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Transcription for NEGOTIABLE NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

NEGOTIABLE INSTRUMENTS LAW  ATTY. RENE VILLARENTE VILLARENTE

CEBU INTERNATIONAL V. CA What law governs money transaction of cebu internation with alegre? 1249 or article 73 of NIL?..(see case)

BRIEF HISTORY OF THE LAW Origin: Law on Merchants  Act No.2031, No.2031, the Negotiable Instruments Law, took effect on June 2,1911, 2,1911, and is patterned after the U.S Uniform Negotiable Instruments Law, Law, then called US Uniform NI Act of 1896 which in turn is copied from the English Bill of Exchange Act of 1882. 1882 —compilation  .—compilation of law merchants  Act No. 2031 enacted on Feb. 3, 1911; took effect after 90 days of publication on march 4, 1911; after published, full force and effect —June  —June 2, 1911. This law has never had any amendment since then. Important principle: decisions of the US and Britain that has something to do with NIL has persuasive effect in our law

2.

PP V. TONGKO Issue of NIL as medium of commercial Has relation with estfa 315 (d) on postdating checks 3.

It is a medium of credit transactions

4.

It enhances security ( you are not dealing with actual legal tender)

5.

It is a specie of property

FUNCTIONS AND IMPORTANCE OF THE NIL 1.

It is a substitute for money but it is NOT legal tender  Act No. 7653, CB Act Section 52 —“legal o tender” tender” means that amount which a debtor can force the creditor to accept as payment of a debt o They can act like money. Can you just give the check to the clerk of court as consignation? NO. it is not legal tender; it will not effect payment. (BPI v. spouses royeca —whether  —whether tender of check constitutes payment)

DBP OF RIZAL V. SIMA WEI  A NI of which a check is not only a written evidence of contract but also a specie of property; it is a property in itself. It can be a subject of theft; thievery of the check itself. However, PP. V. BERNARD MIRTO, October MIRTO, October 19, 2011  Are checks by itself personal property? May it be subject to theft or qualified theft? How case was prayed was different from sima wei. Sa latter, the check was taken away from sima wei. Here, coca cola, distributor will give checks in advance. Transaction is cash-based but you will give checks as collateral. This distributor, wala na niya giuli ang check so wala na collateral. Coca cola sued guy for theft under the sima wei doctrine. So now, can he be charged of theft? Is there transfer ownership when check was only issued as collateral? NO.

Section 52. Legal Tender Power. Power. - All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private: Provided, however, That, unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less.

a. b. c.

d.

o

ELEMENTS: Government is involved so all notes and coins are guarantee It is legal tender for all debts both public and private Provided, ..coins shall be legal tender in amounts not exceeding P50 for denominations of 25 centavos and above; and in amounts not exceeding P20 for denominations of 10 centavos or less. For NOTES — legal  — legal tender for all debts

The rule under 1249 of the CC: CC: payment will have its effect only when the NI shall have been encashed. It is only considered as consummated payment if you have already encashed it. Myron Papa v. Valencia Encashment is the operative act where payment is considered made and not the tender of the NI even if accepted. -

F: the holder intentionally did not encash the check. The other guy sold his land, check was made as payment. Then he intentionally did not encash it; so wala daw consummated sale. If I did not encash it, what is the effect of 1249? Will the sale be consummated in the light of 1249 of the CC?

It is a medium of exchange for most commercial transactions

6.

It can either be a receipt proving payment or evidence proving indebtedness

CASES: PACHECO V. CA BENNY GO V. BACARO SPOUSES TAN V. VILLAPAZ CHUA GAW V. CHUA LANDBANK V. MONETS EXPORT LANDBANK V. MONETS EXPORT F: Case F: Case of evidence of indebtedness held by the bank on a borrower who has multiple loans WON PN is evidence of indebtedness SC:  SC:  As it happened, however, in its original decision, the RTC held that Monet still owed Land Bank only P2.5 million as reported in the bank‟s Schedule of Amortization (Exhibit 39). But that schedule covered only one promissory note, Promissory Note P-981. Noting this, the Court rejected Exhibit 39 as basis for determining Monet‟s total obligation, given that it undeniably took out more loans as evidenced by the other promissory notes it executed in favor of Land Bank. CHARACTERISTICS INSTRUMENTS 1.

AND

FEATURES

OF

NEGOTIABLE

NEGOTIABILITY- it NEGOTIABILITY- it is that attribute or property whereby a bill or note or check may pass from hand to hand similar to money,

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

so as to give the holder in due course the right to hold the instrument and to collect the sum payable for himself free from defenses. CASE: NATIVIDAD GEMPESAW V. CA 2.

 ACCUMULATION OF SECONDARY CONTRACTS-  secondary contracts are picked up and carried along with Negotiable Instruments as they are negotiated from one person to another; or in the course of negotiation of negotiable instruments, a series of juridical ties between the parties thereto arise either by law or by privity. The indorsers become secondarily liable to the holder. This is a feature which you cannot find in legal tender. There are as many people as liable as there are person who signed the check. SALVADOR ECHANO V. TOLEDO F: this is about liability of government owned bank cashier for allowing an unauthorized person to deposit in his own savings account second-indorsed checks payable to city treasurer in manila What is the effect of 2 nd endorsed check…but the essence here is rediscounting. X, taxpayer, pays check payable to treasurer of manila. The latter, indorse p niya sa uban. I-rediscount pa niya sa third person. Iyahang ginabuhat is iya nang iencash. What happens man gud, ngbayad na pero dili man mabalance. Ang third person ang mag-encash n hinuon sa check. Why will this person rediscount a check that was supposed to be issued to you? tHe transaction or withdrawal is within the NIL —valid transactions kasi lahat so admin case nalang. NI is valid. It has moved from 1 person to the other. So gitanggal nalang sila sa position coz they could not be held

DISTINCTIONS:

NEGOTIABLE 1.

must contain all requisites of sec. 1

NON-NEGOTIABLE 1. does not contain all requisites of sec.1

DISTINCTIONS: PROMISSORY NOTE 1. unconditional promise 2. involves 2 parties 3. maker primarily liable 4. only one presentment: for payment DISTINCTIONS: BILL OF EXCHANGE 1. Not necessarily drawn on a deposit. It is not necessary that a drawer of a BOE should have funds in the hands of the drawee. 2. Death of a drawer of a BOE with the knowledge of the bank, does not revoke the author of the banker to pay. 3. May be presented for payment within a reasonable time after its last negotiation because it may be further negotiated.

-

3. HDC can have rights better than his transferor

3.

-

4.

prior parties do not warrant payment but merely the legality of his title

CLASSES OF NI: 1.

PROMISSORY NOTE (PN)- unconditional promise in writing by one person to another signed by the maker engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer. (Sec. 184, NIL)

2.

BILL OF EXCHANGE (BE)- an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer (Sec. 126, NIL); and

3.

CHECK- a bill of exchange drawn on a bank payable on demand (Sec. 185, NIL).

1. It is necessary that a check is drawn on a deposit. Otherwise, there would be fraud.

2. Death of the drawer of a check, with the knowledge by the bank, revokes the authority of the banker to pay. 3. Must be presented for payment within a reasonable time after its issue.

(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) Mu st be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

2. transferable by assignment not negotiation

4. prior parties warrant payment (secondarily liability).

Check

Section 1. Form of negotiable instruments.  An instrument to be negotiable must conform to the following requirements:

2. transferable by negotiation and assignment.

a transferee acquires no better rights than his transferor

BILL OF EXCHANGE 1. unconditional order 2. involves 3 parties 3. drawer is only secondarily liable 4. two presentments: for acceptance and for payment

-

Those that conform to section 1 is covered by NIL. You will use the 198 or so sections of the NIL and forget about other mercantile laws. Those that do not conform to section 1 are covered by some other laws. E.g. warehouse receipt —run it first under NIL. If it fits, concentrate sa NIL. If not, then don‟t follow NIL and follow the warehouse receipts law. Conclusion:  section 1 is the crossroad. Run the test first under Section 1.

