anybody.
Okay but supposing that this signature is
genuine (Maria’s signature) (“Pay to XX or order
1M pesos, Sgd Maria), X here is the original
payee but A may be the secretary of X ninakaw
nya yung instrument na yan kasi secretary sya
eh. At anong ginawa ni A, nilagay nya. Pay to A,
Sgd X. She forged the signature of X and so on.
Napunta kay B, napunta kay C. C is now the
holder-in-due course. Again C now proceed
against Maria. That signature being genuine,
Transcribed by: JMQuibolen
can she now compel Maria to pay the
instrument? The original payee is XX and in
order to indorse the instrument to her (A) finorge
nya ung signature ni X. If payable to order,
indorsement is necessary. Naindorse ba talaga
kay A? Indorsement is necessary because it is
payable to order, therefore, A here have no right
to retain, enforce, give discharge to the
instrument even to the succeeding parties. So C
cannot enforce the instrument against Maria
because it was not properly indorsed. So he had
no right to retain, enforce or give discharge or
even to transfer the instrument. C cannot
enforce the instrument against Maria because
Maria is a party prior to the forgery. So Maria,
X, A, B, C ganito ang sequence nya. Signature
of X was forged. Okay so again, can C proceed
against X? No because my signature is forged so
that signature is wholly inoperative against
anybody. So this forged instrument cannot be
enforced against X including party prior to the
forgery. C cannot enforce the instrument
against Maria even if her signature is genuine
because of the CUT-OFF RULE, okay?
Take note of Sec 95. When is instrument
payable to bearer, okay? Would your answer be
the same in this scenario? Can C proceed
against Maria? No. In that case, C can enforce
the instrument against Maria. In case of
payable to bearer, the mode of transfer is only by
delivery, even if the signature of X was forged, it
is still a valid delivery. In this case, bearer,
halimbawa nilagay sabi ni X, Maria wag mo na
lang ilagay X or bearer nilagay na lang Pay to
Cash. Sinabi nya Maria may utang ka sakin di
ba? Pwede ba wag mo ng ilagay yung pangalan
ko, kasi wala akong account sa banko eh pwede
ba ilagay mo na lang Pay to Cash. So the same
thing, payable to bearer pa rin, because the
name of the payee does not purport to be the
5
Sec 9. When payable to bearer. The instrument to payable to
bearer:
a. When it is expressed to be so payable; or
b. When it is payable to a person named therein or
bearer; or
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; or
d. When the name of the payee does not purport to be
the name of any person; or
e. When the only or last indorsement is an indorsement
in blank.
Page 5 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
name of the person. Eh nakalagay nya jan pay
to the order of Cash, or pay to the order of
Superhero (nonexistent person). Eh may
nakalagay na order so dapat indorsed. But san
mo hahanapin si superhero o si Cash na
pipirma na magindorse. So these persons are
fictitious, they are not persons who can sign,
consider that as bearer instruments para there’s
no problem in transferring that, di na
kelanganang pirmahan. Sa movies lang meron
yang mga tao. So they are inexistent so pwede
ba nilang pirmahan yan. And since these are
bearer instruments, indorsements are not
necessary. Inindorse man ni X kay A, forged na
yung signature dyan. Indorsement is not
necessary kasi bearer instrument yan. No need
to indorse. But in case of a check, di ba, there’s
such thing as clearing. 3 days clearing or
there’s such thing as a check being accepted.
Binayaran ka ng banko, sige accepted or you
must clear. Once cleared, these are accepted,
meaning there is presumption that the signature
of the drawer is genuine because once inaccept
ng drawee bank yan it warrants the signature of
the drawer kahit forged yan. Kahit naforged
yan babayaran nya yung holder. So who should
bear the loss? Can the bank now charged or
debit the account of its depositor? Of course
not. Oy bakit mo binawasan yung account ko
ng 1M forged signature ko dyan. Because by
acceptance the drawee warrants the signature of
the drawer so he bears the loss. It cannot
charged the account of its depositors.
Kasalanan nya yan. Take note the relationship
between of the bank and depositors is that of
debtor-creditor relationships. So banks have
records of specimens of signatures of its client
so it’s in a better position to know if the
signature is genuine or not.
Okay but supposing, PNB is the drawee bank,
kasi walng account sa PNB dineposit nya sa
BDO. BDO is a collecting bank kasi dineposit ni
C sa BDO. Di nya madeposit sa PNB kasi wala
shang account so sa BDO nya dineposit. BDO is
a collecting bank, nangongolekta sya. Check
was issued by Maria. Kaya lang forged naman.
There was forgery. Indorsers are secondarily
liable. The collecting bank is an indorser. It
indorses that to the drawee bank for collection
and if you have seen a bounced check: all prior
indorsements guaranteed. Who guarantees
Transcribed by: JMQuibolen
that? The collecting bank. It warrants all prior
indorsements. So even if the signature of X is
forged, because of that warranty, BDO bears the
loss. Not the drawee bank because the drawee
bank only warrants the signature of its clients.
The collecting bank as indorsers warrants all
prior indorsements so this is a prior
indorsement, So forged pala signature ni X
dyan, because of its warranty, BDO bears the
loss. Those are the important features of
forgery.
Forgery is a real defense. Also in the case of Sec
156, when the instrument is incomplete and
undelivered. Bat nagkagnon, incomplete na sya
hindi pa nadeliver. Bakit incomplete? The
material particulars are not filled up and there is
no signature. Kaya incomplete and undelivered.
Okay so bakit may problema eh incomplete pala
and undelivered because along the line,
somebody completed it and somebody delivered
it. Finillup and dinilever and you are now the
last holder of the instrument. Nakita mo ung
instrument kumpleto na. Signed, fully indorsed,
amount, signature. But you did not know as a
holder that the instrument is originally
incomplete and undelivered but its reached the
