SEC.
14
FRAUD IN FACTUM OR ESSE CONTRACTUS What ‘s your basis?
No intention to make the blank paper into Parties like the indorsers and acceptors under
negotiable instrument. is a kind of forgery where sec. 62 and sec. 65
in there is an intention to make it a negotiable
instrument and it is delivered not to convert the Important distinction between general indorser
same but for autograph purposes. and qualified endorser.
Sec.66 General Indorser: he engages that, on due
Memorize Sec 15. presentment, it shall be accepted or paid , or
Where an incomplete instrument has not been both, as the case may be , according to its tenor,
delivered it will not, if completed and negotiated, and that if it be dishonored and the necessary
without authority, be a valid contract in the hands proceedings on dishonor be duly taken, he will
of any holder, as against any person whose pay the amount thereof to the holder, or to any
signature was placed thereon before delivery. subsequent indoser who may be compelled to
pay it. (Express statement of Secondary
What are the defects? Liability)
Not mechanically complete and not duly Sec. 65 Qualified Indorser:
delivered
Liable only when there is violation of his
How do you describe this instrument? warranties (No express statement of secondary
Incomplete and Undelivered liability)
If it was subsequently delivered what are the Patrimonio Case
rights of the holder if any? What Section is applicable?
Maker or drawer? Are they liable? Section 14.
No. Under the NIL Not a valid contract in the
hands of ANY HOLDER What is the ruling of the court?
It is a real defense. Marasigan was not a holder in due course
Available only to parties prior to delivery because at the time the check was negotiated to
-parties whose signatures appear on the him he was aware that the Patrimonio was not a
instrument before delivery party to the loan contract. Hence, Patrimonio
cannot be held liable to the intrsument.
What does ANY HOLDER MEANS?
The law does not qualify . Means even a holder in What requisites must be complied with so that
due course cannot enforce the instrument. the instrument can be enforced?
A holder in due course is free form personal It must filled up in accordance with the authority
defenses so by inference a real defense can be given
interposed against a holder in due course.
Ambiguous instruments Sec.17?
What do you think is the reason why he cannot 1) (e)Where the instrument is so ambiguous that
enforce this instrument? there is doubt whether it is a bill or a note, the
Because the prior parties like the drawer or holder may treat it as either at his election.
maker does not intend the instrument to be
negotiated. It is an invalid contract to the What is an example of that?
subsequent parties. Section 130. When bill may be treated as a
When a contract is invalid it cannot be enforced. promissory note.
2) In a bill when a drawer and drawee are the
What about the parties after the completion? same
Those parties after completion and delivery can 3) When the drawee is a fictitious person
be held liable. 4) When a person has no capacity to contract.
1
Who are the parties to an instrument that cannot
When do you advice the holder to treat the interpose the lack of capacity of the payee.
instrument as either a B/E or PN? 1) Maker existence of payee and its capacity
It depends on the tenor of the instrument. 2) Drawer
When the instrument is payable on demand and 3) Acceptor
when it is payable on a fix or determinable future 4) Persons who negotiates by delivery (all prior
time. parties had capacity to contract)
After its issue from the last negotiation. 5) Qualified Indoser
In PN signed by the maker, he is primarily liable, 6) General indorser
it is usually a time instrument so in order to
immediately collect the proceeds of the What about Insanity?
instrument I will treat it as a BE.
Memorize sec1, 23,52
In BE signed by drawer, he is secondarily liable,
What kind of forgery is contemplated in sec.23?
Forging of the signature in the instrument.
Sec.22 is a real defense but it is personal to the (Couterfeiting, or signing the instrument without
minor or corporation because the law says it authority ,fraud in factum)
incurs no liability thereon. When a signature is forged or made without
authority of the person whose signature it
The infant’s defense is minority while the purports to be, it is wholly inoperative, and no
corporation’s defense is ultra vires means right, to retain the instrument , or to give a
outside the express, implied, and incidental the discharge therefor, or to enforce payment thereof
powers of the corporation. Nonetheless It passes against any party thereto, can be acquired
property therein. through or under such signature, unless the party
against whom it is sought to enforce such right is
What are the liabilities of the parties who precluded from setting up the forgery or want
negotiated subsequently. authority.
Applying sec. 60 The minor being a maker
cannot be held liable thereon. Can we not considered that as an alteration?
SEC 125. Material alteration. Date, sum payable,
Suppose the minor is the payee and the maker is number of parties or relation of parties, date and
of legal age. place of payment.
A maker of a PN cannot interpose the defense of
the payees minority because under sec. 60 the What kind of duress is applied in sec.23?
maker admits the capacity of the payee. Sec.55 Duress as a personal defense, there is an
intention to make it a negotiable instrument.
