Negotiable Instruments Law Section 16-22 Lecture Notes PDF

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NEGOTIABLE INSTRUMENTS LAWSec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holde...

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NEGOTIABLE INSTRUMENTS LAW Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

What is the general rule in Sec. 16? Every contract on an NI, even if it is completely written, is unfinished and revocable until the contract is delivered to the customer. Before the instrument is delivered, the maker or drawer has the option to revoke, cancel, or tear it up. Until the instrument is delivered to the payee named therein, he does not acquire any rights in the instrument. Any NI is only valid if it is received by the recipient. Undeliverable instruments are inoperative due to the fact that delivery is a requirement for liability. For the most part, when a complete instrument is discovered in the possession of a close family member or a distant party other than a party to the action, there is a prima facie presumption of delivery, which is subject to rebuttal. If the certificate holder is a HIDC, the presumption becomes conclusive and cannot be challenged. If the note is discovered with an immediate party or a holder rather than a HIDC, the party who is being held liable may be able to demonstrate that delivery was not made by him or under his authority. (Delivery may be handled directly by the maker/drawer or through an authorized agent.) Delivery may also refer to the act of issuing a document.) However, if the note is lodged with a HIDC, the person who is being held liable will be unable to prove that he did not deliver it because he will be conclusively presumed to have done so. As a result, if a maker claims that he did not deliver a complete note, the holder need only demonstrate that he is a HIDC, and the former is no longer able to prove his claim.

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.

à the rules stated shall not be availed of if the terms of the instrument in question are clear and admit of no doubt. It is only when the instrument in question is ambiguous, doubtful or obscure or when there are omissions therein will the rules apply. EXAMPLE OF THE RULES: (a) P 12 note is valid only in cases where the X has the words "twelve pesos" written in its body and the number P 1,200 (in figures) written in the margin. The reasons for this are as follows: (a) the figures in the margin do not constitute a part of the instrument and are only included for convenience purposes: (b) It is much easier to make a mistake with figures than it is with a sum of words. However, when the words are ambiguous or uncertain, such as when the letter "Y" in eighty thousand is unclear (with P8,000 on the margin), when the note is payable for "one peso" (with P100 on the margin), or when P365 is written as "three sixty-five pesos," the marginal figures take precedence over the written words.

(b)

(c)

(d) (e)

(f)

Where the note stipulates that the amount to be paid is “with interest at ______% from____”, it is deemed payable from the date in the note or if issue at the legal rate. Where the note states “I promise to pay to the rule of J.M ONLY P 10. sgd. X.” with “J.M ONLY” in handwriting, the note is non-negotiable as it is payable to a specified person only. The handwritten words prevail because the written words are deemed to express the true intention of the maker because they are written by him while the printed words are printed with no contract in view. Where a note states “I promise to pay Erwin or order P 10. sgd. Toby. Ian”, the payee or holder may treat it as either a note or bill according to his preference. Usually, the signature of the maker/drawer is placed in the lower right-hand corner if the face, the acceptor across the face and the endorser at the back. Where it is not clear which if the three a person belongs as he signs on the margins, he is presumed to be an endorser. Where a note states “I promise to pay C or order P10. sgd. A&B.”, the makers are deemed to be solidarity bound.

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. What is the general rule? Exceptions? GENERAL RULE: A person whose signature does not appear on the instrument cannot be held liable thereon EXCEPTIONS: (1) The principal is liable if duly authorized agent signs on his own behalf (Sec. 19); (2) In case of forgery is liable even if his signature does not appear on the instrument (Sec. 23); (3) Where a person sought to be charged signs on paper separate from the instrument itself, as in an allege although the allege may be considered a part of the instrument, or where an acceptance is written on another paper other than the bill (Sec. 134 & 135); (4) Where a person signs under an assumed or trade name- not really an exception, rather an instance where a person’s business name serves the same purpose as his signature. There must be an intention to be found by signing the trade 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.

a. The party may sign personally or thru an agent. Agency may be oral or written authority. It may be proved by oral or written evidence, unless specific provisions of the general law require otherwise (eg. Statute of Frauds). 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. What are the requisites for an agent to escape liability? The agent must be duly authorized. (2) Must add words to his signature indicating that he signs as an agent, that is, for or on behalf of a principal. (3) Must disclose his principal. (1)

EXAMPLES Of no.2 - “Jake Cruz by Pedro Vega” “Pedro Vega as agent of “Jake Cruz” Of no.3 – “sgd. Pedro Vega, agent” – Vega is liable as he fails to disclose his principal (even if he acts within his authority). “Agent” is deemed as merely a descriptive word, also “trustee”, “administrator” – one is not relieved from liability by adding descriptive words. Of no. 3 – the disclosure of the principal in order to relieve the agent need not be in signature (can be in the body). E.g., “I promise to pay V or order P100 for money loaned to Y & Co. sgd. J, Treasurer.” The principal is obvious”.

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. What is the authority of an agent by procuration? This agent has but a limited authority to sign and he must act within the limits of his authority. The words “per proc.” or “p.p.” serves as a notice to whole world that the agent has but a limited authority. It is the duties of the 3rd person dealing with such agent ascertain the limits of the agent’s authority. He must remember that he is dealing at his own risk. FORM: “Jose Cruz (principal), per proc.: Pedro Vega (agent)”

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. What is the rule: a minor or corporation indorsing? Ordinarily, a minor cannot give consent to contracts and a contrast entered into by him is avoidable. In the case of corporations, they cannot perform acts beyond the escape of their authority. Such acts would be ultra vires Never the less, if a minor or a corporation endorsee an instrument, the endorsee acquires titles to it and can enforce it against the maker or acceptor or other parties prior to the minor. Suppose: Lyn prepares a note for Paz, “I promise to pay Paz or order P1, 000. sgd. Lynn” But Paz is only a minor. Paz negotiated the instrument to Lawrence. Can he hold Lynn liable Paz? Rence can hold Lynn liable because he acquires title to the instrument by virtue of sec. 22. The instrument is validly his. But Rence cannot hold Paz liable because Paz has a valid defense – her minority. Minority is real defense in the sense that the Paz may use it as against any holder (even a HIDC). But Lynn cannot make use of the same defense as it is personal to the minor – Paz. Further, as maker, Lynn warrants the existence of the thing as well as the capacity of the payee to enter into the contract. The maker is therefore precluded from putting up the defense that the payee had no capacity....