Sec. 14. Blanks, when may be filled.

Steps in issuance of negotiable instrument

(1) Mechanical act of writing the instrument
completely and in accordance with the
requirements of Section 1
(2) Delivery of the complete instrument by
maker/drawer to payee/holder with the
intention of giving effect to it
*complete & delivered negotiable & may be
enforced accordingly

Section 14 incomplete & delivered

Section 15 incomplete & undelivered
Section 16 complete & undelivered

Rules where instrument incomplete but

delivered
(1) Authority to fill up the blanks
Holder/person in possession has prima
facie authority to complete an
incomplete instrument
(a) The law speaks of material
particular. Blanks for date, due date,
name of payee, name of drawer,
amount, or rate of interest may be
filled in.
(b) The authority to complete, however,
is not an authority to alter.
(2) Authority to put any amount
A signature on a blank paper delivered
in order that may be converted into a
negotiable instrument operates as a
prima facie authority to fill up as such
any amount.
(3) Right against party prior to
completion
The instrument may be enforced only
against a party prior to completion if
filled up strictly in accordance with the
authority given & within a reasonable
time.
The presumption is that the blank
was filled out in accordance with
the authority given and within a
reasonable time.
(4) Right of holder in due course

The defense that the instrument had not

been filled up in accordance with the
authority given and within a reasonable
time is not available as against a
holder in due course.
*Section 14 merely raises a personal defense.
The rule is founded upon the principle that
where one of two persons must suffer by the
bad faith of another, the loss must fall upon the
one who first reposed confidence & made it
possible for the loss to occur.

Sec. 15. Incomplete instrument not

delivered.
Rules where instrument incomplete and
undelivered
(1) Defense even against a holder in due
course
The fact that an incomplete instrument,
completed without authority, had not
been delivered, is a defense even
against a holder in due course.
(2) Defense available to parties prior to
delivery
The invalidity of the instrument is only
with reference to the parties whose
signatures appear on the instrument
before and not after delivery.

Sec. 16. Delivery; when effectual; when

presumed.
Rules where
complete

instrument

mechanically

(1) Undelivered
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.
(a) Delivery transfer of possession,
actual or constructive, from one
person to another.
(b) Issue first delivery of the
instrument, complete in form, to a
person who takes it as holder
(c) Holder the payee or indorsee of a
bill or note who is in possession of it,
or the bearer thereof.

(2) Delivered
The delivery of the instrument is the final
act essential to its consummation as an
obligation.
*Delivery may be made either by the
maker or drawer himself or through a
duly authorized agent.
(3) In possession of party other than a
holder in due course
Prima facie presumption of
delivery but subject to rebuttal
Undelivered
instrument

inoperative because delivery is a

prerequisite to liability.
a valid and intentional delivery
by him is presumed until the
contrary is proved
immediate parties having
or being held to know of the
conditions or limitations placed
upon the delivery of the
instrument
remote parties not in direct
contractual relation to each other
Note: If they are chargeable with
knowledge or notice or notice of
any infirmity or defect in the
instrument, they are considered
as immediate parties for the
purpose of Section 16

A presumption is said to be conclusive

when admission of evidence to the
contrary is not allowed.

Sec. 17. Construction where instrument is

ambiguous.
Rules of construction in case of ambiguity
or omission
(1) Sums expressed in words and in
figures different
When there is a discrepancy between
the sum expressed in words and the
sum expressed in figures, the former
controls.
(2) Words ambiguous or uncertain
Reference may be had to the figures to
determine the true amount.
(3) Date when stipulated interest to run
not specified
The interest runs from the date of the
instrument or if undated form the date of
its issue.
(4) Instrument undated
It is considered dated as of the date of
its issue.
The date appearing in the instrument is
deemed prima facie the true date of its
issue, acceptance, or endorsement.

(4) Delivered conditionally or for a

special purpose
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 property
(title) to the instrument.

(5) Written and printed words in conflict

In case of conflict between the written
and printed provisions, the former
prevail.
*deemed to express true intention by
maker or drawer because they are
placed there by himself

When delivery is made, it is

presumed to be made with the
intention to transfer ownership
of the instrument to the payee.

(6) Whether instrument bill or note in

doubt
The holder may treat either at his
election.

(5) In the hands of a holder in due

course
A valid delivery thereof by all parties
prior to him is conclusively presumed.

(7) Capacity in which person signed in

doubt
He is to be deemed an indorser who
assumes the least liability.
Maker or drawer lower right-hand
corner
Drawee lower left-hand corner

Holder negotiates the instrument by

signing on the back thereof

Sec. 20. Liability of person signing as

agent, etc.

(8) Instrument signed by two or more

persons
a) I promise to pay
solidary liability
(Any of the signers may be held
liable for the WHOLE amount of the
instrument)

Requisites in order that an agent who signs

a negotiable instrument may escape person
liability:
(1) He is duly authorized
(2) He adds words to his signature
indicating that he signs as an agent,
that is, for or on behalf of a principal, or
in a representative capacity
(3) He discloses his principal

b) We promise to pay
joint liability
(Each debt considered SEPARATE
from each other)

Sec. 18. Liability of person signing in trade

or assumed name

Disclosure by agent of principal

If the agent signs a note or bill in his own name
and discloses NO principal, he is personally
bound, and evidence to the contrary may not
be admitted to relieve him from personal
liability.