REQUISITES AS TO A NEGOTIABLE NOTE 1. It must be in writing and signed by the maker 2. It must contain an unconditional promise to pay a sum certain in money 3. It must be payable on demand, or at a fixed or determinable future time 4. It must be payable to order or to bearer REQUISITES AS TO A NEGOTIABLE BILL 1. It must be in writing and signed by the maker 2. It must contain an unconditional order to pay a sum certain in money 3. It must be payable on demand, or at a fixed or determinable future time 4. It must be payable to order or to bearer 5. The drawee must be named or otherwise indicated therein with reasonable certainty THE INSTRUMENT MUST BE IN WRITING - There must be a writing of some kind, for if the instrument were not in writing, there would be nothing to be negotiated

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

or passed from hand to hand THE INSTRUMENT MUST BE SIGNED BY THE MAKER OR DRAWER - Full name must be written -  At least the surname should appear and generally, the signature usually is by writing the signer ‟ s name - But, where the name is not signed, the holder must prove that what is written is intended as a signature of the person sought to be charged - Commonly, it is found in the lower part of the instrument. It could also be signed anywhere as long as  the maker or drawer acknowledges the signature to be his own. IF A BILL, IT MUST C ONTAIN AN ORDER TO PAY - It is an instrument demanding right - Any words which are equivalent to order or which show  the drawer‟ s will that the money should be paid, are sufficient to make the instrument a bill of exchange

EFFECT OF MERE REQUEST TO PAY - The instrument is not negotiable as it is not an order to pay but a mere request to pay -  “Please to let the bearer have P70 and place to my account and youwill oblige”  EFFECT OF MERE WORDS OF CIVILITY - The mere fact that it contains words courtesy doesn‟ t make it non-negotiable

of

civility

THE INSTRUMENT MUST BE PAYABLE TO ORDER OR TO BEARER  An instrument is not negotiable unless made payable to a person or his order or bearer or unless words of the similar or equivalent import are used such as assigns or assignees or holder WHERE PAYABLE TO THE ORDER OF BEARER  Also negotiable This was held to be payable to order The payee of such an instrument is the bearer and it can only be negotiated by his indorsement ORDER Who gave the order Who was ordered

 AN INSTRUMENT WITH AN EFFECT OF MERE AUTHORITY TO PAY - It is not negotiable because it is not an order to pay -  “I hereby authorize you to pay P1000 to Pedro Cruz” 

or

WHERE INSTRUMENT IS A NOTE, IT MUST CONTAIN A PROMISE TO PAY 1. It is enough that words of equivalent meaning are used 2. The promise is implied from promissory words contained in the instrument THE PROMISE OR ORDER TO PAY MUST BE UNCONDITIONAL - It must not be subject to a condition - It must be unconditional and absolute SUM PAYABLE MUST BE DEFINITE AND CERTAIN The amount of money to be paid must be determinable by inspection and must be stated plainly on the face of the instrument, and like the denomination of money, must be started in the body of the instrument SUM MUST BE PAYABLE IN MONEY ONLY Money is the one standard of value in actual business or more stable standard of value Legal tender —that kind of money which the law compels the creditor to accept in payment of his debt when tendered by the debtor in the right amount But if authorized by law or consent of creditor, cash may be substituted by other means, or may be check Instrument need not be payable in legal tender INSTRUMENT MUST SPECIFY DENOMINATION Instruments should express the specific denomination of money when it is payable in the money of a foreign country in order that the courts may be able to ascertain its equivalent value; otherwise, it is non-negotiable

future time Time of payment is not determinable as the year is not stated

What is the order

SECTION 1 (B) (applies only to BE) DRAWER

SECTION 1 (D) (applies to both PN and BE) Payee/holder

DRAWEE

Person primarily liable PN maker BE acceptor/drawee bank To pay a sum certain in money to a person other than himself

To pay to the payee or holder a sum certain in money

Section 1(b) —applies only to bill of exchange order of the drawer to the drawee to pay the payee or hoder a sum certain in money Section 1(d) —applicable to both PN and BE order of the payee or holder to the person primarily liable (for PN: maker, for BE: acceptor/drawee) to pay the holder or person other than him NOTA BENE: NEGOTIABILITY

ORDER

AND

BEARER   —TWO

words

of

WHERE PAYABLE TO A CERTAIN PERSON Where the instrument is payable to a specified person, it ‟ s not payable to order Payable to a certain person or his agent Where payable to “bearer B”  THE DRAWEE MUST BE NAMED Requirement that refers only to bills of exchange Drawee‟ s name may be omitted and be filled in under implied authority like any other blank  An acceptance may supply the omission of the designation IMPORTANCE OF FORMALITIES Essential for the security of the mercantile transa ctions Distinguish the negotiable instrument from ordinary non- transferrable written contract

the

NECESSITY OF COMPLIANCE WITH PROVISIONS Where the instrument doesn‟ t conform with the requirements laid down in Section 1, then it is not governed by NIL DETERMINATION OF NEGOTIABILITY By the provisions of the NIL, particularly Section 1 thereof By considering the whole of the instrument By what appears on the face of the instrument and not elsewhere

PAYABLE ON DEMAND OR ON A FIXED OR DETERMINABLE FUTURE TIME On demand  At a fixed or determinable future time

Sec. 2. What constitutes certainty as to sum. The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

WHERE NO YEAR IS SPECIFIED Neither payable on demand or on a fixed or determinable

(a) with interest; or (b) by stated installments; or

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (d) with exchange, whether at a fixed rate or at the current rate; or (e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

SUM CERTAIN IN MONEY Fixed amount of money that is legal tender Sum payable must be definite and certain. The amount of money to be paid must be determinable by inspection and must be stated plainly on the face of the instrument. and like the denomination in money, must be stated in the body of the instrument. The sum payable must be in money only. A bill or note if it is to be negotiable cannot be made payable in goods or services. (to drawee: pay to P or order 100 chickens in bucket..NO! i.e. to drawee: dance the tango to P..no!) The sum payable is also NOT negotiable if it made to be payable on stocks, bonds, corporate papers, checks and foreign bills.

-

Current rate or fixed rate

WITH COSTS AND ATTORNEY ‟ S FEES  An instrument may thus stipulate that costs of collection and attorney‟ s fees shall be paid by the debtor in addition to the principal in case the instrument shall not be paid in maturity  Although the stipulation will make the sum after maturity uncertain, it will no t a ffect the certainty of the sum payable at maturity and therefore, will not affect the negotiability of the instrument in which it is stipulated NEW SAMPAGUITA vs. PNB GR No. 148753 July 30, 2004 DOCTRINE:  While there is section 2 that sum payable is sum certain ..although paid with intrest. Ingat ka din coz banks cannot unilaterally increase the interest rate. While there is already repeal of the Usury law, that parties can agree on the interst rate, the truth in lending act requires disclosure of the interest rate. ON ATTY‟S FEES: it can be reduced. On quantum meruit. BPI V. SPOUSES NORMAN AND ANGELITA YU

