Negotiable Instruments - Finals Review

Question 1

What are the requisites of negotiability?

Answer 1

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Question 2

What is a promissory note?

Answer 2

Sec. 184. Promissory note, defined. - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made 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. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.

Question 3

What is a check?

Answer 3

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

Question 4

What is the general rule on the signature of a person with respect to a negotiable instrument?

Answer 4

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.

Question 5

May an agent sign a negotiable instrument on behalf of another, the principal?

Answer 5

Yes.

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.

Question 6

If the negotiable instrument indicates a particular fund out of which the reimbursement is to be made, is it still an unconditional promise to pay?

Answer 6

Yes.

Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:chanroblesvirtuallawlibrary
(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 the transaction which gives rise to the instrument.

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

Question 7

If the sum payable is to be made in installments, is it still considered as “certain” within the meaning of the negotiable instruments law?

Answer 7

Yes.

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:chanroblesvirtuallawlibrary
(a) with interest; or

(b) by stated installments; or

(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.

Question 8

When is an instrument deemed to be payable on demand?

Answer 8

Sec. 7. When payable on demand. - An instrument is payable on
demand:chanroblesvirtuallawlibrary
(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

Question 9

What constitutes a determinable future time?

Answer 9

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed 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.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

Question 10

What is the presumption when the instrument or an acceptance or any indorsement thereon is dated?

Answer 10

Prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be.

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.

Question 11

How do we construe:

where the sum payable is expressed in words and also in figures and there is a discrepancy between the two?

Answer 11

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;

Question 12

How do we construe:

where the instrument provides for the payment of interest, without specifying the date from which the interest is to run?

Answer 12

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:
xxx xxx
(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;

Question 13

How do we construe:

Where the instrument is not dated?

Answer 13

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:
xxx xxx
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;

Question 14

How do we construe:
Where there is a conflict between the written and printed provisions of the instrument?

Answer 14

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:
xxx xxx
(d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;

Question 15

How do we construe:
Where the instrument is so ambiguous that there is doubt whether it is a bill or note?

Answer 15

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:
xxx xxx
(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;

Question 16

How do we construe:
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?

Answer 16

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:
xxx xxx
(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;

Question 17

How do we construe:
(g) Where an instrument containing the word “I promise to pay” is signed by two or more persons?

Answer 17

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:
xxx xxx
(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.

Question 18

When is an instrument payable to order?

Answer 18

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:chanroblesvirtuallawlibrary
(a) A payee who is not 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 for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

Question 19

When is an instrument payable to bearer?

Answer 19

Sec. 9. When payable to bearer. - The instrument is payable to
bearer:
(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or

(d) When the name of the payee does not purport to be the name of any
person; or

(e) When the only or last indorsement is an indorsement in blank.
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.

Question 20

May a bill of exchange be addressed to more than one drawee?

Answer 20

Yes.

Sec. 128. Bill addressed to more than one drawee. - A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession.

Question 21

When is a bill treated as a promissory note?

Answer 21

Sec. 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note.

Question 22

What provisions do not affect the negotiability of an instrument?

Answer 22

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:chanroblesvirtuallawlibrary
(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 validate any provision or stipulation otherwise illegal.

Question 23

What omissions do not affect the negotiability of an instrument?

Answer 23

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that:chanroblesvirtuallawlibrary
(a) it is not dated; or

(b) does not specify the value given, or that any value had been given therefor; or

(c) does not specify the place where it is drawn or the place where it is payable; or

(d) bears a seal; 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.

Question 24

What is the effect of an ante-dated or a post-dated instrument?

Answer 24

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not 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.

Question 25

When may the date be inserted in an instrument?

Answer 25

Sec. 13. When date may be inserted. - Where an instrument expressed to be payable 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.

Question 26

When may a holder fill in the blanks of an instrument?

Answer 26

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. 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.

Question 27

What is the effect of an incomplete instrument not delivered?

Answer 27

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.

Question 28

What is the presumption as to consideration?

Answer 28

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Question 29

What constitutes value?

Answer 29

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

Question 30

Who is a holder for value?

Answer 30

Sec. 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time.

Question 31

Is a lien holder upon an instrument a holder for value?

Answer 31

Yes.

Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Question 32

What is the effect of an absence of consideration?