He is estopped. Inducement.
When can the minor be held liable? What are the effects of the signature in the
When the minor actively misrepresented himself forged instrument? (R-E-D)
as having the capacity to contract. The instrument is wholly inoperative because
the party has no:
Right to retain
Is there a possibility that a payee is a Enforce payment
corporation? Discharge the instrument-
The board of directors and officers are the ones
authorized to act in behalf of the corporation. When can you say that instrument is discharged?
a) Payment;
b) By intentional cancellation;
2
c) When the principal debtor becomes the the amount against the account of its depositor-
holder of the instrument at or after drawee.
maturity in his own right.
In case there are personalized checks that are
Who are precluded from setting up the defense printed to a private printing company
of forgery? Retrieve
a) forger Control
b) acceptor ( admits the genuineness of the Instruct
signature drawer)
c) persons negotiating by Illusorio vs CA (NEGLIGENCE ON THE PART
delivery/qualified/general indorser (the OF THE DRAWER)
instrument is genuine and in all respects Ramon Ilusorio entrusted his credit cards and
what it purports to be) checkbooks and blank checks to his secretary.
d) those by their acts, omission, or Apparently, his secretary was able to encash
representation (they are estopped) and deposit to her personal account 17 checks
drawn against his account.
Art 1431 NCC Through estoppel an admission or
representation is rendered conclusive upon the Ilusorio requested to restore to his account the
person making it and cannot be denied or value of the checks that were wrongfully
disapproved as against the person relying encashed but the bank refused, hence the case.
therein.
In court, the bank testified that they make sure
that the sign on the check is verified. When
Double intent asked by the NBI to submit standard signs to
-it may or may not amount to forgery compare, Ilusorio failed to comply. The lower
The drawer intends to make the note payable to held held in favor of defendant.
the person before him. (physical payee- first
intent) ISSUE: Whether the bank was negligent in
receiving the checks.
The drawer intends to make the instrument
RULING:
payable to the person whom he believes to be
stranger (mental payee-second intent)
The SC affirmed the lower court's decision.
Ilusorio failed to prove that the bank was
negligent on their part as he has the burden of
Cut-off Principle proof. The bank's employees did not know the
In order instruments, parties prior to forgery are secretary's modus operandi as she was always
relieved of liability. They cannot be held liable by transacting in behalf of Ilusorio.
any holder, including a holder in due course.
The SC even held that it was Ilusorio who was
However, parties after the forgery are liable negligent as he trusted his secretary of unusual
because they warrant that hey have good title to degree.
the instrument.
Ilusorio also cites Sec. 23 of the NIL that a
forged check is inoperative and that he bank
Why is the drawee bank liable on the check has no authority to pay. While true, the case at
bearing the forged signature of the drawer? bar falls under the exception stated in the
The drawee bank is supposed to know the section. The SC held that Ilusorio is precluded
signature of its depositor drawer and if it pays a from setting up the forgery, assuming there is
forged check it must considered as making forgery, due to his own negligence in entrusting
payment out of its own fund and cannot charge his secretary.
3
Security bank A holder for value distinguish for a holder of lien.
II CONSIDERATION Sec.26 Where value has at any time been given for
SEC.24-29 the instrument
What’s the importance of consideration under Sec.27 Where the holder has a lien on the
the civil code and NIL? instrument arising either from contract or by
implication of law.
NCC:It is one of the requisites for a valid
contract. A holder for lien is always a holder for value.
NIL:It is not a requisite for negotiation.
When an instrument can be negotiated to secure
Sec. 24 Every negotiable instrument is deemed an obligation.
prima facie to have been issued for a valuable
consideration; and every person whose signature Art.2095 NCC Incorporeal rights, evidenced by
appears thereon to have become a party thereto negotiable instruments, bills of lading,shares of
for value(Presumption of valuable consideration) stock,bonds, warehouse receipts and similar
documents may also be pledged. The instrument
Sec.28 Absence or failure of consideration is a proving the right pledged shall be delivered to
matter of defense as against any person not a the creditor, and if negotiable must be indorsed.
holder in due course; and partial failure of
consideration is a defense pro tanto whether the BAR QUESTION
failure is an ascertained and liquidated amount or The sum payable is 10K your credit amounted
otherwise. (Personal defense) only to 5K so the PN indorsed amounted to 10k
You are now the holder thereof and
Sec.6 The validity and negotiable character of an subsequently negotiated to B now the party tries
instrument are not affected by the fact that: to collect from M.
xxx
(b)Does not specify the value given or that any ANSWER:
value had been given therefor: It depends whether or not the holder is a holder
in due course because under sec. 57. An hdc has
ART 1350-1355 NCC Cause of contracts a right to enforce payment for the full amount
thereof.