WITH INTEREST The fact that the sum payable is to be paid with interest doesn‟ t render the sum uncertain  Amount can easily be computed When interest is stipulated but not specified, the legal interest shall be used Where there is no stipulation, the legal rate shall be paid when the debtor incurs delay Interest due shall earn legal interest from the time it is judicially demaned, although the instrument may be silent upon this point ESCALATION AND DE ESCALATION CLAUSE- FORMER VALID IF  ACCOMPANIED BY THE LATTER May stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the MB Deescalation clause —stipulation in the agreement that the rate of interest agreed upon shall be reduced if the maximum rate of interest is decreased by law or by the MB BY STATED INSTALLMENTS 1. Must be stated 2. The maturity of each installment must be fixed or determinable —required in order to comply with the requisite that the instrument, if not payable on demand, must be payable on a fixed or determinable future time BY STATED INSTALLMENTS, WITH ACCELERATION CLAUSE  Acceleration clause —“upon default in the payment of any installment, the whole sum payable shall become due ”  It hastens the payment of the whole note

UNION BANK V. SPOUSES TIU

Sec. 3. When promise is unconditional.  An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of to the instrument.

the

transaction

which

But an order or promise to pay out of a fund is not unconditional.

gives

rise

particular

 Atty. Villarente: this section must refer to both PN and BE! Section 3 must be titled: SECTION 3: WHEN PROMISE OR ORDER IS UNCONDITIONAL. To drawer: Pay to P or order the sum of 1K if she passes the 2014 bar exam. (conditional)

 “condition”—future or uncertain event  “unconditional”  the promise or order is the obligation or juridical necessity to pay; this is not defined in section 3

WITH EXCHANGE While the rate of exchange is not always the same and while it is technically true that the resort must be had to extrinsic evidence to ascertain what it is, yet the current rate of exchange between two places at a particular date is a matter of common commercial knowledge, or at least easily ascertained by anyone so that the parties can always, without difficulty, ascertain the exact amount necessary to discharge the paper  Applies only to instruments drawn in one country and payable in another

 “Unqualified order or promise”  is an order or promise that is not subject to a future, uncertain event. If the obligation is nto subject to a condition, it is demandable at once and you call it a PURE obligation.

EXCHANGE Difference in value of the same amount of money in different countries

It is still a pure order to pay or pure promise to pay though coupled with the following: INDICATION OF A PARTICULAR FUND

 APPLICATION OF SECTION Whether or not the indication of a particular fund or particular account, or the statement of the transaction which gives rise to the instrument, would make the promise or order conditional

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

-

-

-

First case, the particular fund is not the direct source of the payment, only the source of reimbursement Unconditional —drawee pays the payee from his own funds and afterwards, the drawee pays himself from the particular fund indicated But an order or promise to pay out of a particular fund is not unconditional —particular fund is the direct source of payment Conditional —where the payment to the payee is directly from the funds indicated, the payment is the subject to the condition that the funds indicated are sufficient

To drawee: Pay to P or order 1,000 then reimburse yourself with my account with you. (reimbursement is not a condition. It is only between the drawer money. It has nothing to do with the money to be paid to the payee)

PARTICULAR ACCOUNT TO BE DEBITED The instrument is to be paid first and afterwards, the particular account indicated will be debited The payment is not subject to the sufficiency or adequacy of the particular account to be debited STATEMENT OF TRANSACTION (kanang reason nganong bayaran ka..what gave rise to the transaction,etc..it will not affect negotiability) Instruments are not issued without any transaction upon which they are based Generally negotiable but a statement of transaction will render the instrument non-negotiable where the promise or order to pay is made subject to the conditions and terms of the transactions stated, then the instrument is rendered non-negotiable  AS PER CONTRACT NOTES The appearance of words  “as per contract” on the face of the instruments in any position doesn‟ t affect the negotiability of the instrument CHATTEL NOTES  A promissory note given for a chattel and stipulating that the title to the chattel shall remain in the vendor-payee until the note is paid, is not conditional REFERENCE TO MORTGAGES Provisions in the mortgage doesn‟ t affect the negotiability of the instrument it secures Where a note otherwise negotiable contains the words  “this note is secured by a mortgage” and the mortgage contains clauses promising to do many acts other than the payment of money, it was held that the note is not rendered non-negotiable WHEN REFERENCE TO A MORTGAGE RENDERS INSTRUMENT NON- NEGOTIABLE When there is uncertainty in amount or when such provisions become part of the note, even though they aren‟ t in the note itself, the instrument is also rendered non-negotiable  “But an order or promise to pay out of a particular fund is not unconditional.”  This refers to the AVAILABILITY OF FUND. So if hindi available ang fund, then the guy ordered is not under any obligation to pay. Therefore, the payment or promise or order is subject to a future, uncertain event. To drawee: Pay to P or order the sum of 1000 FROM MY SAVINGS ACCOUNT. (AH! Subject to the availabity of fund) But

To drawee: Pay to p or order the sum of 5000. Thereafter, reimburse yourself with my savings account. (ah! Pwede na!)

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is e xpressed to be payable: (a) At a fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c) On or at a fixed period after the occurrence  of a specified event, which is certain to happen, though the time of happening be uncertain. (example: pay to P or order the sum of 5000 on the day bin laden shall die)  An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

 “AFTER DATE”  Date: November 17 Pay to P or order the sum of 5000 30 days after date (it will become due on December 17 —this is 30 days after date which is November 17)  “ AFTER SIGHT”   After the drawee has seen the instrument upon presentment for acceptance I promise to pay B or his order P100 ten days after sight. Signed A (10 days after nimu napakita sa drawee, due na ang instrument.) (b) On or before a fixed or determinable future time specified therein; or - on or before Christmas day (c) On or at a fixed period after the occurrence  of a specified event, which is certain to happen, though the time of happening be uncertain - e.g. death of osama bin laden - 30 days after the death of osama bin laden - 30 days after the building of Ateneo shall have been destroyed  An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. -

 „CONDITION NA”—go to section 3, this will not be allowed E.g. that you will pass the bar…even if you pass it,, it will not cure the defect.

 ACCELARATION NOTES There are certain notes which contain acceleration provisions Make it possible for the maker to pay the instrument at an earlier date or make it possible for the holder to require payment of the instrument at an earlier date I promise to pay B or order P100 on or before July 1,2007. Signed A

*Type of acceleration note wherein the option to accelerate belongs to the maker, in the above case is A. EXAMPLES OR ILLUSTRATIONS OF ACCELARATION NOTES 1. That contain acceleration clauses on the maker‟ s default in payment of installments or of interest, or on the happening of an extrinsic event

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

2.

3.

Or contain, in notes secured by collateral, a provision that the maker shall supply additional collateral in case of depreciation in the value of the original deposit, with the holder‟ s right to declare the note due immediately on failure to make good the depreciation a. Non-negotiable —time for payment becomes uncertain and indefinite b. It doesn‟ t render it non-negotiable —that from the standpoint of expediency as encouraging circulation and of business custom on account of their common acceptance by the commercial world, such clauses should be interpreted as not affecting negotiability Or contain provisions for acceleration when holder deems himself insecure a. It is rendered non-negotiable where it is payable at a fixed and future time, but with an option on the part of the holder to declare it due and demandable before maturity whenever he deems it insecure but to hold them nonnegotiable is a spurious construction of the Act b. It is rendered non-negotiable when the whole condition is lodged to the holder —middle ground  is so long as the basis is dependent on factors not within the control of the holder, then it would still be negotiable

WORD USED IS AFTER The word used in the law is “after” and not before Sec. 5. Additional provisions not affecting negotiability.  An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or (b) authorizes a confession of judgment if the instrument be not paid at maturity; or (c) waives the benefit of any law intended for the advantage or protection of the obligor; or (d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall provision or stipulation otherwise illegal.

validate

any

 An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable DO AN ACT +PAYMENT OF MONEY= NON-NEGOTIABLE Pay to P or order the sum of 1000 AND sing a song  not negotiable. GENERAL RULE AS TO THE ADDITIONAL ACT The general rule is that an instrument must not contain an order or promise to do any act in addition to the payment of money. Otherwise, the instrument wouldn‟ t be negotiable. FOUR EXCEPTIONS TO THE GENERA L RULE 1. SALE OF COLLATERAL SECURITIES if the instrument be not paid at maturity 2.  Authorizes CONFESSION OF JUDGMENT if the instrument be not paid at maturity

3. 4.

