NIL
instrument to B.
What is spoliation?
The alteration of the instrument is
made by a person not a party to the
instrument or otherwise known as a
stranger.
What is the effect of spoliation as to the
rights of the parties?
De leon says that it has the same effect
as material alteration.
It’s actually the same because the law
did not distinguish whether the
alteration is made by a party or a
stranger to the instrument.
Does it have to be a fraudulent
alteration for Section 124 to apply?
Not necessary because even alteration
done innocently can still give rise to the
defence under Sec 124. there’s no
distinction made by the law whether
the material alteration is done in good
faith or for purposes of fraud, the
material alteration as a defense would
still be applicable.
*calls another student
Give an example of Bill of exchange
To: A
Pay to Y or order P20,000
Sgd X
This is a negotiable instrument
because it conforms to the
requitements under Sec 1.
The instrument is further negotiated to
b who altered the amount to 100,000.
B presented the instrument to A for
acceptance.
A accepted it and returned the
B further negotiated it to C and C
negotiated it to D.
Discuss the rights of D in relation to
prior parties.
D as a holder in due course
D can go after A, as an acceptor he
engages to pay according to the tenor
of his acceptance.
A accepted to pay 100,00
whichis the altered amount so he can
no longer claim the defense of material
alteration
X and Y can raise the real defense of
material alteration, but they can still be
compelled to pay the original tenor of
the instrument.
B and C, can be held liable because as
an indorsers they warrant that the
instrument is genuine and in all
respects what it purports to be.
*calls another student
To continue, Granting that D was not
able to collect form A who is primary
liable D can go after X and Y for the
amount of 20,000 because X and Y as
parties prior to material alteration.
While they can raise the real defense of
material alteration, they can still be
compelled to pay the original tenor of
the instrument.
Then, if D was not able to collect 20,000
from X and Y, D can go after B and C
because as an indorser they warrant
that the instrument is genuine and in
all respects what it purports to be.
But if D was able to collect from X and
Y the amount of 20,000, D can only
collect from Band C the remaining
amount which is 80,000.

