Negotiable Instruments Notes: Rights of the Holder (Sec. 51-59)

IV. RIGHTS OF THE HOLDER

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument 

1. may to sue thereon in his own name; and (NOTE: if unindorsed instrument, if transferor can [Sec. 49])


2. payment to him in due course discharges the instrument.

• When is there payment in due course:

1. at or after maturity of the instrument



2. to the holder


3. in GF w/o notice that his title is defective 

*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:  (CR-BOW-GV-NO)

(a) That it is complete and regular upon its face;

• Examples of NOT complete and regular on its face:


• w/o year of maturity


• bill w/ no drawee


• altered check


• indorsed by only one of two payees


• payable on or before ______ - blank unfilled


• Examples of complete and regular on its face:


• omission is immaterial (i.e. serial number)


• unapparent alteration


• payee's name is stricken out but another is inserted in writing


• 
  

(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;

•  As to acceleration instruments


• 1 installment or interest is unpaid = overdue = NOT holder in due course


• As to interest


• GR: if interest is overdue = holder in due course


• EX: principal is to become due upon default of payment of interest (acceleration) = overdue = NOT holder in due course

(c) That he took it in good faith and for value;

•  GF = 


• lack of notice of defect or infirmity


• holder is w/o knowledge or notice of any sort which could be set up against a prior holder of the instrument


• basis is purpose NOT negligence EX if suspicious circumstance failed to inquire


• GR: Inadequacy of price = VALID


• EX: proof of fraud, mistake or undue influence


• trifling price = impression of fraud

(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. (elaboration of [c])

• Defects of Title (Sec. 55) 


• Defenses


1. mistake


2. absence of failure of consideration (Sec. 28)


3. minority and other forms of incapacity to contract (Sec. 22)


4. lack of authority of an agent (Sec. 19)


• Infirmities -wrong in the instrument itself (NOT lacking in the contract)


1. wrong date inserted where the instrument is expressed to be payable at a fixed period after sight is undated (Sec. 13)


2. filling up of a blank instrument NOT strictly in accordance w/ the authority given or not w/in reasonable time, where it was delivered wanting in a material particular


3. filling up and negotiating w/o authority an incomplete and undelivered instrument (Sec. 15)


4. Lack of valid and intentional delivery of a mechanically complete instrument (Sec. 16)


5. Agent signing per procuration beyond the scope of his authority (Sec. 21)


1. Ultra vires acts of a corp.


6. Forgery (Sec. 23)


7. Material Alteration (Sec. 124. and 125)


8. Intoxication according to a better authority


9. Insanity where there is no notice of insanity on the part of the one contracting w/ the insane person

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.

• GR: Presumption holder is in due course



• EX:Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue (subjective) -for checks: 6 months = stale

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.

*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.
 

• Defects of Title in general = Equitable or Personal Defenses - may result from: (relate to Sec. 52 (d) for holder in due course) 


1. Acquisition of the instrument by


1. fraud


2. force, duress or fear


3. unlawful means


4. illegal consideration


• NOTE: If promissory note: can only be raised against immediate parties; If bill: drawer can raise against acceptor, a party against acceptor and between immediate party


1. Negotiation of the instrument 


1. in breach of faith


2. under circumstances that amount to 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

1. actual knowledge of the infirmity or defect, or 



2. knowledge of such facts that his action in taking the instrument amounted to bad faith. - consists in guilty knowledge or wilful ignorance showing vicious or evil mind

*Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument 

1. free from any defect of title of prior parties, and 


2. free from defenses available to prior parties among themselves, and 


3. may enforce payment of the instrument for the full amount thereof against all parties liable thereon.  