WAIVER OF BENEFIT OF LAW for the protection and benefit of the obligor Gives the HOLDER an election to require something to be done in lieu of payment of money

CASE: PNB V. MANILA OIL REFINING CO. 43 PR 444 1922 Instructive on “confession of judgment”   “cognovits actionem”  Relicta verificacionem PROMISE TO FURNISH ADDITIONAL SECURITY  A promise of the maker to render additional collateral will render the note non-negotiable, as that would be an additional act to the promise to pay money However, they are to be distinguished from those instruments in which the holder may demand collateral, and failure to furnish it accelerates the instrument which are clearly negotiable, but merely accelerable on the nonperformance of an optional act SALE OF COLLATERAL SECURITIES The law gives exceptions to the general rule that  “an instrument which contains an order or promise to do any act in addition to the payment of money is non-negotiable ”  Sometimes, the obligation arising from the transaction which gives rise to the instrument is secured by a mortgage or pledge The additional act to be performed is to be executed after the date of maturity, whe n the instrument c eases to be negotiable in the full commercial sense Before date of maturity, however, the sale of collateral securities would render the instrument nonnegotiable CONFESSION OF JUDGMENT Must be after the date of maturity Second exception to the rule TWO CLASSES OF CONFESSION OF JU DGMENT 1. Cognovit actionem   —a written confession of an action by the defendant, subscribed but not sealed, and irrevocably authorizing any attorney of any court of record to confess judgment and issueexecution usually for the sum named. It is given in ord er to save expense and differs from a warrant of attorney, which is given to an expressly designated attorney before the commencement of any action and is under seal. 2.

Confession relicta verificatione   —confession of   judgmen t made after plea is pleaded

WARRANT OF ATTORNEY Instrument in writing addressed to one or more attorneys named therein, authori zing them, generally to appear in court, or in some specified court o n behalf of t he person giving it, and to confess judgment in favor of some particular person named therein in an action for debt EFFECT OF CONFESSION OF JUDGMENT IN THE PHILIPPINES In the Philippines, a confession of judgment is considered  void as it is against public policy-1. Because they enlarge the field for fraud 2. Because under this treatment, the promissory bargains away his right to a day in court 3. Because the effect of the instrument is to strike down the right to appeal accorded by statute WAIVER OF BENEFIT Waives the benefit of any law intended for the advantage and protection of the obligor Examples: presentment for payment, notice of dishonor, protest

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

ELECTION OF HOLDER TO REQUIRE SOME OTHER ACT Fourth exception to the rule Even if there is an additional act, the instrument still remains to be negotiable provided that the right to choose between payment of money or the performance of the additional act is in the hands of the holder Order or promise to DO AN ACT OR  / IN LIEU OF/ INSTEAD OF PAYMENT OF MONEY = NEGOTIABLE ; provided the option lies in the HOLDER  if the option is in the person primarily liable? Drawee or maker? NO. to drawee: pay to p or order the sum of 1000 or you can dance the tango at your option. (ah! Not negotiable! It should be at the option of HOLDER)

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (a) it is not dated; or (b) does not specify the value given, or that any value had been given therefor; or (e) designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of   the consideration to be stated in the instrument. EFFECT OF OMISSION OF DATE Even where the instrument is not dated, still the instrument is not rendered non-negotiable There are however instances, whe rein the date is needed for the instrument to become negotiable When are these instances? 1. When it is payable in a period after d ate or after sight 2. When it is allowed to write the date… (Section 13)  ATTY. MERCADO:  “WHEN IS COMPLETE THE INSTRUMENT?” 

DATING

REQUIRED

TO

EFFECT OF OMISSION OF VALUE Usually, what is stated in the instrument is that it is being used for  “value received” without specifying what that value is Nevertheless, the absence of value given, doesn‟ t render the instrument non-negotiable PARTICULAR KIND OF MONEY Even if the money in which the instrument is to be payable is not legal tender, provided that it is current money or foreign money which has a fixed value in relation to the money in the country in which the instrument is payable, still the negotiability of the instrument is not affected, as the instrument still is considered payable in money Sec. 7. When payable on demand. - An instrument payable on demand:

is

EXPRESSED TO BE PAYABLE ON DEMAND  An instrument is payable on demand where it is expressed to be payable on demand, on sight, or on presentation It is payable on demand also when no date of payment is specified It is payable on demand when the time of payment is left blank or unfilled INSTRUMENT ON DEMAND ONLY AS BETWEEN THE PARTIES That after the date of maturity, the instrument can no longer be negotiated as to make the parties who acquire the instrument after the date of maturity holders in due course because they become holders thereof with notice that it is already overdue, as this can be determined from the face of the instrument itself Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: (a) A payee who is n ot maker, drawer, or drawee; or (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or (e) One or some of several payees; or (f) The holder of an office fo r the time being. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty. WORDS OF NEGOTIABILITY  Among others, for an instrument to be negotiable, it should contain words of negotiability There are only 2 ways by which an instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed or delivered the same Without the words  “or order” or  “to order of ” , the instrument is payable only to the person designated therein and therefore, is non- negotiable MEANING OF THE PHRASE “TO ORDER”  Pay the payee or the person designated by the payee NECESSITY OF NAMING THE PAYEE The law requires that the payee must be named or otherwise indicated with reasonable certainty Must be a person in being, whether natural or legal, and ascertained at the time of issue If there is no named payee, where the instrument is payable to order, no one could indorse the instrument. Consequently, it is useless to consider it as negotiable. WHERE THE BLANK FOR NAME OF PAYEE UNFILLED Not payable to order because the payee is not named neither is he designated with reasonable certainty Pay to Y or order the amount of P100. Sgd. A

(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

To: X

(b) In which no time for payment is expressed.

Pay to the order of the President of Ate neo de Manila University on June 20, 2010. Sgd. A To: X Corporation

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.

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

instrument will not be considered as payable to bearer Sec. 9. When payable to bearer. - The instrument payable to bearer:

is

(a) When it is e xpressed 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 nonexisting person, and such fact was kno wn 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.

NAME OF PAYEE NOT NAME OF PERSON Pay to cash Pay to the order of money Pay to the order of cash WHERE PAYABLE TO THE ESTATE OF A DEAD PERSON It has been held to be payab le to bearer  Agbayani: estate is a juridical person in a limited way and thus it shouldn‟ t be payable to bearer Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof.

PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-EXISTENT PERSON 1. The payee named must be fictitious or non-existent 2. The one making the instrument so payable must know him to be fictitious or non-existing

Sec. 11. Date, presumption as to. - 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.

