REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
COMPLETION & DELIVERY
THE FOLLOWING ARE THE STEPS IN
THE ISSUANCE OF A NEGOTIABLE
INSTRUMENT:
1. The MECHANICAL ACT OF
WRITING the instrument completely
and in accordance with Section 1 of the
NIL; and
2. DELIVERY - the transfer of
possession, actual or constructive, from
one person to another (Sec. 191, NIL),
with the intent to transfer title to payee
and recognize him as holder thereof.
INSERTION OF DATE
PRESUMPTION AS TO DATE
- Section 11, NIL
- Where the instrument or an acceptance
or any indorsement thereon is dated,
such date is DEEMED PRIMA FACIE
TO BE THE TRUE DATE of the making,
drawing, acceptance, or indorsement, as
the case may be.
- Here, if the instrument bears a date, it is
presumed that said date is the date when
it was made or drawn.
- If the acceptance in a bill is dated, such
date is considered as the true date of such
acceptance.
“Accepted on 10 June 2021.
(Sgd.) Matthew”
- If the indorsement was dated, such date
is considered as the true date of such
indorsement.
“10 June 2021 – Pay to Andy the amount of
Php10,000.00
(Sgd.) Matthew”
- The date of the instrument is not
essential to make it negotiable. Since it is
not one of the requisites under Section 1
of the NIL.
NEGOTIABLE INSTRUMENTS LAW 1
- In the following cases, however, the date
is necessary to determine the
MATURITY or DUE DATE (but not for
negotiability) of the instrument:
1. Where the instrument is payable
within a fixed period after date;
“60 days after date, I promise to pay
Matthew or order Php10,000.00”
Here, the date when the note was
made is material since this is where
the counting of the 60 days will start.
2. Where the instrument is payable at a
fixed period after sight or
presentment;
“45 days after sight (or after presentment), I
promise to pay Matthew or order
Php10,000.00”
The date of presentment is necessary
to determine when the 45-day period
will start.
3. When the instrument is payable on
demand, date is necessary to
determine whether the instrument
was presented within a reasonable
time from issue, or from the last
negotiation. (Secs. 71 and 143 (a),
NIL); and
4. When the instrument is an interest-
bearing one, to determine when the
interest starts to run.
ANTE-DATING OR POST-DATING OF
AN INSTRUMENT
- Section 12, NIL
- An instrument is ANTE-DATED when
it contains a date earlier than the true
date of its issuance.
Ex.: An instrument issued on 30 June
2021 but is dated 15 June 2021.
- An instrument is post-dated when it
contains a date later than the true date of
its issuance.
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
Ex.: An instrument issued on 30 June
2021 but is dated 15 July 2021.
- Ante-dating or post-dating an
instrument DOES NOT RENDER IT
INVALID OR NON-NEGOTIABLE BY
THAT FACT ALONE.
- The said instrument can be negotiated
before or after the date given as long as it
is not negotiated after its maturity.
- However, if the ante-dating or post-
dating is done for ILLEGAL OR
FRAUDULENT PURPOSES, the
instrument is INVALID.
INSERTION OF DATE
- Section 13, NIL
- This section authorizes the holder to
insert the true date on an instrument in
the following instances:
1. Where an instrument expressed to be
payable at a fixed period after date is
issued undated; and
“60 days after date, I promise to pay
Matthew or order Php10,000.00”
2. Where the acceptance of an
instrument payable at a fixed period
after sight is undated.
“45 days after sight (or after presentment), I
promise to pay Matthew or order
Php10,000.00”
- Any holder may insert therein the true
date of issue or acceptance and the
instrument shall be payable accordingly.
EFFECT OF THE INSERTION OF A
WRONG DATE
- Section 13, NIL
- The insertion of a wrong date does not
avoid the instrument in the hands of a
subsequent holder in due course (HIDC).
- Here, the HIDC can enforce payment on
the instrument even if it bears a wrong
date.
- As to the HIDC, the date so inserted is to
be regarded as the true date.
- However, the insertion of a wrong date in
an undated instrument by one having
knowledge of the true date of issue or
acceptance will avoid the instrument as
to him or any one claiming under him.
NEGOTIABLE INSTRUMENTS LAW 2
ILLUSTRATION:
Php10,000.00
I promise to pay to the order of Matthew the amount of
(Php10,000.00).
(Sgd.) Andy
Q: Since the instrument is undated, is the
instrument still negotiable?
A: Yes, it is still negotiable because under
Section 1 of the NIL, being dated is not a
requirement for negotiability.
Q: Will the fact that it is not dated affect
its enforcement?
A: No, as a general rule, it will not affect
its enforcement since this an instrument
which payable on demand. Take note
that the time for payment is not
expressed, as such, the note can be
presented for payment at any time.
- As such, Matthew can go to Andy any
time to enforce payment on the PN.
- However, note that Matthew must be
able to present the PN for payment
within a reasonable time.
- Reasonable time is determined on a
case-to-case basis.
Php10,000.00
I promise to pay to the order of Matthew the amount of
(Php10,000.00) 30 days after date.
(Sgd.) Andy
Q: Since the instrument is undated, is the
instrument still negotiable?
A: Yes, it is still negotiable because under
Section 1 of the NIL, being dated is not a
requirement for negotiability.
Q: Will the fact that it is undated affect
the instrument?
A: It will affect the determination of the
maturity of the instrument. Here, since it
is undated, the payee or any holder
thereof cannot determine when the 30-
day period will start.
Q: What is the remedy of the holder of
the instrument?
A: The NIL authorizes the holder to
insert the true date of the instrument in
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
order to be able to determine its maturity
date.
Let us say that the instrument is already
in the hands of Matthew.
Knowing when the PN was made, he
inserted a date, as follows:
5 June 2021
Php10,000.00
I promise to pay to the order of Matthew the amount of
