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Sec. 14. Blanks, when may be filled.

Does not apply to forgery


Steps in issuance of negotiable instrument
1) Writing of the instrument completely,
in accordance with Sec. 1 AND
2) Delivery of the complete instrument
by the maker or the drawer to the
payee or holder with the intention of
giving effect to it
Section
14
Section
15
Section
16

Incomplete instrument,
delivered
Incomplete instrument,
undelivered
Complete instrument,
undelivered

INCOMPLETE INSTRUMENT BUT


DELIVERED:
Authority to fill up blanks
- Has prima facie authority to fill up the
blanks: holder/person in possession
- Presumption: filled up strictly in
accordance with the authority
given and within a reasonable
time
- Material particular: any particular to
be inserted to make the instrument
complete
- Power to fill in blanks for:
1) Date
2) Due date
3) Name of payee
4) Amount
5) Rate of interest
6) Name of the drawer
- Authority to complete does not
mean authority to alter (e.g.
change amount, insert words or
order, etc.)
Authority to put any amount
- Signature on a blank paper delivered
in order that it may be converted into
a negotiable instrument: prima facie
authority to fill it up as such for any
amount
- Presumption: filled up strictly in
accordance with the authority
given and within a reasonable
time
Right against party prior to completion
- May be enforced ONLY against a party
prior to completion if filled up
strictly in accordance with the

authority given and within a


reasonable time
Right of holder in due course
- Personal defense of Not filled up
strictly in accordance with the
authority given and within a
reasonable time not available
AGAINST a holder in due course
Sec. 15. Incomplete instrument not delivered
If completed and delivered without
authority, it will not be a valid contract
in the hands of ANY HOLDER
Defense EVEN against an HDC
- Real Defense: Incomplete instrument,
or completed instrument without
authority, has not been delivered
- Presumption of delivery by M:
must be rebutted by M.
Defense available to parties prior to
delivery
The instrument is only invalid as
against M or any person whose
signature was placed thereon
after delivery
- The instrument is valid as to indorsers
- The instrument can be enforced
against indorsers because: they
warrant the genuineness of the
instrument and in all respects
what it purports to be
Sec. 16. Delivery, when effectual, when
presumed
When delivery effectual
- In order to be effectual, must be made
by or under the authority of the party
making, drawing, accepting or
indorsing
When delivery presumed
- Valid delivery: where the instrument
is in the hands of a holder in due
course. CONCLUSIVE PRESUMPTION
- Valid & intentional: where the
instrument is no longer in the
possession of a party whose signature
appears thereon. DISPUTABLE
PRESUMPTION
INSTRUMENT WHEN COMPLETE
Undelivered

instrument is incomplete and


revocable until delivery for the
purpose of giving effect thereto
INOPERATIVE: delivery is a
prerequisite to liability
Delivery made by:
1) Maker or drawer himself
2) Through a duly authorized agent
DELIVERY: transfer of possession
(ACTUAL or CONSTRUCTIVE) from one
person to another
ISSUE: first delivery of the instrument
(complete in form)
HOLDER: payee or indorsee of a bill
or note

In possession of person other than an


HDC
- PRIMA FACIE presumption of delivery
but subject to rebuttal
- Immediate parties: Knows the
conditions placed upon the delivery of
the instrument
- Remote parties: those who are not in
direct contractual relation to each
other.
o If with KNOWLEDGE or NOTICE
of any infirmity or defect in the
instrument, they are considered
immediate parties
Delivery conditional or for a special
purpose
- Delivery may be shown to be
conditional, not for the purpose of
transferring title to the instrument
- Delivery is presumed to be made with
the intention of transferring ownership
of the instrument
Instrument in hands of HDC
- CONCLUSIVE PRESUMPTION: valid
delivery to him is made.
- Conclusive, reason being, admission of
evidence to the contrary is not allowed
- Presumption not available when
the instrument is incomplete
Sec. 17 Where instrument is ambiguous
- Applicable only when:
1) Instrument is ambiguous or
uncertain
2) When there are omissions
- When terms are clear, the instrument
must be enforced as it reads