FICTITIOUS PERSON Not limited to persons having no real existence To be a person who has no right to the instrument because the drawer or maker of it so intended, and therefore, it doesn‟ t matter whether the name of the payee used by the drawer or drawee be that of the living or the dead, or one who never existed

 APPLICATION OF SECTION 11 1. The instrument contains the date of issue —prima facie the true date of the making or drawing of the instrument 2. In an accepted bill of exchange, the acceptance is dated —prima facie the date of acceptance 3.  An instrument is indorsed, and the indorsement is dated —prima facie date of indorsement

EXISTING PAYEE INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TO BEARER  A negotiable paper made payable to the name of an existing person known or believed by the maker or drawer to be existing, with intent that he should receive it or its proceeds, or that it be paid to him or upon his indorsement, IS NOT PAYABLE TO A FICTITIOUS PAYEE OR TO BEARER, although as a matter of fact such person has no interest in the paper and it was procured by fraud of a third person or of  the maker‟ s or drawer‟ s employee or agent whose knowledge or intent is not imputable to the principal or employer, and cashed by the person having possession upon the forged instrument of the payee

PRIMA FACIE Evidence produces for the time being a certain result but that result may be repealed by contrary evidence  Apparent, as it first appears

NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, BUT BELIEVED EXISTING OR WITH INTEREST, AND INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TO BEARER NON-EXISTING PAYEE, OR ONE WITHOUT INTEREST, KNOWN OR BELIEVED NON-EXISTING NOT INTENDED  TO RECEIVE PROCEEDS; PAYABLE TO BEARER

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. Sec. 13. When date may be inserted. - Where an instrument expressed to be paya ble at a 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  instrument shall be payable accordingly. 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, the date so inserted is to be regarded as the true date.

PERSON TO WHOM THE FICTITIOUS OR NON-EXISTING CHARACTER OF PAYEE MUST BE KNOWN The drawer drawing a bill or the maker making a note is the person to whom the fictitious or non-existing character of the payee must be known Where the instrument is drawn or made by an agent or prepared by an employee with the maker or drawer signing only, the question arises as to whose intent should control  Another difficulty: who is the person who makes the instrument payable to the payee —the clerk or the treasurer?  Agbayani‟ s view: that the signer does after all create the instrument and should determine who owns it

WHEN DATE NECESSARY Under Section 6, the insertion of date is unneces sary However, it may be necessary to determine the date of maturity In the following cases, the date is also necessary: o Where interest is stipulated, to determine when interest is to run, but not to make the instrument negotiable o To determine where a party has acted within a reasonable time, but not make the instrument negotiable

WHERE AGENT HAS NO AUTHORITY TO EXECUTE INSTRUMENT The knowledge of the principal or employer is controlling, and if he doesn‟ t have any knowledge of the fictitious or non-existing character of the payee, the knowledge of the employee or the agent w ill not avail to call into application as to fictitious payees and the

(UNDATED) I PROMISE TO PAY  TO B OR  ORDER  P1000, 60 DAYS  AFTER DATE. SGD. A

INSTRUMENT PAYABLE AT A FIXED PERIOD AFTER DATE

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

EFFECT OF INSERTION OF WRONG DATE Knowingly inserting the wrong date in an undated instrument will avoid it as to the party so inserting the wrong date It is implied that the instrument void as to the person who knowingly inserted the wrong date  Also, under Section 12, it is void for ante-dating an instrument for fraudulent purposes To a holder in due course, the instrument is not void, after the instrument is indorsed to him. The insertion of the wrong date doesn‟ t avoid the instrument in the hands of a holder in due course. Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in an y 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. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. ILLUSTRATION - Authority was only to fill in the blank for an amount not more thanP100; before it was complete, the instrument was given to B. I promise to pay B or order P400 on June 20, 2010. Sgd. A

instrument non- negotiable FACTS FROM WHICH PRIMA FACIE AUTHORITY PRESUMED 1. Want of a material particular in the instrument 2. Possession thereof by a person, a third fact 3. That such person had authority to fill up the b lank THE LAW PRESUMES THE EXISTENCE OF AUTHORITY TO FILL THE INSTRUMENT UP TO ANY AMOUNT FROM THE FOLLOWING FACTS 1.  A signature on blank paper 2. That the person signing in blank delivers it in order that the paper may be converted into a negotiable instrument REQUISITES TO HOLD PRIOR PARTIES LIABLE 1. The blank must be filled strictly in accordance with the authority given 2. It must be filled up within a reasonable time RIGHT OF HOLDER OF DUE COURSE WHERE BLANK WRONGFULLY FILLED First view: One who is not a holder in due course cannot enforce the instrument if the same is not filled up strictly in accordance with the authority given or within reasonable time Second view: the holder can enforce the instrument accordance with the authorized tenor  According to Agbayani, the better view is the first view is the better view to have. The law provides that in order be one who is not a holder in due course may enforce mechanically incomplete but delivered instrument, the two requisites must exist. The implication is that one or both are not present, the instrument may not be enforced. REASONABLE TIME Regard is had to the nature of the instrument, the usage of trade or business with respect to such instrument and the facts of the particular case Term is very relative

For it to be enforceable against the next holder, the completion must be strictly in accordance with the authority given and within a reasonable time.

PERSONAL DEFENSE Defense available only to holders who are not holders in due course

ILLUSTRATION #2 One sees Manny Pacquiao in person and has a blank sheet of pap er signed by Pacquiao. He then filled it up to show the following:

SUMMARY OF RULES WHEN INSTRUMENT IS INCOMPLETE BUT DELIVERED 1. Where the holder is a holder in due course, he can enforce the instrument as completed against parties prior or subseque nt to the completion 2. Where the holder is not a holder in due course, he can enforce the instrument as completed as against the parties subsequent to the completion but not against those prior thereto

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I pr omise to pay Jonathan Nepomuceno or order P10,000. Sgd. Manny Pacquiao -

For the above to be a valid negotiable instrument, it should have been delivered by the person signing the instrument with the intent of converting the blank paper into a negotiable instrument.

SCOPE OF SECTION 14 There are 2 steps in the execution of a negotiable instrument — The act of writing the instrument o completely and in accordance with Section 1 of the NIL The delivery of the instrument with the o intention of giving effect to it THE MATERIAL PARTICULAR REFERRED TO IN THIS PROVISION MAY BE — 1.  A particular the omission of which will render the instrument non- negotiable 2.  A particular the omission of which will not render the

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.  APPLICATION OF PROVISION Section applies to an incomplete and undelivered instrument INSTRUMENT NOT VALID AGAINST PARTY BEFORE DELIVERY Situation: A signs a blank check, which was subsequently stolen by B and fills up the amount and a fictitious name as payee. He then indorses the same to C, C to D, D to E, and E to F. Can F enforce the instrument against A? The answer is NO, because against A, whose signature was placed on the check prior to delivery, the instrument is

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

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not valid. The answer would still be the same in case F was a holder in due course. Why? The law doesn‟ t discriminate on what kind of holder. However, the invalidity of the instrument is only with reference to parties whose signature appears in the same prior to delivery. As toparties whose signature appears after delivery, it may be valid.

IT IS A REAL DEFENSE The possible defense of a party whose signature appears on an instrument prior to delivery is that, as against him, the instrument is not valid for having been incomplete and undelivered Want of delivery of a mechanically incomplete instrument —defense that cannot only be interposed against one who is not a holder in due course but also a holder in due course DELIVERY IS NOT CONCLUSIVELY PRESUMED WHERE INSTRUMENT IS INCOMPLETE Section 15 and 16 read together

3.

4.

5.

6.

7.

8.

