NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY.

BERNARDINO AMAGO

PAYABLE TO BEARER SEC. 9(B) WHEN IT IS PAYABLE TO A PERSON NAMED

THEREIN OR BEARER

Sec. 9. When payable to bearer. - The instrument is

payable to bearer: I promise to pay X or bearer P1,000.
(a) When it is expressed to be so payable; or Sgd. Y
(b) When it is payable to a person named therein or !
bearer; or So first, for a bearer instrument, it could be payable to
(c) When it is payable to the order of a fictitious or bearer as expressly stated in the instrument.
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 Example:
be the name of any person; or
(e) When the only or last indorsement is an I promise to pay to bearer P1 M.
indorsement in blank. Sgd. Y
!
So that is an instrument payable to bearer.
SEC. 9(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;
The second possible example of a bearer instrument is
when you name the specified person and then you add
Example: the word bearer.

I promise to pay P1,000 to Superman or order. Example:

Sgd. E
! I promise to pay X or bearer P1 M.
What type of instrument is this? Order or Bearer
instrument?
S: Bearer instrument.
If you made this knowing or thinking that Superman
exists, will that change your answer?
S: Yes. It becomes an order instrument.
Atty: It becomes a non-negotiable, even though you
really intended to make a negotiable instrument.
The fact that there cannot be one who will make the
indorsement upon the issuance of this instrument, then
it cannot be considered negotiable.
Sgd. Y
!
If you say, “I promise to pay to bearer X P1 M” is that
negotiable?
S: No. It only describes X.
But how about the word bearer?
Still no because the word “bearer” there is used as an
adjective to describe X. So not considered payable to
bearer then but rather payable to a specified person
which is X. So there’s no way you can circulate it around
the market as a negotiable instrument because it’s
payable specifically to X the bearer of the instrument.

In fact, you cannot be able to issue this instrument
because to whom will you issue this one? When there is
no superman.
It will only be considered a bearer instrument if the
Be mindful as well of the wordings used and the
syntax of the language.
SEC. 9(D) WHEN THE NAME OF THE PAYEE DOES NOT
PURPORT TO BE THE NAME OF ANY PERSON

person who made this instrument thought that

superman does not really exist. So because he
wanted to draft a negotiable instrument, then he just
wants it to be negotiated or circulated in the market, he
drafted it that way. The intention must be for it to be
able to be circulated. Otherwise, he would not have
mean the instrument payable to superman.
So it is very important that the person making use of a
fictitious name for purposes of a negotiable instrument,
must know that that person doesn’t exist. Otherwise, it
will render the instrument non-negotiable. So be mindful
of the requirements in (c).
How about Sec. 9(b)?
So what about (d)?
Example given by classmate (Note: Wrong illustration)
To: X
Pay to cash Php 1 million.
Sgd. E
!
This is NOT negotiable because it does not contain
words of negotiability.
What (d) actually contemplates is an instrument that on
its face is payable to order and it doesn’t contain a word
“order” on the instrument, so this cannot be considered
as a negotiable instrument.
Although I understand that the book used this as an
example to describe (d) but you should understand, that