(Php10,000.00) 30 days after date.
(Sgd.) Andy
Q: What is now the effect of the insertion
of the said date?
A: The PN shall be payable according to
the date as inserted by Matthew. As such,
the 30-day period will be counted from 5
June 2021. The maturity date of the
instrument will be on 5 July 2021.
Q: What happens if instead of placing 5
June 2021 (the true date of the PN),
Matthew placed 31 May 2021 to hasten
the date of maturity?
A: Here, Matthew is considered to have
inserted a wrong date. As such, the
instrument is avoided as to him. There is
an ante-dating of the instrument for a
fraudulent purpose, which is to hasten
the maturity of the instrument.
31 May 2021
Php10,000.00
I promise to pay to the order of Matthew the amount of
(Php10,000.00) 30 days after date.
(Sgd.) Andy
Pay to the order of Jack Php10,000.00.
(Sgd.) Matthew
After inserting the wrong date, Matthew
indorsed the instrument to Jack, an
HIDC.
Q: What is the effect of the insertion of a
wrong date in the case of Jack?
A: As for Jack, the maturity of the
instrument will be on 30 June 2021
because as to him, the date so inserted (31
May 2021) is the true date of the
instrument.
NEGOTIABLE INSTRUMENTS LAW 3
ABNORMAL
INSTRUMENTS
THE ABNORMAL INSTRUMENTS ARE:
1. Incomplete but delivered instruments
(Section 14, NIL);
2. Incomplete and undelivered
instruments; (Section 15, NIL); and
3. Complete but undelivered instruments
(Section 16, NIL)
INCOMPLETE BUT
DELIVERED
INSTRUMENTS
(SECTION 14, NIL)
Q: What happens when there are blanks on
a negotiable instrument?
A: When there are blanks on the instrument,
so long as they are material to the completion
of the instrument, it may be filled up by the
person in possession thereof.
Q: What about when a signature on a blank
paper is delivered by the person making the
signature?
A: As long as the delivery was made in order
that the paper may be converted into a
negotiable instrument, there is prima facie
authority to fill it up for any amount.
SEC. 14. BLANKS; WHEN MAY BE
FILLED. - Where the instrument is wanting
in any material particular, the person in
possession thereof has a prima facie
authority to complete it by filling up the
blanks therein. 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 such for any amount.
MATERIAL PARTICULAR – any
particular proper to be inserted in a
negotiable instrument to make it complete.
Q: Is the date of the instrument a material
particular?
A: Yes, it is. The word “material” is not
synonymous with “necessary”. A material
particular is NOT RESTRICTED to
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
something essential to a complete negotiable
instrument (usually those to comply with
the requisites of negotiability).
Q: Is the due date a material particular? How
about the interest rate or exchange rate?
Note: The authority to complete does not
mean an authority to alter.
Q: Can the holder insert the words “or order”
or “or bearer” after the name of the payee in
order to make it a negotiable instrument?
REQUISITES TO BIND PARTIES PRIOR
TO THE COMPLETION
1. It must be filled up strictly in
accordance with the authority given;
and
2. It must be filled up within a reasonable
time. (Sec. 14, NIL)
ILLUSTRATION
On 31 May 2021, Andy borrowed the
amount of Php100,000.00 from Matthew.
On the same date, to secure the payment
of the loan, Andy issued in Matthew’s favor a
promissory note, as follows:
I promise to pay to the order of Matthew the
amount of ____________________ 60 days after date.
(Sgd.) Andy
After the issuance of the note to
Matthew, it was negotiated as follows:
Pay to the order of Anne Php100,000.00.
(Sgd.) Matthew
Pay to the order of Bryle Php100,000.00.
(Sgd.) Anne
Pay to the order of Chris Php100,000.00.
(Sgd.) Bryle
Pay to the order of Diane Php100,000.00.
(Sgd.) Chris
Q: When Bryle got a hold of the note, he was
really bothered by the fact that it was
missing some of its details, specifically its
date and the amount. Can Bryle complete the
instrument?
A: Yes, Bryle, as the person in possession of
the note, has prima facie authority to
complete the blanks.
NEGOTIABLE INSTRUMENTS LAW 4
As such before the maturity of the note,
Bryle completed the note like this:
31 May 2021
Php100,000.00
I promise to pay to the order of Matthew the
amount of Php100,000.00 60 days after date.
(Sgd.) Andy
Pay to the order of Anne Php100,000.00.
(Sgd.) Matthew
Pay to the order of Bryle Php100,000.00.
(Sgd.) Anne
Pay to the order of Chris Php100,000.00.
(Sgd.) Bryle
Pay to the order of Diane Php100,000.00.
(Sgd.) Chris
Take note that in filling up the blanks,
Bryle must do so in accordance with the
authority given.
In this case, as for the date, we already
know that the note was executed and issued
on 31 May 2021. As for the amount, just by
looking at the indorsements at the back of
the note, it can clearly be said that the note’s
value is for Php100,000.00.
On 30 July 2021, Chris, as the current
holder of the note, went to Andy to present
the same for payment. However, Andy
dishonored the note by non-payment. As
such, Chris went after Anne, an indorser.
Q: Can Anne refuse payment by saying that
she did not know that the note was
completed?
A: In this case, Anne cannot refuse to pay for
that reason.
- Anne, in this instance, is considered a
prior party because she was a party
before Bryle completed the instrument.
As such, as to Anne, the note that she
knows is an incomplete one.
- Being a party before the completion or
being a party without any participation
to the completion, can the note still be
enforced against her?
- Yes, the requisites to bind prior parties
have been complied with.
- First, it was filled up strictly in
accordance with the authority given.
Bryle filled up the note in accordance
with the date and amount that was
intended by Andy when she issued the
note.
- Second, we can say that the note was
filled up within a reasonable time, since
it was mentioned that the completion
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

