Você está na página 1de 11

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA

NE WE
WHERE WERE

EH 403

JULY 7, 2015
Q: What are the two general types of negotiable
instruments? Define.
A: Promissory Note and bill of exchange

Q: who cant be a holder?


A: Promissory Note: Holder because primarily liable of the
instrument.
Bill of exchange: Drawee, because he is the one ordered
to pay.

Section 184. A negotiable promissory note within the


meaning of this Act is an unconditional promise in writing
made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to bearer.

The holder can demand payment. He is the person in


possession of the instrument hence, becomes the owner.
There must be possession and legal title.

** What is not included in relation to Sec. 1: (e) where the


instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Sec 126. A bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a
sum certain in money to order or to bearer.

Types of holder:
1. Due course
Sec. 52. A holder in due course is a holder who has
taken the instrument under the following conditions:
chanroblesvirtuallawlibrary
(a) That it is complete and regular upon its face;
** Complete means compliance with Sec 1 of NIL; regular
means no alteration, superimpositions, or anything that
causes suspicion.

Q: What is a check?
Sec 185. A check is a bill of exchange drawn on a bank
payable on demand.

(b) That he became the holder of it before it was


overdue, and without notice that it has been
previously dishonoured, if such was the fact;

Q: What is the position of the bank?


A: Drawee. Payable of demand. So, wait for the date to be
payable on demand.

**that it be negotiated before maturity. Dishonored by


non acceptance. If not accepted by drawee, it
means its dishonoured.
Dishonored by non-acceptance = dishonoured by nonpayment.
If it doesnt reach maturity, its not dishonoured by
non-payment.

Q: Who are the parties to the negotiable instrument?


A: Promissory Note: Maker and payee. So if handed to
another, there is the acceptor/ indorsee or indorser. Bill of
exchange: drawer, drawee, Payee. After transferred, the
person is indorsed/indorsee.

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
(c) That he took it in good faith and for value;
**absence bad faith; for value is the consideration
that must be sufficient to support a contract
(money,services, obligations, properties etc.). Love
and affection doesnt give value.
(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.
** Infirmity like unsigned or signed but with a
different intent.
Defect: have known that it was stolen.
So, C-O-F-I for, complete, overdue, faith/value and
Infirmity.
A holder NOT in due course
-when any of the conditions is missing; since ALL of the 4
conditions must be present
-where the instrument payable on demand is negotiated for
an unreasonable length of time after its issue (sec53),
because then there will already be deemed an infirmity in
the instrument indicating that it is overdue so the 2nd
requirement is not complied with
2 characteristics of a negotiable instrument
Accumulation of secondary contracts
Negotiability
-the instrument is capable of being transferred from
one hand to another, and one who has it holds it free
from defenses of prior parties but this is subject to
limitation(the limit is the classification as a holder
SIGNIFICANCE of classification
a holder in due course

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

EH 403
while the general rule is that you are free from defenses of
prior parties, this is limited to personal defenses only, this
does not apply to real defenses
*the holder does not raise the defense, it is the one who is
required to pay that raises the defense

a holder NOT in due course

a.) (mere) holder NOT in due course


you will not be free from any defenses at all
(as if you are holding a non-negotiableinstrument)
exception: when you are a HOLDER through a
HOLDER in DUE COURSE (sec58)
b.) a HOLDER through a HOLDER in DUE COURSE under the
SHELTER PRINCIPLE
-acquires the rights of a holder in due course
(but still classified as a holder NOT in due course)
*twin requirements to be a holder through a
holder in due course:
1) acquired the title from holder in due
in due course
2) must not be a party to any illegality or
fraud in the negotiation of the instrument.
Presumption of being a holder in due course
EVERY holder is presumed to be a holder in due course,
unless it can be proven that there is a defect in the title of
any person who has negotiated the instrument. When this
happens, the holder must now prove that he acquired his
title from a holder in due course or that he is a holder in
due course

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE

EH 403

EXAMPLE:

CASE: PNB v. MANILA OIL REFINING

M -> A -> X (stole it) -> B -> C (knew of the theft)

FACTS:

Q: Is C a holder in due course or not?