Answer 32

Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

Question 33

What is the liability of an accommodation party?

Answer 33

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

Question 34

What is the effect of an instrument that is complete as to its form but not delivered?

Answer 34

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.

Question 35

What is the difference between the effect of delivery as between immediate parties and as regards a remote party other than a holders in due course vs. a holder in due course?

Answer 35

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This web page contains the full text of
Act No. 2031
February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW

ACT NO. 2031
February 03, 1911

THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
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:chanroblesvirtuallawlibrary
(a) with interest; or

(b) by stated installments; or

(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.
Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:chanroblesvirtuallawlibrary
(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 the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.chan robles virtual law library

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable:chanroblesvirtuallawlibrary
(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.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

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:chanroblesvirtuallawlibrary
(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 validate any provision or stipulation otherwise illegal.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that:chanroblesvirtuallawlibrary
(a) it is not dated; or

(b) does not specify the value given, or that any value had been given therefor; or

(c) does not specify the place where it is drawn or the place where it is payable; or

(d) bears a seal; 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.

Sec. 7. When payable on demand. - An instrument is payable on
demand:chanroblesvirtuallawlibrary
(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

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:chanroblesvirtuallawlibrary
(a) A payee who is not 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 for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

Sec. 9. When payable to bearer. - The instrument is payable to
bearer:chanroblesvirtuallawlibrary
(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or

(d) When the name of the payee does not purport to be the name of any
person; or

(e) When the only or last indorsement is an indorsement in blank.
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.

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. chanrobles law

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not 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 payable 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.

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. 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.

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.

Sec. 16. Delivery; when effectual; when presumed. - […] 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 where the instrument 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.

Question 36

What is the presumption when the instrument is no longer in the hands of a party whose signature appears thereon?

Answer 36

Sec. 16. Delivery; when effectual; when presumed. - […]A nd 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.

Question 37

What constitutes negotiation?

Answer 37

Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery.

Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires:

xxx xxx

“Delivery” means transfer of possession, actual or constructive, from one person to another;

“Holder” means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;

“Indorsement” means an indorsement completed by delivery;

Question 38

How is an indorsement made?

Answer 38

By signature or allonge.

Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

Question 39

What is the effect when the name in an indorsement is mispelled?

Answer 39

Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature.

Question 40

May the indorser only indorse a portion of the amount payable?

Answer 40

No.

Sec. 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.

Question 41

What are the kinds of indorsements?

Answer 41

Special, blank, restrictive, qualified.

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional.

Question 42

What is a special indorsement vs. a blank indorsement?

Answer 42

Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

Question 43

May a bearer instrument be indorsed specially?

Answer 43

Yes. Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

Question 44

How does a blank indorsement change to special indorsement?

Answer 44

Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement.

Question 45

What is a qualified indorsement?

Answer 45

Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

Question 46

What is a conditional indorsement?

Answer 46

Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

*Campos notes: A conditional indorsement is one where an EXPRESS additional condition is annexed to the indorser’s liability.

Question 47

What is a restrictive indorsement?

Answer 47

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either:chanroblesvirtuallawlibrary
(a) Prohibits the further negotiation of the instrument; or

(b) Constitutes the indorsee the agent of the indorser; or

(c) Vests the title in the indorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

Question 48

What is the effect of a restrictive indorsement?

Answer 48

Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument;

(b) to bring any action thereon that the indorser could bring;

(c) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

Question 49

How should an instrument payable to tow or more person be indorsed?

Answer 49

Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.

Question 50

What is the effect of a transfer without indorsement?

Answer 50

Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

Question 51

May an indorsement be cancelled or stricken out by the holder?

Answer 51

Yes. Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.

Question 52

May an agent indorse an instrument?

Answer 52

Yes. Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. robles virtual law library

Question 53

What is the presumed time of indorsement?

Answer 53

Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

Question 54

Where is the presumed place of indorsement?

Answer 54

Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated.

Question 55

What is the effect of an instrument drawn or indorsed to a person as cashier?

Answer 55

Sec. 42. Effect of instrument drawn or indorsed to a person as
cashier. - Where an instrument is drawn or indorsed to a person as “cashier” or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer.

Question 56

What is the rule on continuation of negotiable character?

Answer 56

Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.

NOTE:
The fact that an instrument is overdue does not affect its negotiability. It merely prejudices the status of future holders because it bars them from being considered holders in due course.