was made before its maturity, which is

anytime before 30 July 2021. INCOMPLETE AND
Let us say that instead of the example
UNDELIVERED
above, Bryle filled up the note like this: INSTRUMENTS
15 May 2021
(SECTION 15, NIL)
Php100,000.00
SEC. 15. INCOMPLETE INSTRUMENT
I promise to pay to the order of Matthew the
amount of Php100,000.00 60 days after date. NOT DELIVERED. - Where an incomplete
(Sgd.) Andy
instrument has not been delivered, it will
not, if completed and negotiated without
authority, be a valid contract in the hands of
Pay to the order of Anne Php100,000.00.
any holder, as against any person whose
(Sgd.) Matthew signature was placed thereon before
Pay to the order of Bryle Php100,000.00.
(Sgd.) Anne delivery.
Pay to the order of Chris Php100,000.00.
(Sgd.) Bryle
Note:
- Non-delivery of an incomplete
Here, Bryle completed the instrument by instrument is a REAL DEFENSE which
inserting a wrong date to speed up the may be set up even against a holder in due
maturity of the note. As such, the maturity course.
date of the instrument became earlier than - However, this defense can only be used
intended. The note will now be considered as any person whose signatures appear
due on 14 July 2021. before delivery.
- For parties after delivery, they can be
Being the holder, Bryle went to Andy to held liable to an HIDC.
present the same for payment. However,
Andy dishonored the note by non-payment. ILLUSTRATION
As such, Bryle went after Anne, an indorser.
Let us say that Andy makes a note for
Q: Can Anne refuse payment by saying that Php15,000.00.
the note was improperly completed?
A: In this case, Anne can refuse to pay. Here, The note is as follows:
the requisites are not complied with because
Bryle filled up the note beyond the authority
that was given. Php15,000.00
- Having failed to comply with the I promise to pay to the order of _______________
requisites, Anne a prior party is not the amount of Php15,000.00.