A: no since he is aware of the defect (stolen) in the
instrument

This case concerns the validity of a provision in a


Php61,000.00 promissory note whereby in case the same is
not paid at maturity, the maker (Manila Oil) authorizes any
attorney to appear and confess judgment thereon for the
principal amount, with interest, costs, and attorney's fees,
and waives all errors, rights to inquisition, and appeal, and
all property exceptions.

Q: Can C be a holder through a holder in due course?


A:yes, since B is presumed a holder in due course (always
remember the presumption since this is not necessarily given
in the problem)
ATTY AMAGO: Confession of judgement can affect the
negotiability as a rule it just that when it is done after
maturity of the instrument it will not matter anymore.
IF THE CONFESSION OF JUDGEMENT IS MADE AFTER THE
MATURITY OF THE INSTRUMENT FOR ALL COMMERCIAL
PURPOSES:
- NON NEGOTIBALE whether there is confession of
judgement or not because the moment the instrument
matured it is already non-negotiable because it is
already overdue.
IF THE CONFESSION OF JUDGEMENT IS MADE BEFORE or at
least duing THE MATURITY OF THE INSTRUMENT then it
will render the instrument non-negotiable, The question
when can confession of judgement affect the negotiability of
the instrument? When such is done before or at least at
maturity.

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

On May 8, 1920, the manager and the treasurer of the


Manila Oil executed and delivered to the PNB the promissory
note in question. When they defaulted, PNB brought action
to the CFI of Manila to recover the Php61,000.00. They
brought with them Atty. Elias Rector, an attorney associated
with PNB, to enter in representation of Manila Oil. He filed a
motion of confessing judgment. The defendant, however, in
a sworn declaration, objected strongly to the unsolicited
representation of attorney Recto. Later, attorney Antonio
Gonzalez appeared for the defendant and filed a demurrer,
and when this was overruled, presented an answer. The trial
judge rendered judgment on the motion of attorney Recto in
the terms of the complaint.
ISSUE: Whether the promissory note in question is valid.
HELD:
No it is not. After hearing the opinion of experts, the
Court arrived at this decision. Warrants of attorney to
confess judgment are not authorized nor contemplated by
our law. Provisions in notes authorizing attorneys to appear
and confess judgments against makers should not be
recognized in this jurisdiction by implication and should only

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
be considered as valid when given express legislative
sanction.
Although the NIL mentions of the validity of the
promissory note despite the presence of a provision of a
confession of judgment, the Court points out the conclusion
of the article: But nothing in this section shall validate any
provision or stipulation otherwise illegal." If confessions of
judgment were allowed, the debtor will be deprived of his
right to be heard. Moreover, it is not the policy of the law to
place a debtor in the absolute power of his creditor. The
field for fraud is too far enlarged by such an instrument.
Sir: The SC here rendered a decision based on a decision
rendered abroad. What country? Kanang tighimo ug tacos!
MEXICO! This is also the basis of the American Jurisprudence
where it said that confession of judgment is considered an
amicable, easy, and cheap way to settle and secure debts. It
saves the courts time. But warrants of attorney are also
considered as against public policy because, (1) they enlarge
the field of fraud, (2) there is a bargaining away of ones day
in court, and (3) strike down the right to appeal. Thus, in this
case, it was rendered void.
Q: But is this the same with cognavit actionem?
A: No. This means that he has confessed action. It is a
written confession of action by the defendant acknowledging
his indebtedness to the plaintiff after the action has been
filed. In the case, before the action was filed, there was
already that clause that authorized a confession of judgment
if the instrument be not paid at maturity. So what
differentiates is the time when the admission is made.