ends of the transferee or holder who claims to be
now a holder in due course. Nung binigay sakin
complete and regular in its faith, that it appears
to be in good faith or for value, that it is not
overdue, that I am not aware of any infirmity. Is
the maker liable? No. Because in his ends, it
was not delivered, it was incomplete, somebody
forged it, signed it for him. That is also a real
defense of the person primarily liable. Real in
the sense that whoever is the holder. The
principal primarily liable is not liable under
incomplete and undelivered instrument,
although completed in the end but in the
beginning it was not. So far as the maker is
concerned he did not sign it. By the way, even
in genuine signatures, when you were asked to
sign under duress or misrepresentation,
halimbawa tinutukan ka ng baril, that signature
6
Sec 15. Incomplete instrument not delivered. 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.
Page 6 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011
even if it’s signature, it is wholly inoperative
because you did not intend to be bound by the
instrument under Sec 23. What are the
exceptions? Estoppel, gross negligence,
halimbawa tinawagan ka ng banko, Sir Ma’am
meron kang pinirmahan ditto payable sa kapatid
nyo? Sige na nga bayaran na kahit finorged
yung signature nya ng kapatid nya. Estopped na
sya. She can no longer invoke the defense of
forgery simply because of estoppel or in some
cases where there is gross negligence of the
drawer herself. Bakit gross negligence? Eh di
ba the bank usually sends you statements of
account, nakikita nyo don yung binawas sa
account, she did not make any action to call the
bank and ask the bank to cancel the charges
against her, it took one year until the auditor
discovered the forgery of her signatures. Sabin g
SC, gross negligence, she received statements of
account every month and yet she did not make
any actions, it was only after 1 year after sinabi
ng auditor sa kanya. She cannot claim the
defense of forgery. Although there is one
authority,di ba in corporations, the officers are
designated to sign certain instruments for
certain amounts, may isang officer ngayon
pinirmahan nya despite the fact that he was not
authorized or designated. Halimbawa si
Cojuangco, chairman ng San Miguel Corp
pumirma ng document ng indorsement di pala
sya authorized. The signature should not be
recognized because he is not authorized. As an
exception later on recognized, the fact that he is
a chairman, under the Corporation Law, that is
the doctrine of apparent authority. It is
apparent being the chairman as an exception.
How about alteration? Is the rule the same
under Rule 1247? Alteration is the change,
simulation of material particulars like the
amount, date of payment, anything that is
material that may change the effect of the
instrument. Will the rule in forgery be the same
7
Sec. 124. Alteration of instrument; effect of. - Where a
negotiable instrument is materially altered without the assent of
all parties liable thereon, it is avoided, except as against a party
who has himself made, authorized, or assented to the alteration
and subsequent indorsers.
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, he
may enforce payment thereof according to its original tenor.
Transcribed by: JMQuibolen
in the rule of alteration. Well the rules are
different but the effect is the same. In rule 124
it says that, when the instrument is materially
altered, the instrument is void insofar as those
parties who did not give their consent, or assent
to the alteration meaning, if you are party to the
instrument, you did not participate in the
alteration or you are not aware or you did not
give your consent to the alteration, naturally,
you are not liable. But if you gave your consent
or you are the one who altered it or participated
in the alteration, of course, you are liable. That
is the meaning of the rule of alteration.
However, if the holder is a holder in due course,
he can enforce the instrument according to the
original tenor of the instrument. If the
instrument is 1M pesos and the payee altered it
ginawa nyang 7M pesos and negotiated further,
syempre yung holder di na nya alam kung
sinong nagalter. The rule in case of HIDC, again
apply Sec 52, that holder is entitled to the
original tenor. What is the original tenor? 1M.
So entitled sya dun sa maker ng 1M pesos,
otherwise, not entitled to anything because that
instrument is void insofar as the parties who did
not give consent to the alteration. Ganun din sa
forgery di ba? In forgery, the person whose
signature is forged, that signature is wholly
inoperative. In alteration, the person who did
not give consent, did not participate, did not
know, the instrument is void against him, o di
wholly inoperative din against him. The only
difference there is if the holder in due course,
original tenor. In forgery kahit na sino.
When the instrument is payable Nov 12, 2011.
You are the holder of the instrument, what will
you do? Presentment for payment. You present
the instrument to the person primarily liable.
What is the purpose of presentment for
payment? To charge persons secondarily liable
hindi primarily liable. Because yung primarily
liable, primarily liable sya eh so that you can
proceed to those secondarily liable you present
for payment. If presentment for payment to
primarily liable is not honored, you proceed to
those secondarily liable. You do that for
purpose of charging persons secondarily liable.
Meaning if the instrument is matured and kung
kapitbahay mo si Henry Sy and he is one of the
indorsers. The party primarily liable is Juan
dela Cruz and you know very well that Juan dela
Page 7 of 8
Commercial Law Review
Transcription of Lecture by Atty. Minda C. Gapuz
PLM College of Law – November 12, 2011

Cruz cannot pay you. Pumunta ka kay Henry

Sy na kapitbahay mo. It discharges all parties
secondarily liable. Your duty is to present first
to the person primarily liable, that is the
physical production of the instrument, in order
for him to examine. Ito be yung instrument, ito
ba yung pirma ko. Kung hindi naman you can
now exercise your recourse against those
secondarily liable.

Transcribed by: JMQuibolen Page 8 of 8