BUT DELIVERY PRESUMED PRIMA FACIE But where an incomplete and undelivered instrument is in the hands of a holder in due course, there is prima facie presumption of delivery which the maker may rebut by proof of non-delivery Where the custody of an incomplete instrument has been entrusted to another, who wrongfully completes and negotiates it to a holder in due course, delivery to an  agent or custodian is a sufficient delivery to bind the drawer or maker. 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. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either  by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be;  and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property  in the instrument. But whe re the in strument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. SCOPE OF SECTION - Applies to an instrument mechanically complete but undelivered UNDELIVERED INSTRUMENT IS INCOMPLETE Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto DELIVERY AND ISSUE  As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing as the case may be Issue —the first delivery of the instrument, complete in form, to a person who takes it as a holder OUTLINE OF RULES ON DELIVERY OF NEGOTIABLE INSTRUMENTS 1. Delivery is essential to the validity of any negotiable instrument 2.  As between immediate parties, or those in like cases,

delivery must have been with the intention of passing title  An instrument signed by the drawer/maker but not completed by him and retained in his own custody, is invalid as to him for want of delivery, even though stolen or negotiated to a holder in due course But when the instrument mentioned above is in the hands of a holder of due course, there is prima facie presumption of delivery which the maker/drawer may rebut by proof of non-delivery Where the custody of the incomplete instrument has been entrusted to another, who wrongfully completes and negotiates it to a holder in due course, delivery to an agent or custodian is sufficient delivery to bind the drawer or maker Where maker or drawer executes a complete instrument which is found in the possession of another other than a holder in due course, there is a prima facie presumpton of delivery —but subject to rebuttal Where the instrument mentioned above is in the hands of a holder in due course, there is a conclusive presumption of delivery Delivery of the instrument may be made on a parol condition or for a special purpose not inconsistent with its written terms, where the validity of the instrument is to arise  out of the performance of the condition or consummation of the purpose. But such condition or specification or purpose doesn't affect the  rights of a holder in due course. Such conditions is a condition precedent, and is to be sharply distinguished from a condition subsequent, the happening or nonhappening of which is to defeat or qualify the instrument. Such condition subsequent contradicts the written terms and may not be set up by parol evidence.

RIGHT TO REVOKE Before delivery, the maker or drawer can revoke, cancel, or tear up the instrument LITERAL -

MEANING OF IMMEDIATE AND REMOTE PARTIES The drawer and payee are immediate parties to one another Maker and payee are immediate parties to one another Indorser and indorsee are also immediate parties to one another

BROAD MEANING OF IMMEDIATE AND REMOTE PARTIES Immediate parties are confined to  “those who are immediate, in the sense of knowing or being held to know the conditions or limitations placed upon the delivery of the instrument —privity and not proximity Criterion: W/N the party in question knows of the conditions or limitations placed upon the delivery of the fact that the instrument was not delivere d but stolen.. o If the party in question knows, he is an immediate party even if he is not physically remote o If he doesn‟ t know, he is not an immediate party even if he is the next par ty immediately PRESUMPTION OF VALID DELIVERY AS TO IMMEDIATE PARTY OR REMOTE PARTY NOT HOLDER IN DUE COURSE Where the instrument is no longer in the possession of  a party whose signature appears thereon, a valid and intentional de livery by him is presumed until the contrary is proved Presumption is however rebuttable DELIVERY FOR SPECIAL PURPOSES - For safekeeping or for collection only PRESUMPTION OF DELIVERY AS TO HOLDER IN DUE COURSE Conclusively presumed There is conclusive presumption where the contrary proof is barred PERSONAL DEFENSE

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

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The possible defense of a party sought to be charged is that the instrument wasn't delivere d, or if delivered, the delivery wasn't authorized or only on a condition or for a special purpose  “Want of delivery of a mechanically complete instrumen t” defense It can however be interposed against an immediate party and remote parties not holders in d ue course inasmuch as the presumption of valid and intentional delivery is only rebuttable as to immediate parties and to remote parties who are not holders in due course Only personal defense

CONCLUSIVE  

PRESUMPTION NOT  APPLICABLE INCOMPLETE INSTRUMENTS

I promise to pay B or order the sum of one two thre e four five (P12,345) Sgd. AA  *In this case, the sum payable is P12,345, following the rule that when the words are ambiguous or uncertain, reference may be had to the figures to fix the amount. I promise to pay B or order the sum of one two three four five (P12,345)on June 27, 2008 with interest. Sgd. AA

TO

DEFENSES UNDER THE SECOND SENTENCE OF SECTION 16 1. It wasn‟ t delivered either by or under the authority of the party making, delivering, accepting or indorsing the instrument 2. It was for a conditional purpose 3. It was for a special purpose only IT IS A PERSONAL DEFENSE IF IT IS AVAILABLE ONLY  AGAINST A PERSON WHO IS NOT A HOLDER IN DUE COURSE. IT IS A REAL DEFENSE IF IT IS AVAILABLE AGAINST ANY HOLDER. Sec. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (a) Where the sum payable is expressed in words  and also in figures and there is a discrepancy between the two, the sum denoted by  the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; (d) Where there is a conflict between the written  and printed provisions of the instrument, the written provisions prevail; (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

WHEN SECTION APPLICABLE Rules stated in this section shall not be availed of if  the terms of the instrument in question is clear and admit of no doubt  Applicable only when the instrument in question is ambiguous, doubtful or obscure, or when there are omissions therein that the

*The interest should run on the date of instrument but if it is undated, then it will reckon on the date of issue. Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. GENERAL RULE AS TO LIABILITY OF PERSON WHOSE SIGNATURE IS NOT ON INSTRUMENT  A person whose signature doesn‟ t appear on the instrument is not liable EXCEPTIONS TO THE GENERAL RULE 1. Where a duly authorized agent signs for a person, the person is liable 2. Where a person sought to be charged forges the signature of another person, the forger is liable even if his signature doesn‟ t appear thereon 3. Where a person sought to be charged signs on a paper separate from the instrument itself, as in an allonge, although the allonge may be considered a part of the instrument, or where an acceptance is written on a paper other than the bill itself 4. Where the person uses an assumed name or trade name —one may become a party to a neg otiable instrument by any de signation he desires Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of  appointment  is necessary for this purpose; and the authority of the agent may be established as in  other cases of agency. SIGNATURE THROUGH AGENT, FORM The party may sign personally or through an agent  Agency may be written or oral No particular form required by the law and the agency may be proved through oral or written evidence, unless specific provisions of the law, such as the Statute of Frauds, requires otherwise Sec. 20. Liability of person signing as agent, and so forth. Where the instrument contains or a pe rson adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. REQUISITES FOR AGENT TO ESCAPE LIABILITY 1. Be duly authorized 2.  Add words to his signature indicating that he signs as an agent, that is, for or on behalf of a principal, or a representative capacity 3. Disclose his principal

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

 A sells to B what he represents as a diamond ring, when it is actually made of glass. B issues a check.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.

The fraud is in inducing B to

HOW SIGNATURE PER PROCURATION IS MADE  “Luis Martin Tan, Per Procuration: Ryan Teehankee”  on which Luis Tan is the principal while Ryan Teehankee is the agent

Promissory note maker indorser

EFFECT OF SIGNATURE PER PROCURATION Constitutes a warning that an agent has a limited authority  A person who takes the instrument so signed is bound at his peril to inquire into the e xtent and nature of  the agent‟ s authority, and this applies to every person Sec. 22. Effect of indorsement by infant or corporation. The indorsement or assignment of  the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon. INDORSEMENT OF MINOR OR CORPORATION If a minor or corporation indorses an instrument, the indorsee acquires title to it and can enforce it against the maker or acceptor or other parties prior to the minor Such prior parties cannot escape liability by setting a defense the incapacity of the indorser  Also applies to other incapacitated persons  A (IN COMPLETE, UNDELIVERED)

B

C

D

E (MINOR)

F

*F cannot enforce against A the instrument, following Section 15 of the NIL *General rule in an indorsement by an infant or corporation: it shall be enforceable against the maker, acceptor, or other parties prior to the minor

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 therefor, 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. FORGERY, DEFINED AND EXPLAINED Counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another‟ s name, or the alteration of an instrument, in the name, amount, description of the person and the like, with the intent to defraud Section 23 only applies to forged signatures or signatures made without the authority of the person whose signature purports it to be FRAUD AMOUNTING TO FORGERY Fraud in factum or fraud in esse contractus There is no intention to issue an instrument FRAUD IN FACTUM Does amount to forgery Real defense

FRAUD IN INDUCEMENT Doesn‟ t amount to forgery Personal defense

Bill of Exchange drawer indorser

I promise to pay B or order P100,000 Sgd. A

*Suppose that B forged A ‟ s signature. Is the instrument valid? It is totally inoperative. *If A  B CD E, and B‟ s signature was forged, it is totally inoperative and ineffectual against A and B. C and D are precluded to set up the defense of forgery since as indorsers, they warrant the validity of the instrument. To X Bank Alabang (drawee) Pay to the order of B P100,000 Sgd. A  Additional fact: B has account with RCBC Makati.