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NEGOTIABLE INSTRUMENTS LAW
(d) there has to contain still words of negotiability.
And cash is not a word of negotiability.
Although there is this one case that talks about an
instrument that is payable to cash. But what is usually
practiced is if pro-forma check used in payment and
contained as a payee is the word “cash” instead of the
specific name of a person. The check actually starts
“pay to the order of”. So it contains the words of
negotiability. That’s what makes it negotiable.
This one (the illustration), though said in the book as an
example should not be considered as a negotiable
instrument. It must contain words of negotiability.
SEC. 9 (E) ONLY OR LAST INDORSEMENT IS AN
INDORSEMENT IN BLANK
The last one (e) talks about the only or last indorsement
is an indorsement in blank, this happens once an
instrument has already been negotiated.
I must have mentioned it when we were talking about
the incidences on the life of a negotiable instrument that
if the instrument is payable to bearer, you can
negotiate it by mere delivery.
Whereas, if it is an instrument that is payable to order,
someone has to sign first, making his order that this is
to be paid to the person to whom he will negotiate the
instrument. So in that case, it requires an indorsement
prior to delivery to complete the negotiation.
So, if at the back of the instrument, it no longer
contains a specific person to whom the instrument
can be negotiated, that only means that this instrument
must be intended to become a bearer instrument.
So an order instrument then can be converted to a
bearer instrument IF the last indorsement happens to be
in blank. But take note, that only happens when the
LAST INDORSEMENT IS IN BLANK.
So don’t get confused later on that the moment you see
a blank instrument, automatic it becomes a bearer
instrument. NO. Only if the last indorsement is an
indorsement in blank. The operative term there is last.
So that’s when an instrument is payable to bearer.
PAYABLE TO ORDER
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 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.
SUAN | FONTANOSA | DOLIENTE | KONG | ORTIZ
MIDTERMS ATTY. BERNARDINO AMAGO
Where the instrument is payable to order, the payee
must be named or otherwise indicated therein with
reasonable certainty.
So when is an instrument payable to order?
S: An instrument is payable to order where it is drawn
payable to the order of a specified person or to him or
his order.
So how many forms of order instruments are there?
For bearer instrument, there are 5 mentioned in section
9.
As to form of order instrument, there are 2:
1) Payable to the order of a specified person; or
2) Payable to a specified person or his order
Illustration 1: Example for the 2nd form: Promissory
note payable to a specified person or his order
I promise to pay P or order Php 10,000 on 30 Aug 2018.
Sgd. J
!
Note: Nabali pag example. Sir asked for the first form
which his payable to the order of a specified person. But
this is already correct.
Can a bill of exchange be payable to order?
Yes
Can a promissory note be payable to order?
Yes.
Then give me a bill of exchange in its second form
Illustration 2: Example for the first form: Bill of
exchange payable to the order of a specified
person
To: X
I promise to pay to the order of P Php 10,000 on 30 Aug 2018.
Sgd. Y
!
Take note: These are the 2 forms of order instrument.
Either (1) payable to the order of a specified person, or
(2) payable to a specified person or his order. Unlike in a
bearer instrument where there could be 5 forms.
Either of these 2 forms though may contain a payee
who is not a maker, not a drawer or not a drawee. So
in this case, which one is that instrument?
Illustration 1 — payee not the maker
Illustration 2 — payee not the drawer or drawee
This is an example of Sec. 8(a) where the payee
happens to be a person different from maker, just like
this promissory note (illustration 1) OR a payee is
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 NEGOTIABLE INSTRUMENTS LAW MIDTERMS ATTY. BERNARDINO AMAGO

different from the drawer, and the drawee on this case So because of the conjunction “or” it is considered that
(illustration 2). there are several payees.

But it is also possible that the one who could give the
order could be? THE HOLDER OF AN OFFICE FOR THE TIME BEING

Could be the drawer. [Sec. 8 (b)] To: X

Pay to the order of the commissioner of internal revenue Php
How will you change this then? 10,000 on 30 Aug 2018.
Sgd. J
PAYEE WHO IS THE DRAWER
!
To: X In that case, It is still considered a negotiable instrument
I promise to pay to my order Php 10,000 on 30 Aug 2018. and still payable to order. Even if you don’t mention
what year it is, whoever the current holder of the
Sgd. J position gets the indorsement for the instrument.
!
It can even be to a cashier, treasurer of any organization.
What form of order instrument? Position like president of lex circle. So long as the
Payable to the order of a specified person. person gets to be identified or at least the position gets
to be identified.
Who’s the specified person?
The drawer who is J. “My” there is J. *Asks when is an instrument negotiable again*
Or you could also say “payable to the order of J” then
signed by J.
SIGNATURE BY AGENT
Sec. 19. Signature by agent; authority; how
PAYEE WHO IS THE MAKER
shown. - The signature of any party may be made by
a duly authorized agent. No particular form of
I promise to pay myself or order Php 10,000 on 30 Aug 2018. appointment is necessary for this purpose; and the
authority of the agent may be established as in other
cases of agency.
Sgd. J
!
You could also say “I promise to pay J or order”… The rule is that the person has to sign on the
“myself” being J — the maker of this instrument instrument to be liable on that instrument. So that
when a maker signs to the instrument he renders
himself liable on the instrument.
ORDER OF A DRAWEE

To: X A drawer is likewise the same. When he signs on the

I promise to pay to the order of X Php 10,000 on 30 Aug 2018. instrument, he holds himself liable on the instrument.

