NEGOTIABLE INSTRUMENTS LAW

BSAT-4C

Section 16. Delivery; when effectual; when presumed (mechanically complete but
undelivered instrument)

 Every contract on negotiable instrument even if it is completely written is incomplete

and revocable until its delivery for the purpose of giving it effect.
 Delivery – transfer of possession, actual or constructive, from one person to another
with intent to transfer title thereto
 Issue – first delivery of the instrument, complete in form, to a person who takes it as
holder
 Delivery is a prerequisite to liability
 If a complete instrument is found in possession of an immediate party or a remote
party, other than a holder in due course, there is a prima facie presumption of
delivery but subject to rebuttal.
 If a complete instrument is in the hands of a holder in due course, a valid delivery
thereof by all parties prior to him is conclusively presumed.
 If delivery was made or authorized, it may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring the title to the instrument.

Examples:
Conditional
Juan delivers the promissory note to Jose on condition that it will not be
binding on him until a co-maker has been procured. Jose cannot enforce the
instrument against Juan because the latter can set up the defense that the
delivery was conditional and not for transferring the title to the instrument.

For a special purpose

Anna delivers the promissory note to Liza for safekeeping. Liza cannot
enforce it against Anna, because it was only delivered for a special purpose,
and not for transferring the title to the instrument.

Section 17. Construction where instrument is ambiguous

 Discrepancy between sum payable expressed in words and in figues = the one denoted
by words prevails
 Words are ambiguous or uncertain = reference may be had to the figures
 Interest is stipulated, without indicating the date when the interest shall start to run =
it runs from the date of the instrument, and if undated, from the issue thereof
 Instrument is undated = considered dated as of the time of issue

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  Written provisions vs printed provisions = written provisions prevail
 Ambiguous – bill or note = the holder may treat is as either at his election
 “I promise to pay” but signed by two or more persons = jointly and severally
liable/solidarily liable

Section 18. Liability of a person signing in trade or assumed name

 One who signed in a trade or assumed name is liable as if he signed in his own name

Rules on Signature of Agent

 Signature of any party may be made by a duly authorized agent. No special form of
agency is required. (Sec. 19)
 In order that an agent who signs a negotiable instrument may escape personal liability,
the following are the requisites:
1. He is duly authorized;
2. He adds words to his signature indicating that he signs as an agent; and
3. He discloses his principal. (Sec. 20)

Examples:
Juan M. Dela Cruz
Principal
By:
(Sgd.) Jose A. Bonifacio
Agent

(Sgd) Anna V. Lim

Agent
For:
Hanna S. Sy
Principal

 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. (Sec. 21)
 Procuration- the act by which a principal gives power to another to act in his place as
he could himself; ordinarily understood as agency or proxy

Minor

 A minor is not bound by his indorsement for lack of capacity. He is however not
incapacitated to transfer certain rights. Section 22 merely provides that the
indorsement of an infant is not vouid and that his incapacity is not a defense in favor
of prior parties, and does not take away the infant’s right to disaffirm his indorsement

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 and recover the instrument even against an innocent indorsee or subsequent holder for
value

Example:
Jose G. Go issues a promissory note payable to the order of Bebe M. Co, a minor.
Bebe indorses the instrument to Juan S. Dy. Jose becomes liable to Juan, because the
indorsement by Bebe passes the title to Juan. If Jose cannot pay and Juan sues Bebe,
the latter may raise the defense of minority to escape liability. Bebe may even
disaffirm her indorsement and recover the instrument from Juan.
 Minority is a real defense available to the minor himself/herself. Thus, he may also
use it as a defense against a holder in due course.
 A minor may be held bound by his signature in a negotiable instrument if he is proven
guilty of actual fraud committed by specifically stating that he is of age when, in
fact, he is not.
 The rule in Section 22 also applies to other incapacitated persons

Forgery

 Forgery – counterfeit-making or fraudulent alteration of a writing, and may consist in

the signing of another’s name or the alteration of an instrument in the name, amount,
description of the person, and the like, with intent to thereby defraud
 Section 23 has two parts:
1. where the signature on the instrument is affixed by one who does not claim
to act as an agent and who has no authority to bind the person whose signature
he has forged; and
2. where the signature is affixed by one who purports to be an agent but has no
authority to bind the alleged principal

In both cases, the signature is wholly inoperative, and no right can be acquired
through the forged signature.

 Forgery is a real defense even against a holder in due course.

Consideration

 Consideration – inducement to a contract, that is the cause, price or impelling

influence which induces a contracting party to enter into the contract
 Value – an consideration sufficient to support a simple contract; an antecedent or pre-
existing debt constitutes value (Sec. 25)
 Holder for value- one who has given a valuable consideration for the instrument
issued or negotiated to him
 Absence of consideration – total lack of any valid consideration for the contract, in
consideration for the contract
Example:

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 Juana makes a promissory note to Pia in payment for a parcel of land which
does not exist. As between the parties, there can be no recovery on the
promissory note as there is absence of consideration.
 Failure of consideration – the failure or refusal of one of the parties to do, perform,
or comply with the consideration agreed upon
Example:
Juana makes a promissory note to Pia in payment for a parcel of land which
really exists, but Pia sold it again to Sarah who in good faith registered the
sale. There is a failure of consideration between Juana and Pia, so Pia cannot
recover from Juana.

 Absence or failure of consideration is matter of defense as against any person not a

holder in due course
 The general rule is that each of the four (4) fundamental contracts of making,
drawing, accepting, and indorsing, must be supported by a valuable consideration. An
exception to this rule is an accommodation note or bill.
 Accommodation party – one who has signed the instrument either as a maker,
drawer, acceptor or indorser, without receiving value for the signature, and for the
purpose of lending his name to some other person (Sec. 29)

Negotiation and Indorsement

 Negotiation – an instrument is negotiated when it is transferred from one person to

another in such a manner as to constitute the transferee the holder of the instrument
(Sec. 30)
 Indorsement must be written on the instrument itself or upon a paper attached thereto.
(Sec. 31)
 Indorsement must be of the entire instrument. If the instrument has been paid in part,
it may be indorsed as to the residue. (Sec. 32)

REFERENCES:

1. The Philippine Negotiable Instruments Law, 2013 Edition, De Leon and De Leon, Jr, Rex
Bookstore, Manila, Philippines; and

2. Commercial Law Review, 2015 Edition, Villanueva, Rex Bookstore. Manila, Philippines.