Persons liable on an instrument

(1) General rule Only persons whose
signatures appear on an instrument are
liable thereon.
(2) Exceptions
(a) Where a person signs in a trade or
assumed name
(b) The principal is liable if a duly
authorized agent signs on his own
behalf
(c) In case of forgery, the forger is liable
even if his signature does not appear
on the instrument
(d) Where the acceptor makes his
acceptance of a bill on a separate
paper - allonge
(e) Where a person makes a written
promise to accept a bill before it is
drawn
One who signs in a trade or assumed name
- is liable as if he signed his own name. It is
necessary, however, that the party who signed
intended to be bound by his signature.
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.

Use of descriptive words without disclosure

of principal
The mere addition of descriptive words (as
agent, trustee, guardian, etc.) without
disclosing the principal will NOT relieve the
signer from personal liability.
Descriptio personae describing the person
who signed the instrument

Sec. 21. Signature by procuration; effect of.

Procuration the act by which a principal
gives power to another to act in his place as he
could himself
(per procuration; per proc.; P.P.; pp.)
Effect of signature by procuration
It gives a warning that the agent has but a
limited authority, so that it is the duty of the
person dealing with him to inquire into the
extent of his authority.
Note: Principal NOT bound if agent acted in
excess of authority.
Sec. 22. Effect of indorsement by infant or
corporation
Effect of indorsement by incapacitated
persons
(1) Minors
General rule: contracts entered into by a
minor are voidable.

(a) A minor is NOT BOUND by his

indorsement for lack of capacity; but he
is not incapacitated to transfer certain
rights
(b) Minority is a real defense available to
the minor
(c) A minor may be held bound by his
signature in an instrument where he is
guilty of actual fraud committed by
stating that he is of age when, in fact he
is not
(2) Insane or demented persons and deafmutes who do not know how to write
Their capacity is a real defense that is
available against a holder in due course
Effect of indorsement by a corporation
A corporation is not liable on notes in a suit
thereon by an indorsee, where the corporation
is without capacity to make the contract in
fulfillment of which there were executed
Ultra vires beyond ones legal power

Sec 23. Forged signature;effect

Forgery the counterfeit-making or fraudulent
alteration of any writing.
May consist in the (1)signing of anothers name
or the (2)alteration of an instrument in the
name, amount, description of the person and
the like, with intent thereby to defraud.
Two cases:
(a) 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
(b) Where the signature is affixed by one
who purports to be an agent but has no
authority to bind the alleged principal
(2)Effect of forged signature
In both cases, the signature is wholly
inoperative and so no right can be acquired
through the forged signature
Forgery is a real defense even against a
holder in due course.
(3)Proof of forgery
Forgery is NOT presumed. It must be proven
with clear and convincing evidence.
Cases of forgery in general
(1) Promissory notes

(a) Forgery of an indorsement on the

note
(b) Forgery of the makers signature
(2) Bills of exchange
(a) Forgery of an indorsement on the bill
(b) Forgery of the drawers signature,
either:
1)with acceptance by the drawee
2)without such acceptance but the
bill is paid by the drawee
Extent of the effect of forgery
The instrument is not totally void nor the
genuine signatures thereon inoperative.
It is ONLY the forger or unauthorized signature
that is declared inoperative.
General rule: No right or title can be acquired
to a negotiable instrument through or under a
forged or unauthorized signature.
Exception to the general rule:
(1) If the party against whom it is sought to
enforce such right is precluded from
setting up the forgery or want of
authority
(2) Where the forged signature is not
necessary to the holders title, in which
case the forgery is disregarded
Person precluded from setting up the
defense of forgery:
(1) Those who by their acts, silence, or
negligence, are estopped from setting
up the defense of forgery
(2) Those who warrant or admit the
genuineness of the signature in
question, namely:
(a) Indorsers
(b) Acceptors
(c) Persons negotiating by delivery

Rights of parties in cases of forged

indorsements
(1) Where note payable to order
The party whose indorserment is forged is
NOT liable to any holder, even a holder in due
course. The indorsement, being forged is
inoperative.
(2) Where note payable to bearer
The party whose indorsement is forged is liable
to a holder in due course but not to one who is
not a holder in due course.

Reason: the instrument being originally

payable to bearer, it can be negotiated by mere
delivery. Indorsement is NOT necessary to the
title of the holder. Forgery may be disregarded.
(3) Where bill payable to order
The party whose indorsement is forged is NOT
liable to any holder, even a holder in due

course. The forged indorsement is wholly

inoperative
(4) Where bill payable to bearer
The drawee may debit the drawers account in
spite of the forged instrument.
Reason: the forged indorsement is not
necessary to the title of the holder. The drawee
cannot recover from the holder.