• Rights of a holder in due course:


1. He may sue on the instrument in his own name


2. He may receive payment and if payment is in due course, the insturment is discharged


3. he hold the instrument 


1. free from any defect of title of prior parties, and 


2. free from defenses available to prior parties among themselves, and 


• NOTE: excludes legal/real/absolute defenses -attach to the instruemnt itself and can be set up against the whole world INCLUDING holder in due course 


• Examples of real defenses:


1. Alteration (BUT holder in due course may enforce it according to orig. tenor)


2. Want of delivery of incomplete instrument (Defense avail to parties PRIOR to delivery)


3. Duress amounting to forgery (NOTE: if not amounting to forgery only equitable defense)


4. fraud in factum or fraud in esse contractus (As opposed to fraud in inducement which does NOT prevent the making of the contract)


5. minority


6. marriage in case of wife (subject to ex under civil code)


7. Insanity where the insane person has a guardian appointed by court


8. Ultra vires act of corp where corp. is absolutely prohibited by charter or state from issuing commercial paper (NOTE: must be issuance for any particular purpose is prohibited)


9. Want of authority of agent


10. Execution of instrument between public enemies


11. Illegality of contract where it is the contract or instrument itself which is expressly made illegal by statute


12. Mistake (as to invalidate or vitiate consent)


13. Forgery


4. He may enforce payment of the instrument for the full amount thereof against all parties liable thereon


• Other possible defense:


1. blank signature -amounts to forgery = real defense


2. bankruptcy or insolvency - may be the primarily liable (NO defense may file against assignee or trustee) or negotiator


3. counterclaim and set-offs (personal defense NOT avail against holder in due course)


4. discharge personal defense NOT avail against holder in due course)


5. lack of revenue stamp -obsolete

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 

1. who derives his title through a holder in due course, and 


2. 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.

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.

• GR: presumed holder in due course


• EX: title is defective or suspicious

Negotiable Instruments Notes: Negotiation (Sec. 30-50)

III. NEGOTIATION

*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. (BDO-ID)

• If payable to bearer, it is negotiated by delivery; 


• NOTE: only here negotiation = delivery


• if payable to order, it is negotiated by the indorsement of the holder and completed by delivery.

• 3 methods of transfer: - by

1. assignment - non-nego instruments whereby the assignee is placed in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee; assignee substitute the place of the assignor


2. operation of law - by (1) death of the holder> representative (2) bankruptcy of the holder>assignee or trustee (3)death of a joint payee or indorsee > GR surviving payee or indorsee


3. negotiation < Negotiable Instruments Law III

*Sec. 31. Indorsement; how made. - The indorsement must be written:

• on the instrument itself; or 


• upon a paper attached thereto. (Allonge) (NOTE: can ONLY be used when there is physical impossibility of writing the indorsement on the instrument itself)

The signature of the indorser, without additional words, is a sufficient indorsement.

• Indorsement 


• mode of transfer


• contract

NOTE: Allonge - can ONLY be used when there is physical impossibility of writing the indorsement on the instrument itself

Sec. 32. Indorsement must be of entire instrument. - 

• GR: 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. 


• EX: But where the instrument has been paid in part, it may be indorsed as to the residue.

• Effect of partial indorsement when unauthorized = valid assignment binding between parties


• Examples:


• 2 or more indorsees severally: Pay to A P500 and B P500 - INVALID


• 2 or more indorsees solidarily : Pay to A and B P500 - VALI

*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. (SB-RQC)

• Kinds of indorsement:


1. special 


2. in blank


3. absolute - binds upon no condition than the failure of prior parties


4. conditional


5. restrictive 


6. qualified


7. joint


8. successive


9. irregular


10. facultative 

*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.

NOTE: Where the instrument is originally payable to bearer, it can be further negotiated by mere delivery, even if the original bearer negotiated it by special indorsement

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.
Limitation upon conversion of blank indorsement - contract written must not change the contract of the blank indorser

• Examples of those allowed:


• Demand and notice waived


• I guaranty payment 


• Without recourse

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either:

(a) Prohibits the further negotiation of the instrument; or (only this form converts into non-negotiable instrument)

• Examples: 


• Pay to C ONLY


• Pay to C and NO other person

(b) Constitutes the indorsee the agent of the indorser; or (agency type) (acquires title of indorsee only for the restrictive purpose)

• Examples: 


• Pay to C for collection


• Pay to C for deposit

(c) Vests the title in the indorsee in trust for or to the use of some other persons.  (trust type) (acquires title of indorsee only for the restrictive purpose)

• Examples: 


• Pay to C in trust for D


• Pay to C for the use of D

But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

NOTE: 

• holder in due course can still hold drawer with the good defense liable


• Rationale: did NOT give notice of defenses obtaining between prior parties


• still presumes consideration 


• Effect of omission of words of negotiability (i.e. or order) = non-negotiable instrument but does NOT affect negotiability

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.