ULTIMATELY,D can collect the full
amount from B because as perpetrator
of the material alteration he should be
penalize for his actions.
If D is not a holder in due course?
Same as above because the shelter
principle may apply. In the absence of
any other information, C is presumed
to be a holder in due course, thus, D
can exercise all the rights of a holder in
due course for he is considered a
holder through a holder in due course.
If shelter principle does not apply?
D can collect from A, as an acceptor he
engages to pay according to the tenor
of acceptance.
However, D can no longer go after
X&Y, because as parties prior to the
material alteration, they can raise the
real defense of material alteration
without the concomitant obligation to
pay the original tenor
D can go after B&C because as
indorsers, hey warrant that the
instrument is genuine and in all
respects what it purports to be.
ULTIMATELY,D can collect the full
amount from B because as perpetrator
of the material alteration he should be
penalize for his actions.
So do you have any questions on
Material alterations?
S4:
Sir what if there is a material alteration
in the instrument and subsequently it
is altered back to the original tenor
A altered to 100,000 but when B
received it he changed it back to 10,000
X-Y-A-B-C-D
Will there still be a material alteration?
Atty:
There may have been an alteration but
X cannot use it as a defense.
Material Alteration is one which
changes the liabilities of the parties. So
when D presents the instrument to X,
Can X say that there is a change in his
liability? NO, so X can still be
compelled to pay the same amount.
But it does not change the fact that A
can be held liable for all the
consequences of his action.
Anything else?
S5: atty is it possible that after an
alteration is made and the instrument
is for delivery to another person but
instead of being delivered to another
person, the next person stole it?
X-Y-A-B-C-D
B altered it
After altering it without negotiating it
to anyone, it was stolen By C.
So in this case B may be considered
innocent because while he altered the
amount he never negotiated it. So he
never altered the instrument in the first
place.
The one who may be held liable is the
one who stole it and the one who
further negotiated it.
But if the instrument is altered by B
and was negotiated to C but stolen by
D and then the instrument was further
negotiated to E and then finally to F
X-Y-A-B-C-D-E-F
It will be a different matter. But for this
to apply thought, there must be
forgery. I f this is an order instrument,
D has to forge the Signature if C for
him to have rights to the instrument
and then further negotiate it.
But let’s make it easy by making it a
bearer instrument which can be
negotiated by mere delivery. The
question is, can F go after X and Y?
Sure man ta na dili si Y because this is
an bearer instrument and there was no
warranties extended by Y, so can F go
after X?
Yes because as party prior to material
alteration. While they can raise the real
defense of material alteration, they can
still be compelled to pay the original
tenor of the instrument
X cannot raise the personal defense of
want of delivery or the complete but
undelivered instrument because Eand
F are holders in due course
F can go after E because as an
immediate transferor, he warrants that
the instrument is genuine and in all
respects what it purports to be and that
he has good title over it..
ULTIMATELY,F can collect the full
amount from B and D because as
perpetrators of the material alteration
they should be penalize for his actions.
If E and F is not holders in due course
Supposedly F can collect from X
because as party prior to material
alteration. While they can raise the real
defense of material alteration, they can
still be compelled to pay the original
tenor of the instrument
But because he can also raise the
personal defense of want of delivery or
the complete but undelivered
instrument, he may not be able to pay
even the original tenor of the
instrument.
F can go after E because as an
immediate transferor, he warrants that
the instrument is genuine and in all
respects what it purports to be and that
he has good title over it..
ULTIMATELY,F can collect the full
amount from B and D because as
perpetrators of the material alteration
they should be penalize for his actions.
Note: for as long as they are parties
prior to a certain defect, they can
always raise any available defense
But it goes without saying that if that
prior party is the one liable for any
fraudulent act, he can never use any
defense. As he will be held liable
For the consequences of his acts.
What is forgery?
Counterfeiting or making alterations to
the instrument with the intent to
defraud
Difference between forgery under Sec
23 and Material Alteration under sec
124
Sec 23 pertains to the the signature
whereas Under Sec 124 refers to those
alterations made in the enumerated
items under in Sec 125
under Sec 124 when there is Material
alteration prior parties to the material
alteration can be compelled to pay by
the holder in due course or a holder
though a holder in due course but it is
not the payment based on the amount
in the instrument presented to them.
Instead, they can only be demanded to
pay the original tenor of the instrument
While under Sec 23 the status of the
holder is immaterial Thus, prior parties
cannot be held liable to pay to all types
of holders – HDC, HTHDC, HNDC.
They can raise the real defense of
Forgery.
In material alteration, is the intent
material?
No, there’s no distinction made by the
law whether the material alteration is
done in good faith or for purposes of
fraud, the material alteration as a
defense would still be applicable even
if the alteration is done innocently.
Whereas in Forgery there has to be
intention to defraud. In the definition
alone you can see the
distinction.Because for forgery, for it to
be considered forgery, there has to be
fraudulent alteration.
What are the effects of forgery?
EFFECTS OF FORGERY
1. Only the signature is inoperative and
not the entire instrument
2. It cuts off the liabilities of the parties
prior to the forgery
3. Subsequent parties cannot have the
right to retain the instrument
4. There is no right to discharge
therefore
5. No right to enforce payment thereof
against any parties prior thereto
Fraud in factum or fraud in esse
contractus is where the party makes it
appear that there was intention to issue
a negotiable instrument through the
signature of another person. Here,
there really was no intention to issue a
negotiable instrument, but there is a
person who makes it appear that there
is a negotiable instrument.
While Fraud in inducement refers to
when there is an intention to sign a
negotiable instrument but for a
different consideration. Fraud in the
Consideration.
Because it is only the
consideration which is defrauded, it is
not actually forgery as we know of.
Thus there is no real defense available.
You will learn later on that whenever
there is failure of consideration, there is
only a personal defense. However
when there is Fraud in factum, fraud in
esse contractus or fraud amounting to
forgery, it will be considered as forgery
which is a real defense.

Forgery as we know of, is when a

person signs for or on behalf of another
without authority. However, there
may be certain instances where the
instrument is actually signed by the
party but still considered as forgery.
What are these instances?

For example when a person signs on a

paper but there’s really no intention to
make a negotiable instrument but it
was made to be a negotiable
instrument by another. This id sn
example of Fraud in factum or fraud in
esse contractus (Fraud amounting to
forgery).

What is the difference between Fraud

in factum and Fraud in inducement?