*Process is that RCBC will send the check to X Bank for clearing and X Bank would consequently debit the account of A. *What if the signature of A is forged? What is the recourse of  A? The recourse is for A to approach X Bank and demand to credit the his account. X Bank was the proximate cause of the loss of A and it should know the drawer ‟ s signature. Generally, X Bank is liable when the drawer‟ s signature is forged and his account was debited. FRAUDULENT IMPERSONATION Suppose X represents himself as Juan Cruz when he is not to Y. Due to such misrepresentation, he obtained from Y a note payable to the order of Juan Cruz. If Y intends that the proceeds of the note will go to the real Juan Cruz and not X, but to whom Y issued the note on the belief that X was Juan Cruz, would be a forgery. •

DOUBLE INTENT IN FRAUDULENT IMPERS ONATION 1. He intends to make the instrument payable to the person before him or to t he pers on wr iting at the other end of the line, in case the negotiation is by correspondence 2. He intends to make the instrument payable to the person whom he believes the stranger to be‟  GENERAL RULE IN FRAUDULENT IMPERSONATION The first one is the controlling intent except where the name of the payee was already known to the maker or drawer or was particularly identified in some manner REASON FOR RULE: THEORY OF ACTUAL INTENT Throws the loss on the drawer In the absence of anything to show that the drawer had any doubt asto the identity of the p erson to whom he delivered the paper as payee —the drawee, in paying the paper, or the holder, in taking it upon the indorsement of the impostor in the name of which the payee was described, carries out the intention that the

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

drawer entertained at the time of delivery of the p aper to the impostor, although that intention was conceived in consequence of the fraud of the impostor as to his identity and ownership of the property which represented the consideration  ANOTHER REASON FOR THE RULE: THEORY OF ESTOPPEL  As between two innocent p ersons, the one whose act was the cause of the loss should bear the consequences It was the drawer‟ s duty to use diligence to ascertain the identity of the party with whom he has dealt. Failing to make this discovery, he became the victim of the fraud. The impostor having succeeded in this first and essential step in the practice of the fraud, the next was comparatively an easy one. RULE IS QUALIFIED WHERE IMPOSTOR REPRESENTS HIMSELF AS  AGENT OF PAYEE There is a distinction between cases where the paper is delivered to the impostor as payee, in the belief that he is the person to whom the instrument it would be paid, and cases where the paper is delivered to the impostor upon his representation, in the belief that he is agent of the person named as payee The loss falls on the drawee or purchaser, as the case may be, rather than on the drawer where the impostor upon whose indorsement the paper was purchased or paid, represented himself to be the agent of the payee and not the payee himself  ADMISSION OF GENUINENESS AND DUE EXECUTION When an action or defense is founded upon a written instrument such as a negotiable instrument, copied in or attached to the corresponding pleading, the genuineness and due execution of the instrument shall be deemed admitted unless specifically denied under oath by the adverse party Consequently, the genuineness and due execution of  the written instrument or document copied in or attached to the opponent‟ s pleading as the basis of his claim or defe nse, sh ould be denied specifically under oath, otherwise they are deemed admitted. MEANING OF ADMISSION OF GENUINENESS AND DUE EXECUTION 1. That he signed it or that it was signed by another for him and with his authority 2. That at the time it was signed, it was in words and figures exactly as set out in the pleading of the party relying upon it, 3. That any formal requisites required by law, such as swearing and acknowledgment, or revenue stamp which  it requires, are waived by him DEFENSES CUT OFF BY ADMISSION OF GENUINENE SS, ETC. 1. The defense that the signature is a forg ery 2. That it was unauthorized, as in the case of an agent signing for his principal, or one signing on behalf of a partnership or corporation or that in case of the latter, that the corporation was n ot authorized under its charter to sign the instrument 3. That the party charged signed the instrument in some other capacity than that alleged in the pleading setting it out FAILURE TO IDENTIFY PROMISSORY NECESSARILY DEFEAT CLAIM

NOTE

WILL

NOT

EFFECT OF FORGERY IN GENERAL 1. That the signature forged or made without authority is wholly inoperative 2. That no right to retain the instrument, or to give discharge thereof, or to enforce payment thereof  against  any party thereto, can be acquired through or under such a signature forged or made without authority

3.

That nevertheless, as against a party precluded from setting up the forgery or want of authority, the signature forged or made without authority is operative, and rights to retain the instrument, to give discharge therefore, or to enforce payment thereof, can be acquired through or under the signature forged or made without authority

EXTENT OF THE EFFECT OF THE FORGERY 1. Only the signature forged or made without authority is stated by the law to be inoperative but ne ither the instrument itself is, nor the genuine signatures are, rendered inoperative 2. The instrument can be enforced by holders to whose title over the instrument the forged signature is not necessary, such as, the indorsement of an instrument which on its face is payable to bearer 3. The instrument can be enforced against those who are precluded from setting up the defense of forgery, even against those whose signatures have been forged PERSONS PRECLUDED FROM SETTING UP DEFENSE OF FORGERY 1. Those who warrant or admit to the genuineness of the signature in question —indorsers, persons negotiating by delivery, and acceptors 2. Those who, by their acts, silence or negligence, are estopped from setting up the defense of forgery INDORSERS AS WARRANTORS Whether general or qualified Warrant that the instrument indorsed by genuine in all respects what it purports it to be

them

is

PERSONS NEGOTIATING BY DE LIVERY AS WARRANTORS Persons negotiating by mere delivery also warrant that the instrument negotiated by them is genuine and in all respects what it purports to be They are consequently precluded from setting up the defense of forgery  ACCEPTORS AS WARRANTORS  A drawee, by accepting the bill, admits genuineness off the signature of the drawer

the

PRECLUDED Includes those cases where they are estoppels against the party desiring to set up the forgery ESTOPPEL AS TO FORGERY OF INSTRUMENTS Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe that his or another‟ s signature in an instrument is genuine, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to set up the forgery of such signature/s Estoppel may arise from a declaration, act or omission/negligence UNREASONABLE DELAY Unreasonable delay, after his discovery of the forgery, on the part of one having the opportunity and duty to speak, in disclosing the forgery upon commercial paper to the one who ought to be apprised thereof, estops the former from thereafter asserting the forgery as against the latter where the latter is prejudiced by such delay or failure Requisites: o That the delay be unreasonable o That the one who ought to be apprised of the forgery has been prejudiced REASONABLY PROMPT NOTICE Depends upon the circumstances of the case, and the situation of the parties with reference to the remedies against any party is a proper element to enter into the

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

estimate of the reasonableness of the notice WHEN PREJUDICED AND WHEN NOT PREJUDICED  A bank is prejudiced —at the time one discovered that his attorney forged his indorsement to a draft in his favor, it had assets of the attorney in its p ossession to protect itself but at the  time it was notified of the forgery, it has parted with such assets It is not prejudiced by the delay where at no time after the discovery of t he f orgery did the cashier have any property with which to indemnify the bank ESTOPPEL BY NEGLIGENCE IN DELIVERY  A drawer may be precluded from defense of forgery of the payee‟ s indorsement if delivery by him to the payee is negligent CASES OF FORGERY IN GENERAL 1. Forgery of promissory notes which may be further subdivided into —  forgery of indorsement in the note; forgery of the maker‟ s signature 2. Forgery of bills of exchange which may be further classified into — forgery of an indorsement on the bill; forgery of the drawer‟ s signature, either with acceptance b y the drawee, or without such acceptance but the bill is paid by the drawee RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN NOT PAYABLE TO ORDER Where the indorsement is forged and the note is payable to order, the party whose indorsement is forged and parties prior to him  including the maker cannot be held liable by the holder, whether that holder is a holder in due course or not: 1.