Sum expressed in words and in figures


different
- The sum expressed in words is the
sum payable
- It is easier to change the figures than
the words
- Figures form no part of the instrument,
simply an abridgement for
CONVENIENCE
Words ambiguous or uncertain
- The figures control
Date for interest not specified
- The interest runs from the date of the
instrument
- If undated, the instrument runs from
the date of issue
Instrument undated
- Considered dated as of the date of its
issue
- The date in the instrument is deemed
prima facie the true date of its
issue, acceptance or indorsement.
Written and printed words in conflict
- Written provisions prevail
Whether instrument bill or note in
doubt
- If there is doubt, the HOLDER may
treat is as either at his election.
- Example:
1) I promise to pay P or order
(promise = promissory note, order
= order instrument)
2) Where drawee and drawer are one
and the same person
Capacity in which person signed in
doubt
- Person who signed is deemed an
indorser, who assumes the least
liability
Instrument signed by two or more
persons
- I promise to pay signed by two or
more persons
1) Gives rise to solidary liability
- We promise to pay signed by two
or more persons
1) Gives rise to joint liability

Sec. 18. Liability of person signing in trade or


assumed name
Persons liable on an instrument
1) GENERAL RULE: only persons whose
signatures appear on an instrument
2) EXCEPTIONS:
- Where a person signs in a trade or
assumed name
- Principal is liable if a duly authorized
agent signed on his own behalf
- In case of forgery, the forger is
liable even if his signature does not
appear in the instrument
- When acceptor makes his
acceptance of a bill on a separate
paper
- Where a person makes a written
promise to accept a bill before it is
drawn
Sec. 19. Signature by agent
-

The signature of any party may be


made by a duly authorized agent
No particular form needed, authority
may be shown as in other cases of
agency
The agent may only sign simply the
principals name and show his
authority to do so by other evidence

Sec. 20. Liability of person signing as agent


When agent cant be held personally
liable
- He is duly authorized
- He adds words to his signature
indicating that he signs as an agent
- He discloses the principal
-

The agent may show evidences that


he is acting only in representative
capacity, when sued by payee, and
that the payee knew that this was the
case

Sec. 21. Signature by procuration


- Operates as a notice that the agent
has but a limited capacity to sign
- The principal is only bound in case the
agent in so signing acted within the
actual limits of his authority

Signature by procuration
- Usually understood in the same sense
as agency or proxy
- The act by which a principal gives
power to another to act in his place as
he could himself
- It gives warning that the agent has
limited authority
- Notice also that it is the duty of the
person dealing with him to inquire into
the extent of his authority
Sec. 22. Effect of indorsement by infant
or corporation
- Indorsement of an infant or
corporation passes the property
therein
- Notwithstanding the fact that from
want of capacity, the corporation or
infant may incur no liability
Indorsement by incapacitated persons
1) Infants contracts entered into by the
same are voidable
o Not bound by indorsement for
lack of capacity, BUT
o Not incapacitated to transfer
rights
o Minority cannot be setup as a
personal defense by persons
other than the minor
o REAL DEFENSE of the minor
- However the minor can be held bound
by his signature in an instrument
where he is guilty of actual fraud
2) Incapacitated persons other than a
minor
o Real defense: their incapacity
-

NEGOTIATION
Sec. 30. What constitutes negotiation
Negotiation
- Instrument is negotiated when
transferred from one person to
another in such manner as to
constitute the TRANSFEREE the
HOLDER thereof
- If bearer instrument, negotiated by
deliver
- If order instrument, negotiated by
indorsement of holder completed
by delivery
- NO NEGOTIATION IF TRANSFER
DOES NOT MAKE THE TRANSFEREE
THE HOLDER OF THE INSTRUMENT
Methods of transfer of NI
1) ISSUE
- First delivery of complete
instrument to a person who takes it
as holder
- First transfer to a payee
- Legal life of NI begins from the issue
of maker/drawer to first holder
2) NEGOTIATION
- Makes transferee the holder of the
instrument
3) ASSIGNMENT
- Transfer of title of instrument, from
assignor to assignee
- Assignor only receives the
rights/title the assignor has
- May/may not involve indorsement
(by writing on the back of the
instrument)
- Non-negotiable instruments are
always transferred by assignment
Methods of negotiation
PAYABLE TO ORDER
- Must be indorsed by payee/holder
AND
- Delivered to next holder
PAYABLE TO BEARER
- Negotiated by mere delivery
(WITHOUT INDORSEMENT)
- Any person in possession of a bearer
instrument is always the bearer
thereof (though he may not have legal
right thereto)
DELIVERY