Question 57

What constitutes a holder in due course?

Answer 57

Sec. 52. What constitutes a holder in due course. - A holder
in due course is a holder who has taken the instrument
under the following conditions:

(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it.

NOTE: The 4 requisites must CONCUR. Absence of one
requisite will prevent the holder from being a holder
in due course.

Question 58

What are the rights of a holder in due course?

Answer 58

Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.

Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

NOTES: * A holder in due course can acquire a better title than his predecessors because he takes the instrument free from any defect of title of prior parties.
* A holder in due course is free from defenses available to prior parties among themselves.
* The negotiability of the instrument is not affected if the holder is not a holder in due course. What is only affected is the current holder’s rights. Subsequent holders may still become holders in due course.
* The issue w/n a holder is one in due course becomes important only when there is an existing defense between prior parties

Question 59

What constitutes value?

Answer 59

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

NOTE: * Based on Sec 25 and Sec 191, “value” and “consideration” are convertible terms, but they may have different implications.

• CONSIDERATION is the proper term when the payee sues the maker/drawer, or when an indorsee sues his immediate indorser
• VALUE is the proper term when a holder sues any party to the instrument he himself has not dealt with
• Negotiable instruments given as gifts to the indorsee/transferee
  -Whatever defenses can be set up against the transferor can also be set up against the transferee
  -When a holder gives valuable consideration for the note and all the
  requisites of Sec 52 are present, such holder will be free from such defenses
• Value does not need to be full. A holder will be a holder for value even if he gave less than the instrument’s value so long as the transferor’s intention was to transfer the entire amount of the instrument.

Question 60

What constitutes a holder for value?

Answer 60

Sec. 26. What constitutes holder for value. - Where value
has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who
become such prior to that time.

NOTE: * The mere fact that the present holder paid nothing for a note or is not a holder for value does not preclude recovery, but only lets in all defenses, if any, that might be urged against the original payee

Question 61

What is the rule when the lien on instrument constitutes holder for value?

Answer 61

Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

NOTE: When does the holder have a lien on the instrument? If the instrument is given as a collateral for a debt;

A holder with a lien on the instrument can recover
only to the extent of his lien.

Question 62

What is the presumption of consideration?

Answer 62

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

NOTE: * Sec 28 strengthens Sec 24 by providing that “absence or failure of consideration is a matter of defense as against any person not a holder in due course.”
* Because of the presumption, it is immaterial w/n “for value received” appears in the instrument.
* The presumption is prima facie only, and is rebuttable.

Question 63

What constitutes a holder in good faith?

Answer 63

Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

Sec. 56. What constitutes notice of defect. - To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

Question 64

What is the effect of suspicious circumstances? Does it amount to bad faith?

Answer 64

a. Notice; bad faith; effect of suspicious circumstances
Campos Notes
* Bad faith can only be proven by circumstantial
evidence because it is a state of mind.
* The question of good faith or bad faith is a question of fact which must be determined on a case-to-case basis.

• RULE: Negligence in investigating suspicious circumstances which would put a prudent man on inquiry is not of itself sufficient to prevent recovery. However, it may be combined with other circumstances to constitute evidence of bad faith.
  o EXCEPTION: where the suspicious circumstances are so cogent and obvious that to remain passive would amount to bad faith

Question 65

What is the rule on financing companies?

Answer 65

b. Financing company not a holder in good faith as to
buyer
Campos Notes
* COMMON SITUATION: A buyer issues a note to pay for property sold by a seller. A finance company pays the full price of the property sold
and the seller indorses the buyer’s note to the finance company. The finance company is subrogated to the right of the seller to collect the
price form the buyer
* The courts tend to protect the buyer against the finance company in the event that the goods sold turn out to be defective because the “finance company is better able to bear the risk of the dealer’s insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers.” (Mutual Finance v Martin)

Question 66

What is the effect of notice of defect before full payment?

Answer 66

Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.

NOTES: * RULE: notice of defenses to a purchaser before he
has acquired title and before he has paid any part of the purchase price prevents him from becoming a holder in due course
* EXCEPTION: when the purchaser receives notice AFTER he has PARTIALLY paid the instrument, he is a holder in due course as to the AMOUNT HE ALREADY PAID
* As to the amount NOT YET PAID, he is subject to any existing defenses
* EXCEPTION: if the holder has given for the instrument a promise which he must perform

Question 67

What is the effect of constructive notice of a defect?