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

EH 403
Cognavit actionem is actually an ordinary practice in court.
In fact, you are required to enter a plea once an action has
been filed against you. So if you confess right there and then
when asked by the court and you confess, that is cognavit
actionem. This is valid and lawful in the Philippines while a
confession of judgment is not.
Q:How about relicta verificationem?
A: Means pleadings being abandoned. It is a confession of
judgment by withdrawal of the defense. Here, there is
already a case, defenses were made but then withdrawn by
you. Its as if you admitted. So to summarize, these 2 dont
actually involve bargaining away your day in court while a
confession of judgment does.
Q:What other clauses can be added in a negotiable
instrument that will not affect its negotiability?
A:Section 5. (a) authorizes the sale of collateral securities in
case the instrument be not paid at maturity.
Q: Can this affect negotiability?
It may. If the sale happens before maturity. But if the sale
happens after maturity, it will no longer affect the
negotiability because the instrument ceases to be negotiable
for commercial purposes in the first place.
Q: Another clause?
A: Section 5. (c) waives the benefit of any law intended for
the advantage or protection of the obligor.

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
Q:Give me a law which is intended to give benefit to the
obligor/debtor?
A: A debtor is in delay only when creditor makes demand.
That is for the benefit of the debtor because if theres no
demand yet, he cannot be in delay, thus, he is not liable for
payment of interest and damages.
Example:

EH 403
Q: Any other clause?
A: Section 5. (d) gives the holder an election to require
something to be done in lieu of payment of money.
Example: I promise to pay Mr. A or his order 1000 pesos or a
basketball(?) at the option of the holder.
Q:How does this not affect the certainty of the sum
payable in money?

I promise to pay Mr. A or his order 1000 pesos 30 days


after July 6, 2016 without need of demand.
Another is when you waive a notice of dishonor. If there is no
notice of dishonor given to a party who is secondarily liable
to the instrument, as in the case of a drawer, he would have
been discharged from his liability. That means he can no
longer be compelled to pay on the instrument if there is no
notice of dishonor given to him. But if in the instrument it is
deemed waived, that all parties are bound by it, even if
there is no notice of dishonor* given to any of the parties if
the instrument has been dishonored, all parties secondarily
liable will not be discharged. (Notice of dishonor is bringing
either verbally or by writing, to the knowledge of the
drawer or indorser of an instrument, the fact that a
specified negotiable instrument, upon proper proceedings
taken, has not been accepted or hasnt been paid, and that
the party notified is expected to pay it.)
Q: Can that waiver of any law for the advantage of the
debtor happen before maturity?
A:Yes because its not specified under the law.

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

A:It does not affect because it is presumed that the thing to


be given is of equal value to the amount of money.
Q: So if it turns out not to be equal? It can affect?
..
Q: How is it different if the option is given to the maker?
A: It affects negotiability now because the choice lies with
the maker. Also, the holder cannot ascertain how much he
can really get out of the instrument. And again, it is a
requirement that the sum should be certain in money.
Q: If option of the holder?
A: Negotiable. The choice is with the holder so he can either
choose the money or the other option.
ATTY AMAGO: Because you cannot ascertain how much you
can get out of that instrument. And its a requirement that
the sum should be certain in money. Where can money be
there if theres a possibility that it will not be payable in
money (because its at the option of the maker)?
Q: How about if its at the option of the holder? How is
that any different?

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
ATTY AMAGO: Its still negotiable because any holder can
then be assured that there is payment of money, if they opt
to. If theres one of them who opted not the money, its only
up to him. But as to all other holders, it would still be in
terms of money. Thats why it is still considered negotiable
under NIL, because there is still certainty as to all other
holder. Thats why if the option to do something is only at
the part of the holder, it is negotiable. While if it is at the
option of the maker, it is non-negotiable.
After all if it includes payment of the obligation not in terms
of money, that can only be assigned, you cannot negotiate it.
As in the case of I will give you P1,000 or your order, or I
will just sing. Can you assign your singing to someone else?
Yes, you can assign your singing, but you cannot negotiate it.
The obligation to do is something you can assign and not
negotiate.