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.

• qualifying words:


• without recourse


• sans recours


• indorser not holden


• with intent to transfer title only


• not to incur liability as indorser


• at the indorsee's own risk


• Do NOT guarantee the financial responsibility of the parties on the paper just hold title to it as personal property


• only secondarily liable if the instrument is dishonored by non-acceptance or non-acceptance due to:


1. forgery


2. lack of good title on the part of the indorser


3. lack of capacity to indorse on the part of the prior parties


4. the fact that, at the time of the indorsement, the instrument was valueless or not valid and he knew of that fact

NOTE: does NOT impair the negotiability character of the instrument

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.

NOTE: 

• Conditional indorsement - does NOT affect negotiability


• Condition on its face = non-negotiable instrument

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.

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.

• EX: 


1. where the payee or indorsee indorsing has authority to indorse for the others


2. where the payees or indorsees are partners

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.

• Cities, towns or public corporations - real payee (NOT the officer) but NO authority to indorse since NOT mentioned in Sec. 42

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.

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. 

• How agent must indorse:


1. He must add words describing himself as an agent


2. At the same time, disclose his principal


3. He must be duly authorized

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.

NOTE: significant in determining if holder in due course


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.

NOTE: significant in determining which law governs based on the law of the place



Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been 

1. restrictively indorsed or (only the form wherein prohibits further negotiation)


2. discharged by payment or otherwise.

NOTE: after maturity, still negotiable but holder (of notice)  and no longer a holder in due course (so rights similar as if non-negotiable)

Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser 

1. whose indorsement is struck out, and 


2. all indorsers subsequent to him, 

are thereby relieved from liability on the instrument.

*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.

• Rights of a transferee for value

1. transferee acquires only the rights of the transferor (same defense available to transferror similar to assignment)



2. transferee has right to require the transferor to indorse the instrument (according to Atty. Aportadera only theoretically because in doing so it is equivalent to involuntary servitude)

Sec. 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

•  Purpose: To avoid circuity of suits

Negotiable Instruments Notes Outline

1. Introduction - complete

• Cases:
• Cebu International Finance Corp. v. CA (1999)
• Roman Catholic Bishop of Malolos v. IAC (1990)
• Salas v. CA (1990)

a. Fictitious Persons

• Cases:
• PNB v. Erlando Rodriguez (2008)

b. Requisites of negotiability to antedated and postdated instruments

• Cases:
• Caltex (Phils.) Inc. v. CA and Security Bank and Trust Co. (1992)
• Traders Royal Bank v. CA (1997
• Consolidated Plywood Industries, Inc v. IFC Leasing and Acceptance Corp. (1987)
• Pacheco v. CA (1999)

c.  Incomplete instruments to rules of construction

• Cases:
• Republic Planters Bank v. CA (1992)

d.  Liabilities of person who did not sign and liability of an agent

• Cases:
• Insular Drugs v. PNB (1933)

e.  Forgery

• Cases
• Associated Bank v. CA (1996)
• Francisco v. CA (1999)
• San Carlos Milling v. CIR (1993)
• PNB v. CA (1968)
• Republic v. CA and First National City Bank (1991)
• Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922)
• Jai-Alai Corp. of the Phil. v. BPI (1975)
• Republic v. Ebrada (1975)
• Metrobank v. CA and Golden Savings & Loan Assoc. Inc (1991)
• MWSS v. CA (1986)
• BPI v. CA, China Banking Corp and Phil. Clearing Housee Corp. (1992)