Art.1354 NCC Although the cause is not stated in
the contract, it is presumed that it exists and is Supposed the holder is not a holder in due
lawful,unless the debtor proves the contrary. course, a holder can only collect 5K.
Sec 11 Date Failure of Consideration vs. Absence of
Sec.16 When it is in the hands of an HDC the consideration (Personal defense)
presumption is conclusive.
45,46,59 When is there failure of consideration?
There is a consideration but it failed to
Conclusive presumption under NIL materialize. It is matter of personal defense.
Sec. 16
What is a value – any consideration sufficicient to When does illegality amount to real defense?
support a simple contract. If there is a special law declaring it real defense.
Example of value:
Antecedent or pre-existing debt/ existing This absence or failure of consideration cannot
obligation be interposed by a party in the instrument.
The obligation to give,to do or not to do.
4
Accommodation party is liable as a surety not a consequence, the Bureau rescinded the
guarantor therefore
contract and assumed the work. Later on,
He is a party to the instrument as a maker,
drawer,acceptor or indorser. the appellants wrote to the PNB that since
It is required that he did not receive any value the latter has authorized payments to the
for the instrument. company instead of on account of the loan
He is liable for a holder for value.
Prudencio vs CA guaranteed by the mortgage, there was a
change in the conditions of the contract without
the knowledge of appellants, which entitled the
FACTS: latter to cancel the mortgage contract.
Appellants are the owners of a property, The trial court held them still liable together
which they mortgaged to help secure a loan of with their co-makers. It has also been held that if
a certain Domingo Prudencio. On a later date, the judgment is not satisfied within a period of
they were approached by their relative who was time, the mortgaged properties would be
the attorney-in-fact of a construction company, foreclosed and sold in public auction.
which was in dire need of funds for the
completion of a municipal building. After some In their appeal, petitioners contend that as
persuasion, the appellants amended the accommodation makers, the nature of their
mortgage wherein the terms and conditions liability is only that of mere sureties instead of
of the original mortgage was made an solidary co-debtors such that a material
integral part of the new mortgage. The alteration in the principal contract, effected by
promissory note covering the “second loan” the creditor without the knowledge and consent
was signed by their relative. It was also of the sureties, completely discharges the
signed by them, indicating the request that the sureties from all liabilities on the contract of
check be released by the bank. suretyship.
After the amendment of the mortgage was
executed, a deed of assignment was made by HELD:
Toribio, assigning all the payments to the
Bureau to the construction company. This There is no question that as accommodation
notwithstanding, the Bureau with approval of makers, petitioners would be primarily and
the bank, conditioned however that they should unconditionally liable on the promissory note to
be for labor and materials, a holder for value, regardless of whether they
made three payments to the company. The last stand as sureties or solidary co-debtors since
request was denied by the bank, averring that such distinction would be entirely immaterial
the account was long overdue, the remaining and inconsequential as far as a holder for
balance of the contract price should be applied to value is concerned. Consequently, the
the loan. petitioners cannot claim to have been released
from their obligation simply because at the time
The company abandoned the work and as of payment of such obligation was
5
temporarily deferred by the What is the nature of the liability of an
accommodation party?
PNB without their knowledge and consent.
Benefit of excussion? Applicable in guaranty
There has to be another basis for their claim of The properties of the debtor must be exhausted
having been freed from their obligation. It first before the guarantor may be liable.
has to be determined if PNB was a holder for
The surety insures the obligation whereas the
value. guarantor insures the solvency of the debtor.
A holder for value is one who meets the
CRISOLOGO JOSE VS CA
requirement of being a holder in due course
except the notice for want of consideration. In
the case at bar, PNB may not be considered as
a holder for value. Not only was PNB an
immediate party or privy to the promissory
note, knowing fully well that petitioners only
signed as accommodation parties, but more
importantly it was the Deed of Assignment
which moved the petitioners to sign the
promissory note. Petitioners also relied on the
belief that there will be no
alterations to the terms of the agreement. The
deed provided that there will no further
conditions which could possibly alter the
agreement without the consent of the
petitioner such as the grant of greater
priority to obligations other than the payment of
the loan. This notwithstanding, the bank
approved the release of payments to the
Company instead of the same to the bank.
This was in violation of the deed of
assignment and prejudiced the rights of
petitioners. The bank was not in good faith
—a requisite for a holder to be one in due course.
A holder for value
What are the possible defenses that he cannot
interpose by an accommodation party?
Minority and forgery.
PBCOM VS ARUEGO
6
7