Answer 67

e. Constructive notice not sufficient
Campos Notes
* RULE: constructive notice is insufficient. For example:
o A purchaser of a negotiable instrument is not put on inquiry for buying it
o He is not charged with notice of defenses or equities disclosed by public records either.
o Neither is he affected by lis pendens
* EXCEPTION: notice to an agent is chargeable against the principal

Question 68

Is notice of accommodation a notice of defect?

Answer 68

No. Notice of accommodation is not notice of defect. Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

Question 69

What is the effect of an alteration to the holder in due course?

Answer 69

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.

Question 70

What is the effect of an unauthorized alteration which is both apparent and material?

Answer 70

• If an unauthorized alteration is both apparent and
  material:
  o The holder cannot become a holder in due
  course
  o The instrument is entirely void and
  constitutes a real defense in enforcement

Question 71

What are the effects on the following if there is a material alteration?

HDC:
Non-HDC:
Person who made the alteration:
Person who assented or made the alteration possible:

Answer 71

if there is a material alteration
1. holder in due course: can enforce original tenor
2. non-holder in due course: cannot enforce payment
3. person who made the alteration: cannot enforce, he cannot benefit from a crime he committed
4. person who assented or made the alteration possible: can be the maker or drawer, he did not make the alteration himself, but allowed it through negligence (by leaving the instrument in blank)&raquo_space;> still valid

Question 72

What is the effect when the instrument payable on demand is negotiated at an unreasonable length of time after its issue?

Answer 72

Sec. 53. When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

Question 73

What are the types of dishonor?

Answer 73

Types of dishonor
o Dishonor by non-acceptance (applies only to bill of exchange)
-Occurs when the drawee refuses to accept the order of the drawer
as stated in the bill
- May occur even before the date of maturity

o Dishonor by non-payment: applies to both notes and bills of exchange
-Occurs when the party primarily liable fails to pay on the date of maturity

Question 74

When is the ultimate date of maturity when an instrument is fixed with a maturity but subject to an acceleration?

Answer 74

instruments with a fixed maturity but subject to acceleration: the ultimate date of maturity is the date for the purpose of determining whether a purchaser is a holder in due course, unless such purchaser had knowledge of the earlier maturity at the time he acquired title.

Question 75

What happens after maturity of an instrument?

Answer 75

What happens after maturity of an instrument?
o That a purchaser after maturity is not a holder in due course does not mean that the instrument is void or that it can no longer be negotiated.
o A purchaser after maturity merely acquires the actual right and title of the transferor.
o After maturity, an instrument is still negotiable until it is paid
o An instrument continues to be negotiable until discharged (aka PAID) or restrictively indorsed

Question 76

What is the effect of postdating or antedating a negotiable instrument?

Answer 76

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.

Question 77

What are the effects upon the holder if the has notice or sees that the instrument have qualified, conditional and restrictive indorsements?

Answer 77

7. Effect of qualified, conditional and restrictive indorsements
   Campos Notes

-Qualified indorsement: no effect on status of holder as a holder in due course

-Conditional indorsement: no effect on status of holder as a holder in due course

-Restrictive indorsement prohibiting further negotiation: no effect on status of holder as a holder in due course (XPN: EXCEPTION: if the holder violates the prohibition and indorses the instrument to another, the indorsee cannot be a holder in due course because there is no valid negotiation)

-Restrictive indorsement constituting the indorsee as agent of the indorser: depends w/n the principal is a holder in due course

-Restrictive indorsement vesting title in the indorsee as trust for the use of another: divergent views

Question 78

May the payee be a holder in due course?

Answer 78

Generally, a payee cannot be a holder in due course because he has dealt directly with the maker/drawer and must therefore have knowledge of facts creating a defense. However, there are some situations where he is insulated from the maker or drawer by a third party (e.g. a remitter). If he is insulated in this way and he meets the requirements of Sec 52 = HOLDER IN DUE COURSE

Question 79

What are the rights of a purchaser from a holder in due course?

Answer 79

Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

Question 80

Who is deemed holder in due course?

Answer 80

[Presumption in favor of due course holding]

Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.