bound by the completion. (Sgd.) Andy

- Furthermore, the note is avoided as to

Bryle when he inserted a wrong date,
even though he knew that the true date
of the note was on 31 May 2021.
Q: What if instead of presenting it for
payment, Bryle indorsed the instrument to
Chris, an HIDC. Can Anne still refuse
payment?
A: No. The defense that the instrument has
not been filled up in accordance with the
authority given and within a reasonable time
Andy was supposed to issue this in favor
of Jack. However, Andy mistakenly included
this with the files that he handed over to
Matthew.
When Matthew saw the note, instead of
returning it to Andy, he put his name as the
payee and put a date.
31 May 2021

is not available against an HIDC. Php15,000.00

- Section 14 merely raises a PERSONAL I promise to pay to the order of Matthew the
amount of Php15,000.00 30 days after date.
DEFENSE.
(Sgd.) Andy

NEGOTIABLE INSTRUMENTS LAW 5

REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

After its completion, the note was

negotiated as follows: COMPLETE BUT
UNDELIVERED
Pay to the order of Anne Php15,000.00.
(Sgd.) Matthew INSTRUMENTS
Pay to the order of Bryle Php15,000.00.
(Sgd.) Anne
Pay to the order of Chris Php15,000.00.
(SECTION 16, NIL)
(Sgd.) Bryle

In the absence of delivery, though the

On 30 June 2021, Chris, as the current
holder of the note, went to Andy to present
the same for payment.
Q: Can Chris, an HIDC, enforce the note
against Andy?
A: Here, there is an incomplete and
undelivered note. As such, the note is not a
valid contract in the hands of any holder,
even for Chris, an HIDC. Being a party prior
to delivery, Andy does not assume any
responsibility whatsoever.
- Take note, that there was no proper
delivery because the note came into the
possession of Matthew by mistake when
Andy mistakenly included it in the files
that she handed over.
instrument is complete in all its particulars,
there is NO CONTRACT to speak of.
SEC. 16. DELIVERY; WHEN
EFFECTUAL; WHEN PRESUMED. -
Every contract on a negotiable instrument is
incomplete and revocable until delivery of
the instrument for the purpose of giving
effect thereto.
Without the initial delivery (issuance) of
the instrument, there can be no liability
thereon.
Note: It is the delivery of the instrument that
is considered as the final act essential to its
consummation as an obligation.

Since the note was dishonored by the PRESUMPTION AS TO DELIVERY

party primarily liable, Chris went after Anne, 1. If the instrument is in the possession of
an indorser. an HIDC, valid delivery is
CONCLUSIVELY PRESUMED.
Q: Can Chris, an HIDC, enforce the note 2. If the instrument is in the possession of a
against Anne? party other than an HIDC, possession of
A: Yes. The note can be enforced against such party constitutes only PRIMA
Matthew, Anne and Bryle. They are no longer FACIE PRESUMPTION OF
covered by Section 15 since they are no longer DELIVERY.
parties prior to the delivery of the note. - Where the instrument is no longer in
- Furthermore, as indorsers, they warrant, the possession of a party whose
among others, that the instrument is signature appears thereon, a valid and
genuine and in all respects what it intentional delivery by him is
purports to be. presumed until the contrary is
- As their signatures appear on the proved.
instrument after delivery, the instrument - Here, the presumption can be
is valid as to them. contradicted by proof that no
- For Matthew, he is liable not merely as an delivery was made or that the
indorser but for being responsible for delivery was conditional, or for a
taking the note without authority and its special purpose only, and not for the
subsequent completion and negotiation. purpose of transferring the property
in the instrument.

CONDITIONAL DELIVERY OR
DELIVERY FOR A SPECIAL PURPOSE
- The delivery is made conditional or for a
special purpose if it was made not for the
purpose of transferring the property
(title) to the instrument.