EH 403
issue; when interest is stipulated for the purpose of
determining when the interest is to run)
ATTY AMAGO: But date is also important, as in the case of
stated installments, where when date is not placed there, it
would make the negotiable instrument non-negotiable. But
then if you leave it blank there, it can authorize a person to
insert the date of the instrument and it would convert the
instrument into a negotiable instrument. (Insertion of date
to be discussed later on)
Q: What other omissions can be done that will not affect
the negotiability of the instrument?
A: When the instrument does not specify the value given, or
that any value has been given therefor. (Sec. 6(b))
Q: Whats the reason why this is considered negotiable?

Q: The confession of judgment is unlawful. Does that make


the negotiable instrument unlawful and invalid?
A: It does not. The negotiable instrument remains to be
valid. Its as if that condition is not written at all.

A: Because even if it doesnt state the value given, theres a


presumption that there is a consideration already given.
Q: What else could be omitted?

Q: If there are additions, there could be omissions and


these could not affect the negotiability of the instrument
at all. What could be these omissions?

A: When the instrument does not specify the place where it


is drawn or the place where it is payable. (Sec. 6(c))

A: The fact that the instrument is not dated. (Sec. 6(a))

Q: Why will it not affect the negotiability of the


instrument?

Q: But is there an instance where date is required and can


affect the negotiability of the instrument?
A: No. Date is not essential for negotiability but only for
purposes of determining the date of maturity of the
instrument. (i.e. where said date is tied to the date of

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

A: Sec. 1 of NIL does not require that a place must be


specified.
ATTY AMAGO: The place of payment is only for the
convenience of the parties. If you want to specify it in the

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE

EH 403

instrument, well and good, but if doesnt, you have a


presumption on where payment can be made. General rule is
that when there is no place indicated in the instrument, the
one that you learned in your ObliCon, diba its the creditor
whos supposed to go to the debtor. Thats why the creditor
is considered an active party because he has to go to the
debtor supposedly. It should be the residence or principal
place of business of the debtor (maker or drawer).

A: There are two cases: (1) where an instrument is


payable at a fixed period after date but is issued
undated; and (2) where an instrument is payable at a
fixed period after sight but the acceptance is undated.

ATTY AMAGO: And then this issue on seal (Sec. 6(d)) is not
relevant here in the Philippines; not practiced here. Last
would be the designation of a particular kind of current
money in which payment is to be made (Sec. 6(e)). Even if it
is not stated, it is not supposed to affect the negotiability of
the instrument, but if and only if it can be ascertained what
the exchange rate is on that particular date of payment. The
reason why it will not affect negotiability is because we know
that theres always a current exchange rate available in the
market.

I promise to pay X or order P1M.


(Sgd. Y)

ATTY AMAGO: Now we will go to the defects of a negotiable


instrument. We mentioned before that even if the terms
used are not that which is provided under Sec. 1 and other
provisions like the use of the words bearer, order, holder
you can use other words for them for as long as they have
similar import. Thats Sec. 10.
ATTY AMAGO: Lets go to the defects of a negotiable
instrument. The first defect is when it doesnt state the
complete information about the instrument, as in the case
where it doesnt specify the date for the payment of the
instrument.

Q: In the 2 cases, it would require the insertion of a date.


But if the instrument does not specify a date at all, as in
the case:

A: Its still negotiable and it is payable on demand.


Q: So thats why date is not necessary in that case. It is
only in the 2 instances mentioned above where date
should be inserted. Because then from where would you
count the running of the fixed period. Example would be?
A: I promise to pay X or order P10,000 30 days after date.
And it so happened in this case, theres no date indicated.
The date to be inserted should be the issuance date in
relation to Sec. 11.
ATTY AMAGO: If the date is not stated, whatever the date
stated by the person who is supposed to make the writing of
the date, is deemed to be the true date of the instrument.
Q: I promise to pay X or order P10,000 30 days after
date.
(Sgd. M)
M -> X -> A -> B -> C

Q: When is it required for the holder, or any person for


that matter, to insert a date on the instrument?