2.

3.

The reason is that, inasmuch as the indorsement is forged, it is inoperative.   But since the note is payable  to order, it can be negotiated only by indorsement completed by delivery, and therefore, the forged instrument is the only means one could acquire any rig hts to it or its proceeds The law further provides that no right to retain the note, give discharge there of, or enforce payment  thereof, could be acquired through and under the forged signature. Hence the holder didn‟ t acquire at least those rights as against the party whose signature is forged and parties prior to him, including the maker The forger usually obtains possession of the note by fraudulent or other unlawful means and therefore, he has no right whatsoever in the note

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN A NOTE PAYABLE TO BEARER May be held liable by a holder in due course but not by the one who is not a holder in due course Provided that the note was mechanically complete before the forgery Forged instrument is not necessary to the title of  a holder since instruments payable by bearer can be negotiated by mere delivery RIGHTS OF PARTIES IN FORGERY OF MAKER ‟ S SIGNATURE Where the maker‟ s signature is forged, he cannot be held liable by any holder, whether the holder is in due course or not Purported maker is not a party to the instrument as his forged signature is inoperative and no right to retain, enf orce, or discharge the note, may be acquired against him

DRAWEE CANNOT CHARGE ACCOUNT OF DRAWER In an action by the drawee against the drawer for the amount charged by the drawee against the account of the drawer where the drawee paid a check on a forged indorsement, the drawe e has no d efense against the drawer and the drawer may recover from the drawee for an instrument paid on a forged indorsement Depository owes to the depositor an absolute and contractual duty to pay the check only to the person to whom it is made payable or upon his genuine indorsement DRAWER CANNOT RECOVER FROM THE COLLECTING B ANK Drawer has no right to recover the amount paid from the collecting bank as the duty of the collecting to  exercise care in collection is due only to the payee, and as the drawer suffers no loss since it can recover the amount paid from the drawee bank which has no right to charge the drawer‟ s account DRAWEE CAN RECOVER FROM COLLECTING BAN K The drawee may recover from the recipient of  payment, such as the collecting bank, under a forged indorsement Rule allowing the payee to recover from the recipient of  the payment under a forged indorsement PAYEE CAN RECOVER FROM RECEIPT OF PAYMEN T  According to the general rule, a bank or other corporation or an individual, who has obtained possession of a check, upon an unauthorized or forged indorsement of the payee‟ s signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that they have been paid to the person whom the check was obtained The possession of the check on the forged indorsement is wrongful and when the money had been collected on the check, the bank or other person or corporation, can be held as far as moneys had and received and the proceeds are held for the rightful owners of the payment  and may be recovered by them COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED WITH IT TO DETERMINE GENUINENESS AND REGULARITY CONVERSION  An unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or exclusion of the owner‟ s right  AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE The checks didn‟ t reach the hands of the payee. The bearing of such absence of de livery is considered in some cases and held not to be material Where there is no delivery to the payee and no title vests upon him, he ought no t to be allowed to recover on the ground that he lost nothing because he never became owner of the check and still retained his claim against the drawer PAYEE CANNOT RECOVER FROM THE DRAWEE  An action cannot be maintained by a payee of a check against the bank on which it is drawn unles s the check has been certified or accepted by the bank on which it is drawn, without acceptance or certification, as provided by the statute, there is no privity of contract between the drawee bank and the payee, or holder of the check RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN BILL PAYABLE TO BEARER Holder may recover if he is a holder in due course RIGHTS OF PARTIES IN FORGERY OF DRAWER ‟S   SIGNATURE

Transcription for NEGOTIABLE INSTRUMENTS LAW from the lectures of Atty. Rene V illarente | All Rights Reserved

WHERE DRAWEE HASN‟ T ACCEPTED BILL BUT PAID IT In the case of the payment of a forged check even without f ormer acceptance, the drawee cannot recover from a holder in due course not chargeable with any act or negligence or disregard of duty  As between equally innocent par ties, the drawee who pays money on a check the signature to which is forged, cannot recover the money from the one who received it BUT PAYMENT NOT EQUIVALENT TO ACCEPTANCE OR CERTIFICATION The payment of a forged check doesn‟ t include or imply its acceptance in the sense that this word is used in Section 62 of NIL Basis of the general rule is not that the drawee is precluded from setting up forgery because, by paying the check, it has accepted the check and therefore admitted the genuineness of the drawer‟ s signature By paying the check the drawer is presumed negligent or deemed constructively negligent NEGLIGENCE IN FORGERY OF INDORSEMENTS IN B ILL It presupposes that the drawer himself wasn‟ t negligent or guilty of such conduct as would estop him from asserting the forged character of the indorsement as against the depository and that if he was negligent or guilty of such conduct, the loss must fall on him WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED CHECKS, ITS FAILURE TO PROVIDE ADEQUATE S ECURITY MEASURES TO PREVENT FORGERIES OF ITS CHECKS CONSTITUTES GROSS NEGLIGENCE AND BARS IT FROM SETTING UP THE DEFENSE OF FORGERY BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF THE MONTHLY BANK STATEMENTS FURNISHED BY THE BANK CONSTITUTES NEGLIGENCE FOR WHICH THE BANK CANNOT BE BLAMED IN CASE DEPOSITOR ‟S   CASE ARE FORGED BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN PAY EE‟ S NEGLIGENCE IN FORGERY OF DRAWER ‟S   SIGNATURE The payee in a check may be supposed to have knowledge of the circumstances under which it is drawn and generally, of the person drawing it, and is in a better position to judge the genuineness of the paper than are indorsees.  And there is a tendency to place greater responsibility upon him and he is much more likely to be required to return the proceeds of the paper than are the indorsees INDORSER ‟S   NEGLIGENCE  After a draft or check has once been negotiated so that it is in circulation, there is little opportunity for negligence on the part of those through whose hands it passes; but as to them, in most cases, the rule  will apply that, as between innocent parties, the loss must fall on the drawee DUTY OF PURCHASER OF CHECK OR BILL One who purchases a bill or check is bound to satisfy himself that the paper is genuine; and that by indorsing or presenting it for payment or putting it in circulation before presentation, he impliedly  asserts that he has performed his duty and the drawee who has without actual negligence on his part, paid the forged  demand, may recover the money paid from such negligent purchaser PAPER FORWARDED FOR COLLECTION The fact that the paper wasn‟ t cashed and indorsed with unrestricted indorsement but was taken for collection and forwarded for that purpose under an indrosement giving notice of that fact, may place a greater burden upon the drawee than it would otherwise b ear

FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE DOCUMENT FORGER NEED NOT IMITATE GENUINE SIGNATURE One who signs in the name of another without the latter‟ s authority, as drawer in a check, and thereby makes it appear falsely that the alleged drawer of the check was a real party thereto, when as a matter of fact he didn‟ t participate in the transaction, is guilty of f alsification COMMERCIAL DOCUMENTS Documents or instruments which are used by businessmen or merchants to promote or facilitate trade or credit transactions