Transfer of possession (ACTUAL or


CONSTRUCTIVE) from one person to
another
- Must be voluntary (e.g. a thief cannot
acquire title of the instrument by
virtue of theft, but can transfer title to
a subsequent innocent purchaser)
Payment of check is not negotiation
- A bank is neither a payee nor
indorsee. Check is extinguished when
paid
- Name of holder written on the back of
the check before surrendering for
payment to DRAWEE-BANK is not an
indorsement
- The signature is only for receipt of
money, the check becomes a voucher
Order instrument delivered but not
indorsed
- Transfer (delivery) operates as an
ordinary assignment. The assignee
MERELY takes the position of assignor.
Assignee receives ONLY the defences
(REAL and PERSONAL) the assignor
had
- TRANSFEREE NOT HOLDER OF
INSTRUMENT. Because he is not a
payee, indorsee or bearer of
instrument
- INDORSEMENT SUBSEQUENTLY
OBTAINED. The transfer becomes
negotiation only as of the time the
indorsement is actually made
NEGOTIATION vs. ASSIGNMENT
Negotiation
Assignment
NI can be
Non-NI can only be
negotiated or
assigned/transferred
assigned
Refers to NIs
Refers (generally) to
ordinary contracts
Transferee is holder
Transferee is
assignee
HDC subject only to
Assignee subject to
REAL defences
both REAL and
PERSONAL defences
HDC receives
Assignee only steps
greater rights than
in the shoes of
transferor or prior
assignor
parties
General indorser
Assignor does not
warrants solvency of warrant solvency of
other parties
prior parties (unless
otherwise

Indorser not liable


unless there be
presentment and
notice of dishonor
Governed by
Negotiable
instruments law

stipulated)
Assignor liable even
without notice of
dishonor
Governed by Civil
Code

Negotiation to a payee?
- Payee acquires title by issuance only
- Only the holders subsequent to the
payee can acquire title by negotiation
WHEN PAYEE ACQUIRES TITLE BY
NEGOTIATION
- When delivery is made by the
MAKER/DRAWER to another OTHER
THAN the payee (i.e. agent of
maker/drawer), payee acquires title by
negotiation
Sec. 31. Indorsement how made
Indorsement must be written on:
1) The instrument itself
2) Upon a paper attached thereto
Indorsement
- Writing of the name of the payee on
the instrument with the intent to:
1) Transfer title; AND/OR
2) Strengthen the security of the
holder by assuming a contingent
liability for its future payment
- When a payee indorses an instrument
he becomes an indorser, the receiver
becomes an indorsee
- Indorsement without delivery conveys
no title and creates no holder
- Indorsement is completed by delivery
- Indorsement applies both to bills and
notes
Nature of indorsement
- Mode of transfer
- Involves a new contract and obligation
on the part of the indorser
- Generates additional contract between
the indorser and all subsequent
holders
Necessity of indorsement
1) Essential to execution of an order
instrument
2) Essential to negotiation of an order
instrument