Sgd. J
The reason also why you need to present the instrument
! for acceptance to the drawee is so that he may be
It could also be “pay yourself or order”… informed of his possible obligation should he accept
“yourself” being X — drawee of this instrument the instrument and this is indicated by the fact that he
signs on the instrument.
ORDER OF TWO OR MORE PAYEES JOINTLY

Now, it is also possible that the person signs on the

I promise to pay A and B or order Php 10,000 on 30 Aug 2018. instrument but he doesn’t hold himself liable to it. Is
that possible?
Sgd. J Yes sir, it is possible.
!
And when is that possible?
What’s the requirement if there is a joint payees? This When he is an agent of the maker/drawer
being an order instrument?
The requirement is that both A and B will make the
indorsement. Can a minor sign an instrument?
Yes but he will not be liable or bound by the instrument.

ORDER OF ONE OR SOME OF SEVERAL PAYEES

Even if the instrument is a bearer instrument, where it
To: X gets negotiated from one hand to another? The
instrument is still considered invalid? If the minor did it
Pay to the order of A, B or C Php 10,000 on 30 Aug 2018. and was able to get money out of it, still considered
invalid?
Sgd. J
!
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 NEGOTIABLE INSTRUMENTS LAW MIDTERMS
In that case, I think the instrument is valid but as to the
minor, he cannot be held liable on the instrument.
Okay, he cannot be held liable on the instrument even if
he signs the on the instrument because he is a minor.
It’s different though when it comes to other parties. Even
it was signed by a minor and that instrument passed
through other parties who are actually of age and not
acting in good faith. They could still be held liable. More
so if they know that the minor is a minor and still
accepted the instrument. There’s reason for them to be
liable.
But as to the minor himself he is not held liable. Can
corporation sign a negotiable instrument?
Yes, Sir. They can sign through its agent.
Through an Agent. So what will it state?
For example, Sir. It is stated signed by Janen Gabunada
as a President of a certain corporation
So because a corporation has no physical body, it can
only sign only through its representative or it could be
an agent but what is necessary for an agent to be able
to get away with the liability on the instrument?
He must mention therein on what capacity he is signing
therein. After his name, he can state that he is an agent
of a certain corporation.
Give me an example, just the portion on the signature
“XYZ Corp. through JG as representative”
Or you can just make it simple by saying:
…..
XYZ Corporation
By: JG (sgd.)
! representative. So those terms which can really inform
This is now considered as a proper signature of an
agent who can get away with the liability,
GRANTING that JG is duly authorized for this
transaction and that XYZ Corp. has the authority to act
in this capacity
A corporation can only act in accordance in the primary
and secondary purpose as stated in its Articles of
Incorporation. And of course, there may be implied
incidental powers of a corporation.
If the corporation borrows money, if it can justify that it is
incidental to its business then it has to act through its
BOD or depending on the amount together with the
stockholders and issue a RESOLUTION AUTHORIZING
such act. But let’s just say it only an ordinary loan for the
financing of a certain building.
If the corporation is required by the bank to issue a
promissory note, as a security, then the corporation will
SUAN | FONTANOSA | DOLIENTE | KONG | ORTIZ
ATTY. BERNARDINO AMAGO
have to issue a board resolution authorizing a
particular person to engage in such transaction.
It could state that:
The corporation hereby resolves that the corporation shall
enter into a loan transaction and execute a promissory note in the
amount of Php1M. Resolved further, that the President Mr. X, is
authorized to sign for an on behalf of the corporation in relation to
the foregoing authority.
!
So in that case, there was an authority for the
corporation to enter into a loan in a promissory note and
it will be Mr. X who’s supposed to represent the
corporation.
So if you are Mr. X, in order to get away with the liability
otherwise it will become a personal obligation, then you
will have to sign as an agent of the corporation.
If he want to get away of this obligation, then he needs
to sign and put the name of the corporation plus his
capacity for signing. Otherwise, he may hold himself
liable.
In all instances, if you’re signing as an agent you must
not only place the name of your principal (Sec. 20 of
NIL) but also your capacity for signing such an
instrument. Otherwise, you will hold yourself personally
liable.
Now of course, this will not happen with a representative
of a corporation. It could just be a person representing
another person. So in that case you will have to place
the name of your principal and your signature
including and specifying the certain terms which
could mean you are just signing as an agent or
third parties that your are only signing as an agent.
AN INFANT OR MINOR
Now as already mentioned, an infant or a minor is able
to sign an instrument BUT it will not hold himself
liable.