NEGOTIABLE INSTRUMENTS LAW 6

REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
- In such case, if the instrument lands in
the hands of an HIDC (one who does not
know of the conditional delivery or of its
special purpose), the instrument is
treated as if there is no condition.
- If such delivery was made to a holder not
in due course, prior parties are not bound
by the instrument.
- The law contemplates that the condition
is orally or verbally conveyed to the
holder upon delivery, because of the rule
that the negotiability is determined only
upon the face of the instrument.
IMMEDIATE PARTIES
- They are persons having knowledge of
the conditions or limitations placed upon
the delivery of an instrument.
- It means privity, and not proximity.
- A payee who is a holder in due course is
not an immediate party in the sense of
Section 16.
REMOTE PARTIES
- Persons without knowledge as to the
conditions or limitations placed upon the
delivery of an instrument.
- The person can become a remote party
even if he is the next party physically or
parties who are not in direct contractual
relation to each other, but if they are
chargeable, for example, with knowledge
or notice of any infirmities in the
instrument or defect in the title of the
person negotiating the same, they will be
considered as immediate parties for
purposes of Section 16.
ILLUSTRATION:
Let us say that Andy makes a note for
Php100,000.00.
The note is as follows:
31 May 2021
Php100,000.00
I promise to pay to the order of Matthew the
amount of Php100,000.00.
(Sgd.) Andy
However, instead of delivering it, Andy
keeps it in her safe.
NEGOTIABLE INSTRUMENTS LAW 7
Q: Was there delivery in this case?
A: There was no delivery since there was no
transfer of possession from the maker to a
payee since Andy kept it in her safe.
Q: What is the effect of the non-delivery of
the note?
A: Though the note is complete, there is no
contract. Andy does not assume any liability.
Matthew, as the payee, does not acquire any
right against Andy who may revoke, cancel
or even tear up the note with or without any
valid reason.
Let us say that on 31 May 2021, Andy
mistakenly left the note in her office table.
When Matthew came to visit Andy in her
office, he saw the note. As such, Matthew
secretly took the note without telling Andy.
After that, the note was negotiated as
follows:
Pay to the order of Anne Php100,000.00.
(Sgd.) Matthew
Pay to the order of Bryle Php100,000.00.
(Sgd.) Anne
Pay to the order of Chris Php100,000.00.
(Sgd.) Bryle
Pay to the order of Dylan Php100,000.00.
(Sgd.) Chris
Here, Dylan is aware that Matthew only
stole the note from Andy.
Q: Who are the immediate parties?
A: Matthew and Dylan are immediate
parties.
Q: What is the effect of being immediate
parties?
A: Their possession of the note constitutes
only prima facie presumption of delivery. As
such, Andy can prove that no delivery or that
delivery was not authorized.
Q: Can Andy still enforce the note against
Matthew, Anne, Bryle and Chris?
A: Yes, since they are indorsers. As indorsers,
they have warranties.
Q: What if Dylan was not aware of the fact
that the note was merely stolen?
A: Dylan now becomes an HIDC. As such,
delivery is conclusively presumed.
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS
FORGERY (SECTION 23, NIL)
FORGERY
- It is the counterfeit-making or fraudulent
alteration of any writing.
- It happens when a signature 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.
KINDS UNDER SECTION 23
1. Forged signature; and
2. Signature made without authority.
EFFECTS OF FORGERY:
- It does not avoid the instrument but only
the forged signature.
- In other words, rights may still exist and
be enforced by virtue of such instrument
as to those signatures thereto are found
to be genuine.
- GR: It is only the forged/unauthorized
signature which is declared as
INOPERATIVE. As such, no right can be
acquired the forged/unauthorized
signature.
- EXC:
1. If the party against whom it is sought
to enforce such right is precluded
from setting up forgery or want of
authority; and
2. Where the forged signature is not
necessary to the holder’s title, in
which case, the forgery may be
disregarded.
PERSONS PRECLUDED FROM
SETTING UP THE DEFENSE OF
FORGERY
1. The forger himself;
2. Those who by their acts, silence, or
negligence are estopped from setting
up the defense of forgery; and
3. Those who warrant or admit the
genuineness of the signatures in
questions, namely:
a. Indorsers;
b. Acceptors; and
c. Persons negotiating by delivery.
CASES OF FORGERY, IN GENERAL
1. The forgery of promissory notes, which
may be subdivided into:
a. Forgery of an indorsement; and
b. Forgery of the maker’s signature.
NEGOTIABLE INSTRUMENTS LAW 8
2. The forgery of bills of exchange, which
may be subdivided into:
a. Forgery of an indorsement; and
b. Forgery of the drawer’s signature
either:
b.1. With acceptance by the
drawee; or
b.2. Without such acceptance but
the bill is paid by the drawee.
CUT-OFF PRINCIPLE
- In order instruments, parties prior to
forgery are relieved or cut-off of liability.
- They cannot be held liable by any holder,
including a holder in due course.
LIABILITIES OF THE PARTIES IN AN
ORDER INSTRUMENT
15 May 2021
Php100,000.00
I promise to pay to the order of Matthew the
amount of Php100,000.00 60 days after date.
(Sgd.) Andy
Pay to the order of Anne Php100,000.00.
(Sgd.) Matthew
Pay to the order of Xylene Php100,000.00.
(Sgd.) Anne
Pay to the order of Bryle Php100,000.00.
(Sgd.) Xylene
Pay to the order of Chris Php100,000.00.
(Sgd.) Bryle
Here, the forger is Xylene. She forged the
signature of Anne.
Q: What is the effect of the forgery?
A: The signature of Anne becomes
inoperative. As such, no right can be acquired
the forged/unauthorized signature, even to
an HIDC.
Q: Against whom can Chris enforce the note?
A: Chris can enforce the note against Xylene
and Bryle but not against Andy, Matthew or
Anne, because were it not for the forgery of
Xylene the instrument will not reach the
possession of Chris.
REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