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

July 1, 2016 (inserted by A)


Actual date of issue = July 5, 2016

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
The instrument was transferred from M to X, X to A, A to B,
and B to C. While in the hands of A, A wrote the date July 1,
2016. But the instrument was actually issued on July 5, 2016.
C is the current holder of the instrument. As to him, when is
the instrument due for payment?

EH 403
If it is not available against a holder in due course, then
it is a personal defense. The insertion of a wrong date
is a personal defense.
Q: Can M be compelled to make payment on July 31?
Yes because C here is a holder in due course.

A: July 31, 2016. (30 days after July 1).


Q: How would you classify C here as a holder?
A: He is a holder in due course. There is no other
information given and the presumption is that the holder is
a holder in due course.
Q: What did the law say about being a holder in due course
in relation to insertion of a date?
A: The insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in due
course; but as to him, the date so inserted is to be
regarded as the true date. (Sec. 13)
Q: So M cannot raise the defense that hey, the true date
is July 5 and I am compelled to make the payment only on
August 4?
A: No. M cannot validly put up the defense of insertion of a
wrong date because as provided for under Sec. 13 C, being
a holder in due course, as to him, the date so inserted in the
instrument is regarded as the true date.

Q: How does that characterize the defense of an insertion of


a wrong date?

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

Q: What if C happens to know that the true date of the


instrument is July 5? Will that change your answer?
No. C here, although he is a holder not in due course,
can prove that he acquired title from a holder in due
course. And because there is no other information
provided as to B, B is considered a holder in due course
under the presumption. And so C can be classified as a
holder through a holder in due course who has the
rights of a holder in due course. And because the rights
allow him to be free from personal defenses, the
insertion of a wrong date also does not apply to C even
if he happens to be a holder not in due course.
Q: If B here is not a holder in due course, will that change
your answer?
Yes. Consequently, C is a holder not in due course.
Therefor, he is not free from personal defenses. And
that being the case, M can raise the defense of the
insertion of a wrong date.
Q: Can post-dating affect the negotiability of the instrument?
The instrument is not invalid for the reason only that
it is ante-dated or post-dated, provided this is not
done for an illegal or fraudulent purpose. (Sec. 12)

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
No, it cannot affect the negotiability of the instrument.
In order to determine whether the instrument is
negotiable or not, you only look at the face of the
instrument and the language used therein if it complies
with the requirements set forth by Section 1.
It will render though the instrument invalid should that
ante-dating or post-dating is done for fraudulent
purposes.
Q: When can ante-dating or post-dating be fraudulent?
Ante-dating: An instrument is ante-dated when it
contains a date earlier than the true date of its
issuance. It is fraudulent when for example, it is done
to hasten the maturity of the instrument in order to
collect the money immediately.
Post-dating: An instrument is post-dated when it
contains a date later than the true date of its issuance.
Fraudulent when for example it is done to conceal the
insufficiency of the funds.
Q: The fraudulent act of ante-dating or post-dating cannot
affect the negotiability of the instrument although it can
affect its validity. To whose hands can it be invalidated?
Only in the hands of a holder not in due course in the
sense that he cannot demand payment of the
instrument before the maturity of the instrument. That
invalidity is the consequence, not in the sense that all
other parties cannot anymore demand payment.
Because even if there was insertion of a wrong date
there and it was ante-dating that was made

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

EH 403
fraudulently, this cannot affect the rights of a holder in
due course.
Take note that ante-dating and post-dating in itself
does not affect the validity of the instrument. Only
when it is done for fraudulent purposes then can the
instrument be invalidated. But invalidity in the sense
that the party who is a holder not in due course cannot
compel payment until the true date of the instrument
has arrived.
Q: When can a party fill-up the blanks of an instrument?
Where the instrument is wanting in any material
particular, the person in possession thereof has a
prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper
delivered by the person making the signature in order
that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill
it up as such for any amount. In order, however, that
any such instrument when completed may be
enforced against any person who became a party
thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and
within a reasonable time. But if any such instrument,
after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and
within a reasonable time. (Sec. 14)

