MYON: Commercial 

Documents 
Law on Negotiable Instruments 
Prepared by Clarice C. De Los Santos  

I. Samples of Commercial Documents 

 
  

II. Letters of Credit and Bill of Ladings  

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Letters of credit and bills of lading represent two distinct steps in a single process. After 
making a deal for an international transaction involving a physical shipment, the buyer 
initiates a letter of credit. Once the seller's bank accepts the letter, the seller can draft a 
bill of lading and ship the goods. 

Companies create bills of lading themselves, either by creating them from scratch or 
using a template packaged with an office productivity software package. Bills of lading 
can take a wide range of forms, as long as all relevant information is included. 

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Letters of credit are drafted and sent by the buyer's bank. The purchaser in the 
transaction must simply contact the bank, request a letter of credit be initiated and 
provide information about the transaction, the seller and the seller's bank. 

III. Sample Promissory Note and Bill of Exchange  

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IV. Section 13 to 16 and 23  

SECTION 13 

Date may be inserted when: 

1. an instrument is payable at a fixed period AFTER DATE but is ISSUED UNDATED, 

2. an instrument is payable at a fixed period AFTER SIGHT but the ACCEPTANCE is 
NDATED 

ANY HOLDER may insert therein the true date of issue/acceptance and the instrument 

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shall be payable accordingly. 

The insertion of a WRONG DATE DOES NOT avoid the instrument in the hands of the 
SUBSEQUENT HDC; but as to him the date so inserted is to be regarded as the TRUE 
DATE. 

*The insertion of WRONG DATE constitutes MATERIAL ALTERATION. 

SECTION 14 

INCOMPLETE and DELIVERED (personal defense) 

(4) RULES 

1. AUTHORITY TO FILL UP THE BLANKS 

- The HOLDER/person in possession has prima facie authority TO COMPLETE an 

INCOMPLETE INSTRUMENT by filling up the blanks therein 

The law speaks of MATERIAL PARTICULAR (blanks for date, due date, name of PAYEE, 
amount, rate of interest) may be filled in. It has been held that even the blank for the 
name of the DRAWER may be filled up. 

*The authority to complete is not an authority to alter. So, the HOLDER has NO 
AUTHORITY to change the amount after it has been filled in, or to insert the words OR 
ORDER or OR BEARER after the name of the PAYEE. 

2. AUTHORITY TO PUT ANY AMOUNT 

- A signature on a BLANK paper delivered in order to be converted into a NI is a prima 

facie authority to fill it up as such for any amount. 

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3. RIGHT AGAINST PARTY PRIOR TO COMPLETION 

- If an instrument is incomplete when delivered, the HOLDER has prima facie authority 
to fill up the blanks thereon. 

- If a blank paper is delivered by the person making the signature, the HOLDER has 
prima facie authority to fill it up for any amount if the person making the signature 
INTENDED TO CONVERT it into NI. 

- In either case of the above (2) situations, the presumption is that the BLANK was filled 
in ACCORDANCE W/ THE AUTHORITY GIVEN and W/IN REASONABLE TIME. 

4. RIGHT OF HDC 

- not enforceable; personal defenses 

- The rule is founded upon the principle that where one of 2 persons must suffer by the 
bad faith of another, the loss must fall upon the one who FIRST REPOSED confidence and 
made it possible for the loss to occur. 

SECTION 15 

INCOMPLETE and UNDELIVERED (real defense) 

When an INCOMPLETE instrument is UNDELIVERED, if completed & negotiated w/o 

authority, be a VALID CONTRACT in the hands of ANY HOLDER, as against any person 
whose signature was placed thereon before delivery. 

In the absence of any delivery, the instrument though complete in all particulars, there is 
NO CONTRACT. 

(2) RULES 

1. DEFENSE EVEN AGAINST HDC 

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- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any HOLDER 
even HDC. 

2. DEFENSE AVAILABLE TO PARTIES PRIOR TO DELIVERY 

- The invalidity of the instrument is only w/ reference to the parties whose signatures 
appear on the instrument BEFORE and NOT AFTER DELIVERY. 

(eg. A(maker) – P(steals) – B – C – D; Instrument can be enforced against P, B, C because, 

as indorsers, they warrant that the instrument is GENUINE and in all respects what it 
purports to be, etc. As their signatures appear on the instrument after delivery, the 
instrument is valid as to them; In case of P, he is liable not merely because he is an 
indorser but also because he is the one responsible for the theft, and the completion and 
negotiation of the instrument.) 

SECTION 16 

COMPLETE and UNDELIVERED (personal defenses) 

(4) RULES 

1. UNDELIVERED – Every contract on NI even if it is completely written is INCOMPLETE 

AND REVOCABLE UNTIL it is delivery for the purpose of giving it effect. 

a. DELIVERY – transfer of possession, actual/constructive, from one person to another. It 

may be made either by the maker/drawer himself or through a duly authorized agent. 

b. ISSUE – FIRST delivery of the instrument, complete in form, to a person who takes it as 
HOLDER. 

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C. HOLDER – PAYEE/INDORSEE of bill/note who is in possession of it, or the BEARER 

thereof. 

2. IN POSSESSION OF PARTY OTHER THAN HDC 

- If a complete instrument is found in the possession of an IMMEDIATE PARTY (know the 

conditions/limitations placed upon delivery of instrument) or a REMOTE PARTY (indirect 
contractual relation to each other) other than HDC, there is prima facie presumption of 
delivery but subject to rebuttal. 