Question 81

What is the effect of a transfer of an unindorsed instrument?

Answer 81

Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

Question 82

What are the general rules or provisions which govern defenses and equities?

Answer 82

Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

Sec. 57: Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.

Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the
latter.

Question 83

What are the factors which the liability of signatories to a negotiable instrument depends on?

Answer 83

Liability of signatories to a negotiable instrument depends on whether there are existing (1) defenses or (2) claims of ownership.

(1) Defenses - REAL or PERSONAL
(2) Claims of ownership - LEGAL TITLE or EQUITABLE TITLE

Question 84

What is the difference between a real and a personal defense?

Answer 84

REAL - available against all holders, including HDC; attached to the instrument itself; generally discloses an absence in one of the essential requisites of a contract or where the contract is void for being contrary to public policy

PERSONAL - available against holders not in due course only; a true contract appears, but for some reason (e.g. fraud) the defendant is excused from obligation to perform.

Question 85

What are the two kinds of claims of ownership and what do they mean?

Answer 85

Claims of ownership:

LEGAL TITLES - one may recover possession even from a holder in due course

EQUITABLE TITLE - one may recover possession only from a holder not in due course

Question 86

What are the different real and personal defenses?

Answer 86

REAL DEFENSES (FILFS)
1. Forgery
2. Incapacity
3. Fraud in the execution
4. Some type of duress
5. Lack of delivery of an incomplete instrument

PERSONAL DEFENSES (55-WIL)
1. Enumeration in Section 55
2. Want of consideration
3. Incompleteness of instrument
4. Lack of delivery of a complete instrument

Question 87

Is incapacity a real or personal defense?

Answer 87

Real defense. Therefore, it may be invoked against a holder in due course.

Sec. 22. Effect of indorsement by infant 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.

Question 88

Who may invoke the defense of incapacity?

Answer 88

Incapacity is a real defense available only to the person incapacitated.

E.g. minority, corporation which has no capacity to indorse, insane or demented persons, deaf-mutes who do not know how to write.

Rationale: contract is lacking an essential element of consent.

Question 89

Is illegality a real or personal defense?

Answer 89

Personal defense. Thus illegality may not be invoked against a holder in due course.

Illegality is a personal defense. Although the contract lacks an essential element of lawful cause/consideration, the law treats defect as a mere personal defense.

E.g.
1. Note acquired through gambling
2. Usurious note.

Question 90

What are the general rules or provisions for forgery?

Answer 90

Forgery - In General

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.

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.

Question 91

Is forgery a real or personal defense?

Answer 91

Forgery is a real defense, therefore it may be invoked against a holder in due course.

Rationale: a person whose signature was forged never consented to the contract.

There are 2 cases covered under Sec. 23 which makes the instrument inoperative: (1) agent who does not have authority to bind the principal; (2) forged signature.

Question 92

What is the exception to the rule on forgery (ie. it may not be invoked as a defense)?

Answer 92

XPN TO THE RULE:
1. Estoppel
2. Ratification

2 situations where a party is precluded from using the defense of forgery (as specifically provided for in the NIL):
1. General Indorser: he warrants that the instrument is valid and subsisting, therefore he is precluded from setting up defense of forgery.
2. Acceptor: because under Sec. 62, he warrants its genuineness.

Note: forgery does not avoid the instrument, but only the forged signature.

Question 93

What is the effect when there is a drawee’s acceptance of a forged instrument?

Answer 93

1. When the drawee accepts or pays a forged instrument (ie. the drawer’s signature was forged) - Price v. Neal: drawee cannot recover, he must bear the loss. XPN - person was guilty of fraud/negligence in obtaining the bill, one who had not given value therefor.
2. When the depositor/drawer was negligent - bank is freed from liability if the proximate cause of its wrongful payment is the negligence of the drawer.
3. When t he payment was made under a forged indorsement - drawee can recover the amount paid from the holder since he makes no warranty as to the genuineness of any indorsement. Should he fail to recover from the holder due to his/her insolvency: (1) order instrument - cannot debit DRW’s ac; (2) bearer instrument: DEE may debit from the DRW’s acc.
4. When the drawee is negligent in informing the recipient of the forgery - A drawee should be allowed to recover payment if made by mistake. Lack of prompt notice might be a defense if it is shown drawee failed to give prompt notice and damage resulted. If there is no damage, it might still be a defense since there was no damage. (Clearfield Trust Co. v. US)
5. When the drawer is negligent in case of forged indorsement on checks - drawer cannot be charged the amount the drawee bank paid in case the indorsement has been forged XPN when the indorsement was forged by an employee/agent of the drawer, and the drawer was negligent in not discovering the same, the drawee may charge the drawer’s acc.