2. Form and Interpretation

• Sec. 1-8
• Sec. 9-16
• Sec. 17-23

7. Consideration and Accommodation Party (Sec. 24-29)

• Cases:
• Travel-On v. CA (1992)
• Prudencio v. CA (1986)
• Ang Tiong v. Ting (1968)
• Maulini v. Serrano (1914)
• Sadaya v. Sevilla (1967)
• Ang v. Associated Bank (2007)
• BPI v. Roxas (2007)
• BPI v. Fidelity &Surety Co. (1927)
• Agro Conglomerates Inc. v. CA (2000)
• Co v. Admiral United Savings Bank (2008) 
• Bautista v. Auto Plus Traders Inc (2008) 
• Caneda Jr. v. CA (1990)
• Garcia v. Llamas (2003)

8. Negotiation (Sec. 30-50)

9. Rights of the Holder (Sec. 51-59) 

• Cases:
• Vicente R. de Ocampo v. Gatchalian (1961)
• Bataan Cigar v. CA (1994) 
• Gonzales v. RCBC (2006)
• Hi-Cement Corp. v. Insular Bank (2007)
• Yang v. CA (2003)
• State Investment House Inc. v. CA (1993)

10. Liabilities of the Parties

• Cases:
• PNB v. CA (1968)
• Philippine Bank of Commerce v. Jose M. Aruego (1961)
• Allied Banking Corp. v. CA (Jan - Dec 2006)
• Villanueva v. Nite (2006)
• Allied Banking Corp. v. Lim Sio Wan (2008)
• Far East Bank & Trust Co. v. Gold Palace Jewelry Co. (2008)
• Manila Lighter Transportation Inc. v. CA (1990)
• Traders Royal Bank v. Radio Philippines Network Inc. (2002) -weird for not holding SBTC liable 
• BPI v. CA (2008)
• Philippine Commercial International Bank v CA (2001)

11. Presentment for payment

• Cases
• Assoc. Bank and Conrado Cruz v. CA (1992)

12. Notice of Dishonor

• Cases:
• Gullas v. PNB (1935)
• Great Asian Sales Center Corp. v. CA (2002)

13. Bills of Exchange, Form and Interpretation

• Cases:
• Metropolitan Bank and Trust Co. v. Cablizo (2006)

14. Alteration

• Cases:
• Montinola v. PNB (1951)
• Metrobank v. FNCB (1982)
• PNB v. CA, Capitol City Dev. Bank , PBC et al. (1996)
• International Corp. Bank v. CA (2006)

15. Bills of Exchange, form and interpretation

16. Acceptance

17. Presentment for Acceptance

• Cases:
• Prudential Bank v. IAC (1992)

18. Protest, acceptance and payment for honor

• Cases:
• Velasquez v. Solidbank Corp. (2006)

19. Bills in Set

20. Promissory notes and checks

• Case:
• Gempesaw v. CA (1993)
• Moran v. CA and Citytrust Bank (1994)
• Equitable PCI Bank v. Ong (2006)
• Violago v. BA Finance Corp. (2008)
• Wee Sion Ben v. Semexco/Zest Markering Corp. (2007)
• Astro Electronics Corp. v. Phil. Export and Foreign Loan Guarantee Corp. (2003)

21. General Provisions

• Dy v. People (2008)

Negotiable Instruments Notes: Consideration (Sec. 24 - 29)

II. CONSIDERATION

*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.

•   proven lack of consideration - w/o effect and payment is NOT demandable

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. 

• Value - induce/cause/motive/price/influence to enter a contract


• includes:


• 3rd party's pre-existing debt


• bank credits


• surety or guarantor


• excludes: 


• love and affection


• gratitude

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. 

• NOT limited to known, even if NOT known = holder for value

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.

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. 

• Absence v. failure of consideration - personal or equitable defense (as against holder NOT holder in due course) (see Sec.52 inadequacy of consideration)


• want or absence of consideration - transactions where NO consideration was intended to pass


• failure of consideration - giving of valuable consideration was contemplated but it failed to pass


• acceptor - liable to holder even in absence of consideration


• partial = defense pro tanto (proportionate)

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. 