- An UNDELIVERED instrument is INOPERATIVE because DELIVERY is a PREREQUISITE 

to LIABILITY. However, if instrument is NO LONGER in the possession of the person who 
signed it and it is COMPLETE in its terms, “a VALID AND INTENTIONAL delivery by him 
is PRESUMED until the contrary is proved”. 

3. DELIVERED UNCONDITIONALLY OR FOR A SPECIAL PURPOSE 

- If delivery was made/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. 

- When delivery is made, it is presumed to be made w/ the intention to transfer 

ownership of the instrument to the payee. 

- (eg. A delivers the note to B on condition that it will not be binding on him UNTIL 
co-maker has been procured or for safekeeping, or for collection only. 

B cannot enforce the instrument against A because A can set up the defense that the 
delivery was conditional or for a special purpose only and not for the purpose of 
transferring title to the instrument. 

4. IN THE HANDS OF HDC 

- If a COMPLETE instrument is in the hands of HDC, a valid delivery thereof by all parties 
PRIOR to him is CONCLUSIVELY PRESUMED. 

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A presumption is said to be CONCLUSIVE when it admits of no evidence to the contrary 

SECTION 23 

FORGERY – counterfeit-making or fraudulent alteration of any writing w/ INTENT TO 

DEFRAUD (eg. Signing of another’s name; alteration of an instrument in the name,a 
mount, description of person and the like) 

- a REAL DEFENSE even again​st HDC 

(2) Cases where SIGNATURE is wholly INOPERATIVE and NO RIGHT can be acquired 
through the FORGED SIG​NATURE: 

1. Where signature on 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 signature is affixed by one who purports to be an AGENT BUT NO AUTHORITY 

to bind the ALLEGED prin​cipal. 

(2) CASES OF FORGERY IN ​GENERAL 

1. Forgery of PROMISSORY NOTES 

- indorsement of the note 

- MAKER’s signature 

2. Forgery of BILLS OF EXCHANGE 

- indorsement of the bill 

- DRAWER’s signature (either w/ acceptance by DRAWEE; or w/o such acceptance but the 
bill is paid by DRAWEE) 

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*​Section 23 DOES NOT purport to declare the instrument TOTALLY VOID nor the GENUINE 
signatures thereon INOPERATIVE. IT IS ONLY THE FORGED/UNAUTHORIZED SIGANTURE 
that is declared to be INOPERATIVE. 

In other words, RIGHTS MAY STILL EXIST and be enforced by virtue of such instrument as 
​ nuine. 
to those whose signature thereto are found to be ge

2 EXCEPTIONS TO THE GENERAL RULE THAT NO RIGHT/TITLE CAN BE ACQUIRED 

TO AN NI THROUGH OR UNDER A FORGED/UNAUTHORIZED SI​GNATURE 

1. If the party against whom it is sought to enforce such right is PRECLUDED (stopped) 
from setting up forgery or want of authority; and 

2. Where forged signature is NOT necessary to the HOLDER’S TITLE in w/c case the 
forgery may be DISRE​GARDED. 

(2) PERSONS 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; and 

2. Those who warrant/admit the genuineness of the signatures in question, namely: 

a. indorsers 

b. acceptors 

c. persons negotiating by de​livery 

(4) RIGHTS OF PARTIES IN CASES OF FORGED INST​RUMENTS 

1. Where note payable to order 

- Where the note is payable to ORDER, the party whose indorsement (inoperative) is 
forged IS NOT LIABLE to any holder even HDC. 

- The other parties (including the MAKER) prior to the party whose signature is forged 
ARE NOT ALSO LIABLE to ANY HOLDER. The instrument being payable to order, can be 

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negotiated ONLY BY INDORSEMENT COMPLETED BY DELIVERY. But since the 
indorsement is forged, it is INOPERATIVE, and therefore, cannot operate to transfer ANY 
RIGHT/TITLE over the instrument. 

2. Where note payable to bearer 

- Where the note, mechanically complete, is originally payable to bearer, the party whose 
indorsement is forged is LIABLE to HDC but NOT to one who IS NOT HDC. 

- The other parties (including the MAKER) prior to the party whose signature is forged, 
MAY ALSO BE HELD LIABLE by one who is NOT HDC. 

The reason is that the instrument being originally payable to bearer, it can be negotiated 
by MERE DELIVERY even w/o indorsement. Hence, even if the indorsement is forged, the 
FORGERY MAY BE DISREGARDED. 

3. Where bill payable to order 

- Where the bill is payable to ORDER, the party whose indorsement (inoperative) is 
forged IS NOT LIABLE to any holder even HDC. 

a. If DRAWEE pays under a forged indorsement, DRAWER NOT LIABLE on the 

bill and DRAWEE may not debit the DRAWER’s account. 

b. Where, however, checks received MERELY FOR COLLECTION and deposit, the 
bank, as agent, CANNOT BE EXPECTED to know/ascertain the GENUINENESS of all PRIOR 
indorsements. 

4. Where bill payable to bearer 

- In case the bill is originally payable to BEARER, the DRAWEE may debit the DRAWER’s 
account in spite of the forged indorsement. The reason is that the forged instrument is 
NOT NECESSARY to the title of the holder. The DRAWEE cannot recover from the 
HOLDER. 

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