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
Q: What is this material particular?
It may be defined as any particular proper to be
inserted in a negotiable instrument to make it
complete such as the name of payee, amount,
interests, due date, etc.
Q: If an instrument does not contain the signature of the
maker, the party currently holding it can just insert the
signature and it will render the instrument negotiable still?
Again, you look at the intention of why that instrument
is actually issued. If it is placed there on the table and it
does not contain a signature, then the party who
supposedly made that instrument does not intend to be
bound by the instrument or at least not just yet.
Q: If ever the signature is already filled up, can that
instrument be considered negotiable even if it was not filled
by the person who actually made the negotiable instrument?
So there was another person who signed the instrument.
Yes, when you look at the face of the instrument, it is
still negotiable. Only the signature is missing and if that
signature appears on that instrument then it is now
negotiable. But of course as to the person whose
signature does not appear there, he cannot be bound
on the instrument. As to him, he did not issue a
negotiable instrument. But whether or not is
negotiable, it is negotiable. After all, when you look at
the face of the instrument, it has the elements of
negotiability now that it has been completely filled up.
However, this is not a true instrument because there is

10

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

EH 403
fraud committed and the law on forgery will apply in
this case because it is the signature that was being
inserted.
Q: In Sec. 14, it does not contemplate of a signature. It
contemplates all the other elements other than the
signature. In fact, it does not contemplate of a date because
if what happens to be missing is a date, it is Sec. 13 that will
apply. Certainly, it must refer to something else, what is
that?
ATTY AMAGO: If its only the signature that is missing on the
face of the instrument, then its still negotiable but of course
as to the person who did not put his signature to it as when he
did not bind himself to the instrument, then it is not
negotiable. You can fill it up, but you will be subjected to
fraud. Forgery applies there. But in section 14, it does not
contemplate of a signature it contemplates of all other
elements other than the signature. In fact it doesnt even
contemplate of a date. Why? Its because what will apply is
the previous section we just discussed a while ago, Section 13.
Then it must refer to something elsewhat is that? What
material particular is contemplated by this provision? That
refers to a name of a payee or the amount.
Q: So if you an instrument that says: I promise to pay ____
or order Php 10,000 thirty days after date. July 1, 2016. What
will happen if the instrument now is delivered to X? What
can X do? (Look at the instrument, get a lighter and: D)

NEGOTIABLE INSTRUMENTS LAW ATTY BERNARDINO AMAGO IV, CPA


NE WE
WHERE WERE
A: He can actually put X,his name, there, so that he can now
order whom the instrument will be transferred to. That what X
will do.
Q: Granting that X was not able to insert his name there,
but transferred the instrument instead to A. In the hands
of A, the instrument was stolen by B and then B inserted his
name on the instrument, and then negotiated the
instrument to C, to D, and then finally to E. E doesnt know
anything about B stealing the instrument. So what the right
of E? Now it is already 30 days after date. Can E go after M,
the person primarily liable and demand payment?
A: This a personal defense because in the hands of holder in
due course, whatever is inserted in there is deemed valid and
effectual for all purposes in his hands. As if it had been filled up
strictly in accordance with the authority given and within a
reasonable time. M cannot get away with his obligation. But
to whether he will pay or not, thats another thing. What will E
do instead? E should go to D, then D would to C, and C would
go to B.
Q: But if E is not a holder in due course?
A: The answer there is, it will not change because E can be
considered a holder through a holder in due course. (Shelter
Principle)

11

DAVAD | MEJICA | MONTERO | NAVARRO | REGALADO | PADAO | RUDELA

EH 403