• Applies only when holder in due course (sec. 52) (includes holder for value); otherwise apply sec. 28


• GR: accodation party -liable to holder for value even if knew only for accodomation


• EX: corp. - NOT liable even to holder for value - ultra vires - officers personally liable

• req


• signed the instrument as 


• accomodation maker


• accomodation drawer


• accomodation acceptor - liable primarily


• accomodation indorser


• without receiving value


• signed for the purpose of lending his name or credit


• parol evidence - valid


• rights of accomodation party (secondarily liable)


• right to sue the accomodated party (real debtor) for reimbursement


• solidarily liable w/ other accomodation party


• accomodated party is to

1.           reimburse 

2.           pay directly to holder

Negotiable Instruments Notes: Form and Interpretation (Sec. 17 - 23)

*Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:

(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;   (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;   (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;   (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;   (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;   (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;   (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. (solidary)

*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. 

*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. 

• GR: signature does NOT appear = NOT liable


• EX:

1. Where a duly auth (oral or written) agent signs for a person, principal - liable (right to collect does NOT include indorsement)


2. Forger is liable (Sec. 23)


3. Allonge (paper attached separate from the instrument) (Sec. 134 and 135)


4. Where a person uses an assumed or trade name = his signature  (Sec. 22)

*Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.

• Req for agent to escape liability (missing 1 = liable)

1. duly auth


2. add words to his signature indicating that he signs as an agent on behalf of a principal or in representative capacity (NOT sufficient that it is trustee, administrator or guardian)


3. disclose his principal (need NOT be in signature)

• NOT applicable to gov't officers - neither he nor the gov't is bound

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

• procuration = warning limited authority


• Example


• Principal name, Per Procuration: Agent name


• Principal name, Per Proc.: Agent name


• Principal name, PP/Pp.: Agent name

*Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon.

• GR: Minor or corp. (or other incapacitated i.e. lunatics and imbeciles) CANNOT give consent to contracts = VOIDABLE (ultra vires)


• EX: can indorse and it can be enforced against the maker or acceptor or other parties prior to the minor corp.

*Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. 

• Forgery - CANNOT be presumed


• counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another's name, or the alteration of an instrument in the nam, amount, descruption of the person and the like, with intent to defraud


• Sec 23: applies only to forged SIGNATURES (NOT amount Sec. 124) w/o auth of the person who it purports to be


• Kinds of fraud amounting to forgery - real defense

1. fraud in factum or fraud in esse contractus - no intetion to issue an instrument

• diff. from: fraud in inducement - personal defense only -there is an intention to issue an instrument

     2.  duress amounting to forgery (NOTE: duress NOT amounting to forgery = personal defense)
     3. fraudulent impersonation in certain cases (misrepresented himself to be someone else)

• Double intent


1. intend to make the instrument payable to the person bef. him or to the person writing at the other end of the line, in case the negotiation is by correspondence


2. intends to make the instrument payable to the person whom he believes the stranger to be


• Basis: theory of actual intent and theory of estoppel - drawer bears the loss


• Rule qualified where impostor represents himself as agent of payee

• doctrine of actual inent does NOT apply


• loss: drawee or purchaser and NOT the drawer


• Admission of genuiness and due execution -  one who bears his signature admits

1. he signed it or that it was signed by another for him w/ his auth


2. at the time it was signed, it was in words and figs exactly as set out in the pleading of the party relying upon it


3. any formal requisites required by law such as swearing and acknowledgment or revenue stamp w/c it requires are waived by him

• Defenses cut off by admission of genuineness etc (failure to make a verified specific denial)

1. the defense that the signature is a forgery


2. that it was unauth. as in the case of an agent signing for his principal, or 1 signing on behalf of a partnership or a corp. or that in the case of the latter, that the corp. was NOT auth under its charter to sign 