3) Not necessary to mere assignment


(NI/Non-NI)
- One CAN acquire title without
indorsement
- Holder cant become HDC without
indorsement (order instrument)
Forms of indorsement
- No exclusive form, but must be
written or in writing or in print.
- Assign does not make an
indorsement an assignment
- Indorsement can be made with only a
signature, without additional words
(BLANK INDORSEMENT)
- Name of INDORSEE specified
(SPECIAL INDORSEMENT)
Place of indorsement
- Not essential. May be written on the
back or on the face of the instrument
- The law looks to the intention of the
parties rather than to the form as to
INDORSEMENT
- ALLONGE paper attached on the
instrument, on where the
indorsement is made
Sec. 32. Indorsement must be of entire
instrument
- Indorsement must be of entire
instrument
- Indorsement not negotiation when:
1) It purports to transfer to the
indorsee a part only of the amount
payable; OR
2) Which purports to transfer the
instrument to two or more
indorsees severally
- If instrument has been paid in part, it
may be indorsed for the residue
GENERAL RULE: INDORSEMENT MUST BE
OF ENTIRE INSTRUMENT
- Instrument must be delivered to the
indorsee and there cannot be a partial
delivery of one instrument
- A part indorsee is considered merely
as an assignee
EXCEPTION: When part of the amount has
already been paid
Indorsement to multiple payees or
indorsees
- Two or more indorsees severally: not
negotiation

Two or more indorsees jointly:


negotiation valid (indorsements of all
indorsees are required for further
negotiation) (Pay to A and B)
If indorsed to alternative payees, the
negotiation may be made by the
indorsement of either payees (pay to
A or B)

Sec. 33. Kinds of indorsement


- Indorsement may either be special or
in blank
- Either restrictive or qualified or
conditional
As to
Methods of
negotiation
Kind of title
transferred
Scope of liability
of indorser
Presence or
absence of
limitation
Other kinds of
indorsements

Indorsement
Special or blank
Restrictive or nonrestrictive
Qualified or
unqualified/general
Conditional or
unconditional
Joint, successive,
irregular/anomalous,
facultative

Once an instrument satisfies all requirements


for negotiability (Sec. 1), no indorsement
can negate its negotiable status
Sec. 34. Special/blank indorsement
Special

Blank

specifies person to
whom or to whose
order the instrument
is to be payable
Indorsement of
indorsee is
necessary for
further negotiation
of the instrument
Specifies no
indorsee
Instrument indorsed
is payable to bearer
Subsequently, may
be negotiated by
delivery

Special indorsement
- Name of the payee is specified

Known as specific indorsement or


indorsement in full
Special & blank indorsements are
UNQUALIFIED indorsements

Form of special indorsement


- One that specifies the person to whom
it is to be paid (Pay to A)
- One that specifies the person to whose
order it is payable (Pay to ORDER of
A)
- It must always be SIGNED BY THE
INDORSER (in case of order
instrument)
Negotiation of order and bearer
instrument
- Inst. originally payable to order: if
special indorsement, indorsement
of indorsee is necessary to the further
negotiations
- Inst. originally payable to bearer: may
be negotiated by delivery, even if
indorsed specially
Blank indorsement
- Specifies no particular indorsee
- Ordinarily consists of the signature of
the payee/indorser
- Instrument indorsed is payable to
bearer, and may be further negotiated
by delivery w/o need for indorsement
(regardless if payable to bearer or
not)
- If last indorsement, makes a
check (order instrument) payable
to bearer (bearer instrument)
Sec. 35. Blank indorsement converted to
special
- By writing over the signature of the
indorser in blank
Conversion of blank to special
- Originally order instrument becomes
payable to bearer if the LAST or ONLY
indorsement is an indorsement in
blank
- An instrument MADE payable to
bearer by an indorsement in blank
may be converted into an order
instrument by:
o Writing over the signature
of the indorser in blank any
contract consistent with the
character of the instrument