LIABILITIES OF THE PARTIES IN AN 2. When the PAYEE’S SIGNATURE is

BEARER INSTRUMENT forged
- Drawee bank is liable.
15 May 2021 - It owes to the drawer-depositor
Php100,000.00 an absolute and contractual duty
I promise to pay to Matthew or bearer the to pay the check only to the
amount of Php100,000.00 60 days after date.
person to whom it is made
(Sgd.) Andy payable.
- Drawee bank, in such case,
should credit back and restore to
Pay to the order of Anne Php100,000.00. drawer’s account the value of the
(Sgd.) Matthew
Pay to the order of Xylene Php100,000.00. check wrongfully encashed.
(Sgd.) Anne
Pay to the order of Bryle Php100,000.00. 3. When the INDORSER’S
(Sgd.) Xylene
Pay to the order of Chris Php100,000.00.
SIGNATURE is forged
(Sgd.) Bryle - Drawee bank bears the loss as it
is under strict liability to pay
the check to the order of the
Here, the forger is Xylene. She forged the payee.
signature of Anne. - Payment under forged
indorsement is not to the
Q: What is the effect of the forgery? drawer’s order.
A: The signature of Anne still becomes - If the drawee bank pays a check
inoperative. As such, no right can be acquired bearing forged signature of
the forged/unauthorized signature, even to indorser, it does so at its own
an HIDC. However, since the instrument is peril.
payable to bearer, the indorsement is not - However, the drawee bank may
necessary to vest title to Chris because pass the liability to the
negotiation on bearer instrument requires collecting bank who cannot
only delivery. interpose the defense of forgery.
- Under Section 16 of the NIL the
LEGAL CONSEQUENCES WHEN A collecting bank is an indorser
BANK HONORS A FORGED CHECK who warrants that the
1. When DRAWER'S SIGNATURE is instrument is genuine and in all
forged respect what it purports to be.
- Drawee bank is liable. - The collecting bank had no
- Here, the bank is bound to know right to be paid by the drawee
the signature of its customers. bank since the forged
- As such, if it pays a forged check, indorsement is inoperative. The
it must be considered as making collecting bank my ultimately
the payment out of its own funds recover from the forger.
and cannot ordinarily charge the
amount so paid to the account of Note: In all three cases, when the drawer is
the depositor whose name was guilty of negligence, he should bear the loss.
forged. He is precluded from setting up forgery
- It is also in a superior position to because the proximate cause of the loss is his
detect the forgery because it has a own negligence.
specimen of the signature of the
maker. REFERENCES:
- Lastly, by accepting the De Leon & De Leon, Jr. 2013. "The Philippine
instrument, it becomes an Negotiable Instruments Law".
acceptor who admits the Soriano. 2011. “Notes on Business Law.”
genuineness of the drawer’s UST Golden Notes. 2018. Mercantile Law
signature. Reviewer
The Negotiable Instruments Law

NEGOTIABLE INSTRUMENTS LAW 9