A Corporation as well may be able to sign the
instrument. But is such corporation is not authorized to
engage in such a transaction, then it will also not be
liable. The one who gets to sign will be liable.
So, in the example that I provided awhile ago, it so
happen that there really was a board resolution to enter
in such transaction.
BUT if the corporation did not issue any resolution to
that effect but the president on his own acting for and in
behalf of the corporation entered into a transaction
involving a negotiable instrument, the corporation
SHOULD NOT be held liable for it because it was not
authorized by the BOD or whoever is supposed to make
the authorization.
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NEGOTIABLE INSTRUMENTS LAW
Although, the usual practice call is that president acts on
its own when he owns the entire corporation and all the
rest are just nominal stockholders to qualify as members
of the board. Iya nalang na ipa ratify later on. Kinsa man
say mu question na siya man tagiya sa corporation. Ug
malugi ang corporation kinsa man malugi? Siya lang.
That is acceptable in practice.
But we have to be strict about it so to get away with the
liabilities or the possibility or to lessen the risk later on,
before a corporation can be held liable it must always
be authorized first. And authorization can only be done
by the BOD sometimes it needs to be ratified by the
stockholders.
If you’re dealing with a corporation and it behooves you
to require the presentation of a board resolution or a
Secretary Cert. Sec. 22 meant that a Corporation or
infant may incur no liability thereon, the corporation
there is one who did not authorize to engage in such a
transaction so whoever signs for and in behalf of the
corporation, who was not authorized to do so, is
actually the one personally liable even if he put the
name of the corporation and put his capacity in signing.
So it will be considered an Ultra Vires act of the
corporation meaning outside of the authority
SIGNATURE BY PROCURATION
Section 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
What do you mean by signature by procuration?
Is it signing of an agent, which also serves as a
warning that the authority of the agent is limited, and
that he can only bind the principal if he acts within the
limit of his authority.
So it is not an ordinary agency but one which is limited.
So that’s what pre procuration means. So you can sign
of course as an agent and the requirement in signing as
an agent will have to be complied with otherwise he
becomes personally liable. And addition to that, his
signature should also contain the words “Pre
Proc”which means that whoever is dealing instrument
would know that this person is only signing based on a
limited authority. And it requires him who is dealing with
the instrument to inquire as to the limit of his or her
liability.
• Signature based on an agency but one which is
limited in its authority
• You can sign of course as an agent and the
requirements for such must be complied with
otherwise you become personally liable but in addition
to that your signature must contain “pre proc” so that
whoever is dealing with the instrument will know that
this person is only signing based on a limited authority
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MIDTERMS ATTY. BERNARDINO AMAGO
and it requires him who is dealing with the instrument
to inquire into the limit of his or her liability
• Does not apply to general agency, only to one that has
a certain limit
• [Must have been a practice before but it is never used
now]
OMISSIONS
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
(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.
a) It is not dated; or
◦ Presumption provided by law that the date is
when the instrument was issued
b) Does not specify the value given, or that any value
has been given therefor; or
◦ Consideration is presumed for all instruments
issued
c) Does not specify the place where it is drawn or the
place where it is payable; or
◦ Presumption is that it the residence or principal
place of business of the person principally liable
to the instrument
■ Maker; or
■ Drawee-acceptor
d) Bears a seal; or
◦ [Copied from the US; has no bearing on Philippine
instruments since an instrument to be negotiable
need not be notarized so it need not contain any
seal]
e) Designates a particular kind of current money in
which payment is to be made
◦ Refers to a foreign instrument issued abroad
which is payable in the Philippines thus there is a
need to exchange the currency into Philippine
currency as payment to payee or bearer of the
instrument
◦ Does not mean that you need not indicate the
currency involved otherwise you will not know
what to pay to the payee of the instrument
◦ [No longer practiced because we are now allowed
to make payment in whatever form depending on
the agreement of the parties]
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 NEGOTIABLE INSTRUMENTS LAW
TERMS
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.
To: X
Please pay to P or order Php 10,000
Sgd. Y
! taint of fraud or any illegality then it may be considered
Still negotiable as long as there are words of
negotiability because you can always be polite with
your order or demand
UNDATED