Bearer instrument always remain a


bearer instrument

Sec. 36. When indorsement restrictive


Restrictive indorsement
- Prohibits entirely the further
negotiation of an instrument
- Modifies the rights of the holder or the
liabilities of the indorser
o Limits rights of indorsee
1) Indorser notifies all
prospective holders that the
indorsee has only the
authority to deal with the
instrument
2) The indorsee has only a
restrictive title thereto
3) Thus, the indorser can
safeguard his interest
o Destroys the negotiability of
instrument
1) Subsequent indorsees
acquire on the title of the
first indorsee
o Has three classes
1) Prohibits (Pay to A only)
2) Constituted indorsee agent
of indorser (Pay to A for
collection)
3) Vests title (Pay to A in
trust for B)
Sec. 37. Effect of restrictive indorsement
Rights of indorsee:
1) Receive payment of the instrument
2) Bring any action thereon that the
indorser could bring
3) To transfer his rights as such indorsee
Sec. 38. Qualified indorsement
- Constitute the indorser a mere
assignor of the title to the instrument
- May be made by adding to the
indorsers signature the words
without recourse or any words of
similar import
- does not impair the negotiability
of the instrument
- RECOURSE means a resort to a person
who is secondarily liable after the
default of the person who is primarily
liable
Effect of qualified indorsement
- Indorser becomes a mere assignor

1) Indorsement indicates that the


indorser is guaranteeing its
payment if the maker is in default
2) Qualified indorsement is transfer of
title without guaranteeing payment
Indorsers liability is limited
1) Liability limited not extinguished
2) Secondarily liable still for
warranties (unless otherwise
stipulated in the qualified
indorsement)
3) Indorser not liable for dishonouring
of instrument (i.e. makers
insolvency)
Instrument still negotiable

Sec. 39. Conditional indorsement


Absolute
Indorser binds
himself to pay, upon
no other condition
than the failure of
prior parties to do
so and of due notice
to him of such
failure
-

Conditional
The indorser
imposes some other
conditions to his
liability, or on the
indorsees right to
collect the proceeds
of the instrument

A conditional indorsement does not


destroy negotiability
However, a condition on the face of
the instrument makes it nonnegotiable

Sec 40. Indorsement of instrument payable


to bearer
- When a bearer instrument is indorsed
specially it can still be negotiated by
delivery
- The special indorser is only liable to
holders who made title through his
indorsement
Effect of special indorsement of bearer
instrument
- The bearer instrument is not
converted into an order instrument
(despite special indorsement)
- Instrument can still be negotiated by
delivery
- Special indorser is liable as a
GENERAL INDORSER (sec. 66) to
holders who can trace their title to the
instrument by a series of unbroken

indorsements from such special


indorser.
Application of Sec 40
- Only applicable to bearer instruments
-

Sec. 14. Blanks, when may be filled


Sec. 15. Incomplete instrument not delivered
Sec. 16. Delivery, when effectual; when
presumed
Sec. 17. Construction where instrument is
ambiguous
Sec. 18. Liability of person signing in trade or
assumed name
Sec. 19. Signature by agent; authority; how
shown
Sec. 20. Liability of person signing as agent,
etc.
Sec. 21. Signature by procuration; effect of
Sec. 22. Effect of indorsement by infant or
corporation
Sec. 23. Forged signature; effect
Sec. 24. Presumption of consideration
Sec. 25. Value; what constitutes
Sec. 26. What constitutes holder for value
Sec. 27. When lien on instrument constitutes
holder for value
Sec. 28. Effect of want of consideration
Sec. 29. Liability of accommodation party
Sec. 30. What constitutes negotiation
Sec. 31. Indorsement; how made
Sec. 32. Indorsement must be of entire
instrument

Sec. 33. Kinds of indorsement


Sec. 34. Special indorsement; indorsement in
blank
Sec. 35. Blank indorsement; how changed to
special indorsement
Sec. 36. When indorsement restrictive
Sec. 37. Effect of restrictive indorsement;
rights of indorsee
Sec. 38. Qualified indorsement
Sec. 39. Conditional indorsement
Sec. 40. Indorsement of instrument payable
to bearer
Sec. 41. Indorsement where payable to two
or more persons
Sec. 42. Effect of instrument drawn or
indorsed to a person as cashier
Sec. 43. Indorsement where name is
misspelled, etc.
Sec. 44. Indorsement in representative
capacity
Sec. 45. Time of indorsement; presumption
Sec. 46. Place of indorsement; presumption
Sec. 47. Continuation of negotiable character
Sec. 48. Striking out of indorsements
Sec. 49. Transfer without indorsement; effect
of
Sec. 50. When prior party may negotiate
instrument