Question 94

What is the liability of the acceptr?

Answer 94

Sec. 62 Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

Question 95

What is the effect of a material alteration?

Answer 95

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.

Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:chanroblesvirtuallawlibrary
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

Question 96

Is a material alteration a personal or a real defense?

Answer 96

It may be both a real or personal defense.
Personal defense - to deny liability according to the original tenor.
Real defense - to deny liability according to its altered terms.

• GR: Material alteration changes the contract of the parties, avoids the instrument and discharges all the parties
• XPN: parties who authorized or consented to the alteration.
• XPN to XPN: Subsequent indorser (because by the indorsement, he warrants, among other things, that the instrument is in all respects what it purports to be).

Question 97

What are the effects of a material alteration?

Answer 97

General Rule: material alteration avoids the instrument (Sec. 124)
Exception: when the drawer of the check is negligent (e.g. because he leaves spaces easy to fill-up), then the drawee bank may credit the drawer’s account;

Question 98

Is fraud a real or a personal defense?

Answer 98

Fraud can either be a real or personal defense.

REAL DEFENSE - when there is no real contract as when a person is tricked into signing a paper he does not know is a negotiable instrument.

PERSONAL DEFENSE - (1) when a person is tricked only as to its value/terms OR (2) when the person does not know the nature of the
paper he is signing, but could’ve discovered it had he exercised ordinary care.

Question 99

Is duress a real or a personal defense?

Answer 99

Duress can either be a real or personal defense.

Personal defense - simple duress
Real defense - when the duress employed is so serious that there is a lack of contractual intent

Question 100

What is the effect of a complete instrument which is undelivered?

Answer 100

The non-delivery of a complete instrument is a PERSONAL DEFENSE, thus it cannot be invoked against a holder in due course.

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 where the instrument 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.

Question 101

What is the effect of a incomplete instrument which is undelivered?

Answer 101

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.

Question 102

Is the defense of incomplete instrument which is undelivered a real or a personal defense?

Answer 102

Incomplete instrument which is undelivered is a REAL DEFENSE, thus it may be invoked against a holder in due course.

XPN: a drawer cannot claim this real defense if its negligent custody of the checks contributed to its escape.

Question 103

Is the incomplete instrument which has been delivered a real or a personal defense?

Answer 103

Incomplete instrument which has been delivered is a personal defense. Thus, it cannot be invoked against a holder in due course.

NOTE RULE ON BLANK INSTRUMENTS:
GR: (1) When instrument is wanting in any material particular - person in possession has prima facie authority to complete it by filling up the blanks; (2) signature on a blank paper delivered by person makign the signature so that the paper may be converted to a negotiable instrument - person who receives has a prima facie authority to fill it up as such for any amount.

ENFORCEABILITY:

[person became a party prior to completion] So that it may be enforced against any person who who became any party to the instrument prior to its completion - it must be filled up strictly in accordance with the authority given and within a reasonable.

[negotiation to a holder in due course after completion] 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.

Question 104

What are the two conditions that must be present in order for the presumption of authority to complete a blank paper or paper so far incomplete but signed to arise?

Answer 104

2 conditions must be present before presumption of authority to complete may arise:
1. Delivery of the instrument
2. Delivery must have been for the purpose of converting it

Question 105

If authority to complete the instrument was exceeded?

Answer 105

HDC : may enforce it as if it had been filled up strictly in accordance with the authority given

HNDC : he cannot recover

Question 106

What is the effect of want of consideration?

Answer 106

Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

3 kinds of want of consideration enumerated by the provision:
1. Absence of consideration - total lack of consideration
2. Failure of consideration - something that was agreed upon as consideration for a contract, but for some reason the consideration did not materialize
3. Partial failure of consideration - part of consideration did not materialize

Question 107

Is consideration a real or a personal defense?

Answer 107

Consideration is a personal defense, thus it cannot be invoked against a holder in due course.