Sec. 13.  Par. (1) 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.
In these instances it is necessary to insert the date to
know the date of maturity.
Sec. 13. Par. (2) 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.
◦Relates to Section 11: Where the instrument is dated,
such date is deemed prima facie to be the true date
ANTE-DATING AND POST-DATING
Section 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 delivery acquires
the title thereto as of the date of delivery.
• Postdating: making it appear that the instrument was
issued at a date later than when it was actually issued
◦ EX. Today is August 23, but you made it appear
that the instrument was issued on August 30
• Antedating: making it appear that the instrument was
issued at a date earlier than when it was actually
issued
◦ EX. Today is August 23, but you made it appear
that the instrument was issued on August 16
■ GR: Allowed, instrument is still valid
—XPN: Illegal or fraudulent purpose
▻ Effect: invalid and illegal but doesn’t affect
negotiability
✥ Negotiability is determined by the face of
the instrument and Section 1
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MIDTERMS ATTY. BERNARDINO AMAGO
▻ EX. Antedating for purposes of gaining more
interest, postdating a check to make it
appear that you have funds but you had no
intention to pay, antedating to hasten to date
of maturity
If the act of antedating and postdating is done with the
invalid.
But take note that invalidity is different from negotiability
of an instrument, which is determined by what is written
on it’s face and on the provisions of sec.1 of the NIL law.
In case the instrument is not dated then there is a
presumption that it commences on the date of
issuance. (I forgot the provision)
What is the consequence of an insertion of a date in
such instrument?
It becomes the true date (Sec. 13 in relation to Sec. 11
of the NIL)
Is that always true for all parties?
NO. If the holder is NOT a holder in due course (sec. 52
NIL) then the maker or drawer can set up the personal
defense of insertion of a wrong date (Sec. 13 NIL)
On Dela Cruz’s example of the maker refusing payment
simply because of a subsequent insertion from another
person basing on the ground that since the person
collecting knew about the supposed wrong insertion the
date of issuance should be the true date (Sec. 11)
ATTY countered that it is also in the provisions of the NIL
that any date inserted becomes the true date. (Sec. 13)
The appropriate legal basis is sec. 13 of the NIL in
relation to sec. 52.
Sec. 52 defines the conditions where one is a holder in
due course.
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.
Holder in due course: [COFI] — MEMORIZE!!
(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;
PAGE 6 OF 8
 NEGOTIABLE INSTRUMENTS LAW
(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.
If you are a holder in due course then personal defenses
like insertion of a wrong date cannot be used against
you. (Sec. 13 NIL)
Failure to satisfy the requirements makes you a holder
not in due course and subject to personal defenses
(Sec. 58 NIL)
Going back to Dela Cruz’s example of the holder having
knowledge of the insertion of the wrong date it fails to
satisfy not the first requirement since it only refers to the
form of the instrument to which it fully complies rather it
fails to satisfies the last requirement that he was aware
of any infirmity (THE WRONG INSERTION) in the
instrument at the time it was negotiated to him.
Atty A: Now you know the rule is that if there is a blank
on the instrument there is actually AN AUTHORITY TO
PUT THE DATE on the instrument if it is necessary to
determine it’s maturity (either date of issue or date of
acceptance).
When is that?
1) Instrument payable on a fixed period after date is
issued undated
2) Acceptance of an instrument payable at a fixed
period after sight is undated
In all those instances if you receive such instrument that
does not contain a date you are supposed to put a
date. You have blanket authority but you must put
the true date.
But If you inserted the wrong date, it does not AVOID
(DILI MA VOID) the instrument in the hands of a
SUBSEQUENT HOLDER IN DUE COURSE. (Sec. 13
NIL)
For a holder in due course the date inserted becomes
the true date of the instrument.
It is thus important to classify the holders in the
application of sec. 13.
! (d) That he has no knowledge of any fact which
1) Holder in Due Course (sec. 52)
SUAN | FONTANOSA | DOLIENTE | KONG | ORTIZ
MIDTERMS ATTY. BERNARDINO AMAGO
2) Holder Not in Due Course (sec. 58) – Need to refer
to the correct date / vulnerable to personal defense.
3) Holder through a Holder in Due Course (Sec. 58)
— shelter principle
What type of defense and why?
Personal defense — cannot use against holders in due
course and holder through a holder in due course. It
must be inferred by the particular provisions in the NIL.
SHELTER PRINCIPLE
“SHELTER PRINCIPLE” - The immediate subsequent
holder who derives his title from a holder in due course
and that HE IS NOT A PARTY TO ANY FRAUD OR
ILLEGALITY affecting the instrument has all the rights of
the prior holder as to any prior parties.
Even if the subsequent holder knew about the wrong
date as long as he is not party to the one directly