3. Party charged signed the instrument in some other capacity than that alleged in the pleading setting it out

BUT defenses or new matters w/c are NOT inconsistent w/ the exec. and genuineness of the instrument may be made such as:

• payment


• statute of limitation


• compromise


• illegality or want of consideration


• fraud


• estoppel


• coercion


• imbecillity


• mistake

• Failure to identify the instrument will NOT necessary defeat the claim


• Effect of forgery in general (Sec. 23)


• GR:  signature forged or made w/o auth = wholly inoperative


• NO right to retain the instrument, or to give discharge thereof, or to enforce payment thereof against any party 


• EX:   can give discharge therefor or to enforce payment thereof


• As against party precluded from setting up the forgery or w/o auth


• Extent of effect of forgery

1. Only the signature forged or made w/o auth is stated by law to be inoperative (NOT instrument itself nor the genuine signature) -w/ right of recourse against the forger


2. The instrument can be enforced by holders to whose title over the instrument the forged signature is NOT necessary (i.e. those indorsed in blank or payable to bearer) - as long as complete bef. delivery


3. can be enforced as against party precluded from setting up the forgery or w/o auth even against those whose signatures are forged - 2 classes - those who:

1. warrant or admit the genuineness of the signature in question 


1. indorsers (qualified and general) (sec. 65 and 66)


2. persons negotiating by delivery


3. acceptors


2. are precluded from setting up the defense of forgery by their


1. declaration


2. acts


3.  


1. omission/silence (unreasonable delay in giving notice of forgery) or 


1. unreasonable delay (relative)


2. one who apprised of the forgery must be prejudiced


2. negligence (negligence in delivery)

• Cases of forgery


• Forgery of PN

2.           forgery of an indorsement in the note

3.           forgery of the maker's signature

• Forgery of bills of exchange 

5. forgery of an indorsement on the bill


6. forgery on the drawer's signature


1. w/ acceptance of by the drawee


2. w/o such acceptance but the bill is paid by the drawee


• drawee -liable for negligence or estoppel


• Liabilities

• indorsement

1. necessary


• signature forged and prior parties to him CANNOT be held liable


• forger no right as against prior parties


2. not necessary (bearer)


• signature forged and prior parties to him can be held liable


• maker's signature forged - maker CANNOT be held liable


• drawee pay's forged instrument - CANNOT reimburse from drawer


0. reason: 


• absolute and contractual duty to those made payable by genuine indorsement


• bound to scrutinize checks to determine genuineness and regularity


1. CANNOT relieve himself from the amount of care exercised


2. drawer CANNOT recover from the collecting bank damages bec. drawee only liable to the payee


3. drawee can recover from the collecting bank


4. payee can recover from the recipient (collects upon an unauth or forged indorsement)


5. collecting bank is liable to payee regardless whether the instrument was delivered to payee (for convenience of shortcut)


6. payee CANNOT recover from drawee bec. payee only has action against the bank which it is drawn UNLESS the check has been certified or accepted 


• conversion - unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or exclusion of the owner's right


• payment is NOT equal to acceptance (promise to pay in the future)


• mere possession of forged document = NOT guilty


• depositor's (drawer) duty 


• does NOT extend to determine genuineness and regularity


• negligence NOT to provide adequate security measures - precludes him


• failure to prompt bank recon = negligence


• notice inaccuracies or forgeries w/in reasonable time - otherwise: negligence


• stolen-GR: NOT guilty


• payee who assits in fraud - NOT allowed to keep the proceeds


• Doctrine of comparative negligence bet. drawee and paying bank


• constructive negligence of the drawee bank


• actual negligence of the paying bank -  enforce precaution, identification,determine genuineness


• Doctrine of comparative negligence bet. drawee and paying bank


•  


• constructive negligence of the drawee bank


• actual negligence of the receipient


• drawer and payee signature are forged = bearer instrument


• Forgery of sign. in inst = falsification of priv doc


• swindling or estafa by signature (RPC)


• Forger need NOT imitiate genuine signature


• where payee is an imposed, debtor still liable to the real creditor