responsible for the fraud then he still is a holder through
the holder in due course.
Thus his knowledge of the fraud may not make him
qualify as a holder in due course under sec. 52 but he
can still be a holder through a holder in due course
under sec. 58 because he is not a party with the one
directly responsible for fraud, provided that the prior
person who negotiated the instrument to him was a
holder in due course.
A holder in due course or a holder through a holder in
due course can also go after other parties aside from
the maker/drawer himself prior to the infirmity. If he is
not such then the other parties can put against him the
personal defense of insertion of a wrong date.
Ultimately, any kind of holder can go after the party who
perpetrated the fraud because the law does not tolerate
(countenanced) fraudulent acts in commercial
transactions.
They can also go after the parties subsequent to the
fraud because every indorser is subject to the
warranties under sec. 65 of the NIL.
Order instruments must be indorsed. (Except under the
circumstances provided in sec.9 )
What does every indorser warrant under sec. 65?
Sec. 65. Warranty where negotiation by delivery
and so forth. — Every person negotiating an
instrument by delivery or by a qualified indorsement
warrants:
(a) That the instrument is genuine and in all respects
what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
would impair the validity of the instrument or
render it valueless.
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NEGOTIABLE INSTRUMENTS LAW MIDTERMS
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than
the immediate transferee.
The provisions of subdivision (c) of this Sec. do not
apply to a person negotiating public or corporation
securities other than bills and notes.
1) That the instrument is Genuine and in all respects
what it purports to be
2) That he has Good title to it
3) That prior parties have Capacity to contract
4) That he has no prior Knowledge of any fact that
would impair the validity of the instrument.
TAKE NOTE: if it is a bearer instrument the warranty will
only apply to the prior immediate indorser.
For now you just have to memorize the first warrant.
In regards to it when you warrant that it is genuine, then
it follows that it should bear the true date.
In regards to the parties prior to the infirmity — you
cannot go after them and claim that they did not comply
with their warranty.
In regards to the maker — he has a separate warranty
and the succeeding parties prior to the wrong
insertion cannot be liable also since logically by the
time the instrument was in their hands it was still
genuine and valid.
Only when it reached the person who perpetrated the
fraud that it started to lose it’s genuineness and thus
only the subsequent parties could be liable for
breaching the warranty.
So to go after parties before the insertion of the
wrong date, one can go after them by being a holder
in due course or a holder through a holder in due course
by relying on the provisions on sec. 13 that as regards
to them the date inserted becomes the true date.
On the other hand if one is not a holder in due course
then they can only after the parties subsequent to
the fraud on the basis of breach of warranty under sec.
65. Ultimately they can always go after the perpetrator
of the fraud, as the law does not tolerate fraudulent acts
in commercial transactions.
Also there is a presumption that every holder is prima
facie one is a holder in due course (sec. 59 NIL)
- so if the facts in the case does not mention of any
circumstance then apply the presumption.
SUAN | FONTANOSA | DOLIENTE | KONG | ORTIZ
ATTY. BERNARDINO AMAGO
ILLUSTRATION IN THE UNDATED PART
I promise to pay X or order Php 10,000 7 days after date.
Sgd. J
Original Date: Aug 23, 2018
Wrong date inserted: Aug. 20, 2018
J→X→Y→Z
↓
Aug. 20, 2018
!
What happens if there is insertion of wrong date?
It does not avoid the instrument in the hands of a
subsequent holder in due course.
Avoid — will not render the instrument VOID
In case of a holder in due course — it is regarded as the
true date.
Type of instrument: Order instrument
I promise to pay X or order Php 10,000 7 days after date.
Sgd. J
Original Date: Aug 23, 2018
Wrong date inserted: Aug. 20, 2018
J→X→Y→Z→A→B
A — holder in due course
B — holder through a holder in due course
!
B — considered as a holder through a holder in due
course even if he knew about the infirmity done by Y
(Sec. 58)
A — since it was not stated, he is presumed holder in
due course (Sec. 59)
B to X — cannot be liable because he was a party prior
to the infirmity because when he negotiated, it was still
genuine (when the holder is NOT a holder in due course)
B to J — cannot raise personal defense since B is a
holder in due course.
PERPETRATOR OF THE FRAUD:
B to Y — Y is the perpetrator of the fraud so he is
ultimately liable and must be punished by law
SUBSEQUENT PARTIES:
B to Z & A — liable because they are subsequent
parties who warranted the instrument is genuine and in
all respects of what it purports to be (Sec. 65)
PRIOR PARTIES:
B to J & X — can be compelled to pay because B is a
holder in due course and they cannot raise the personal
defense of insertion of wrong date (Sec. 66)
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