REAL PERSONAL

Want of Authority (Section 15 in relation Filling up blank not within the authority
with Section 14 ) (Section 14)
 
 
Authority as agent (Section 20)

Non-delivery of Incomplete Instrument Non-Delivery of Complete Instrument

(Section 15) (Section 16)
 
Conditional Delivery of Complete
Instrument (Section 16)
REAL DEFENSES

Minority

Prescription
Sec. 14. Blanks; when
may be filled.
 - 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. 
2 Circumstances in the Provision

 a.The Instrument is delivered but wanting a material

particular; and

 b.A signed blank piece of paper was delivered for the

purpose of converting it to a negotiable instrument.
a. The Instrument is delivered but wanting a material
particular

AUTHORITY: If the maker or drawer delivers an instrument to the payee although it

is wanting in material particular, the payee is deemed to have a prima facie
authority to fill it up.

PERSONAL DEFENSE : The maker or drawer may claim that the payee exceeded
the authority given by filling up a wrong insertion.
b. A signed blank piece of paper was delivered for the purpose of
converting it to a negotiable instrument.

 REQUISITES TO CLAIM AUTHORITY:

a. There must be a delivery of a paper of another person;
b. The paper that was delivered was a blank paper containing the signature of
the person who will deliver; and
c. The delivery for the purpose of converting the paper into a negotiable
instrument.

 REAL DEFENSE: Lack of authority / Fraud

Section 15. Non-Delivery of Incomplete
Instrument
 Where an incomplete instrument has
not been delivered, it will not, if
completed and negotiated without
authority, be a valid contract in the
hands of any holder, as against any
person whose signature was placed
thereon before delivery. 
Important Circumstances Present:

1. The instrument is incomplete; and

2.The incomplete instrument has not

been delivered.
Samson Ching vs. Clarita Nicdao and CA
FACTS: Nicdao was charged of eleven (11) counts of violation of Batas Pambansa Bilang (BP)
22. The MTC pronounced her guilt which was affirmed by the RTC. On appeal, the decision was
reversed by the CA and consequently, Nicdao was acquitted. Aggrieved, Ching now interposed his
appeal before the Supreme Court with regard the civil aspect of the case.
Nicdao admitted that some of the signatures in the 10 checks she drew in favor of
her creditor which have an accumulated amount of P950,000.00 are hers and some belongs to her
employees; but denied the signature on 1 check with the amount of P20 million and its delivery
to Ching since that check is her missing check. She also averred that her debts were already paid
that was why she wanted to get those back which actually only served as securities of the said
debts.
On the other hand, Ching claimed that the signature thereon is Nicdao’s, but the
amount was written by him because he alleged that it is the total amount Nicdao loaned from
him within 2 years. And after due demands, Nicdao refused to pay, so he filled it out and offered
it for presentment at the drawee bank but was dishonored. Allegedly still no avail to Nicdao,
even after due notice, he resorted to the court.
ISSUE: WON Ching has the authority to fill up the check.

HELD: Based from the pieces of evidence presented, Ching has no authority to fill up the
check.
Section 15 of The Negotiable Instrument law provides that where an incomplete
instrument has not been delivered, it will not, if completed and negotiated without authority,
be a valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery. 
The check, having been stolen by Ching’s paramour gave no authority to Ching to
fill up the instrument. As such, the said check without the details as to the date, amount and
payee, was an incomplete and undelivered instrument when it was stolen and ended up in
petitioner Ching’s hands. Hence, petitioner did not acquire any right or interest and could not
assert any cause of action founded on the stolen check.
Filling up blank not within the authority (Section 14)

AUTHORITY : As instructed by the drawer or maker.

PERSONAL DEFENSE: The maker or drawer may deny liability on the instrument if the authority he
gave was exceeded by the payee or one who was given such authority, except against a holder in
due course.
 Patrimonio vs. Gutierrez and Marasigan
FACTS: The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slum Dunk). In the course of
their business, the petitioner pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks
were entrusted to Gutierrez with the specific instruction not to fill them out without previous
notification to and approval by the petitioner.
In 1993, without the petitioner’s knowledge and consent, Gutierrez secured a
loan from Marasigan on the excuse that the petitioner needed the money for the construction
of his house. Gutierrez simultaneously delivered the pre-signed check and was subsequently
dishonored by the bank.
Marasigan then sought recovery from Gutierrez, but to no avail. Although he
knew that Patrimonio is not a privy to He filed a criminal case for violation of B.P.22 against
Patrimonio. Patrimonio then counter-filed a complaint for the nullity of the said loan, and
contended that he is not a privy to the contact.
The trial court ruled in favor of Gutierrez, ruling that Patrimonio has the
intention I issuing the check even without his approval. Hence, this case.
ISSUE: WON Gutierrez has the authority to fill up the check.

HELD: Gutierrez is deemed to have no authority to fill up the check because he exceeded
the authority given by Patrimonio.
Section 14 applies to an incomplete but delivered instrument. Under this rule, if the
maker or drawer delivers a pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is deemed to have prima facie authority to
fill it up. It merely requires that the instrument be in the possession of a person other than the
drawer or maker and from such possession, together with the fact that the instrument is wanting
in a material particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instrument’s completion, two requisites must exist: (1)
that the blank must be filled strictly in accordance with the authority given; and (2) it must be
filled up within a reasonable time. If it was proven that the instrument had not been filled up
strictly in accordance with the authority given and within a reasonable time, the maker can set
this up as a personal defense and avoid liability. However, if the holder is a holder in due course,
there is a conclusive presumption that authority to fill it up had been given and that the same
was not in excess of authority.
 In the present case,  Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay the loan he supposedly
contracted for the construction of petitioner's house. This is a clear violation of the petitioner's
instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the authority given by the
petitioner.
In case of Marasigan, since he knew that the underlying obligation was not actually for
the petitioner, the rule that a possessor of the instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite knowledge of
that the petitioner was not a party to the loan, may be construed as gross negligence amounting to
bad faith.
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. 
PERSONAL DEFENSE: When the agent signs in
the manner prescribed by the Section 20, the
agent is not personally liable and the only
person who is liable is the principal.
Philippine Commercial Bank vs. Jose Aruego
 FACTS: Jose Aruego obtained a credit accommodation from the
Philippine Bank of Commerce to facilitate the payment of printing of “World
Current Events”, the periodical he is publishing. Thus, for every printing of the
periodical, the printer, Encal Press and Photo Engraving, collected the cost of
printing by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the
same with the promise to turn over to the plaintiff the proceeds of the sale of
said publication to answer for the payment of all obligations arising from the
draft. The Philippine Bank of Commerce instituted an action against Aruego to
recover the cost of printing of the latter’s periodical. Aruego however argues
that he signed the supposed bills of exchange only as an agent of the Philippine
Education Foundation Company where he is president.
 ISSUE: WON Aruego can be held liable by the petitioner although he signed
the supposed bills of exchange only as an agent of Philippine Education Foundation
Company.

 HELD: Yes. Aruego did not disclose in any of the drafts that he accepted that
he was signing as representative of the Philippine Education Foundation Company.
Aruego contends that he signed the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where he is president. Section 20 of the
Negotiable Instruments Law provides that "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 filing a representative character, without disclosing his principal, does not
exempt him from personal liability." An inspection of the drafts accepted by the
defendant shows that nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation Company. He merely signed
as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose
his principal, Aruego is personally liable for the drafts he accepted.
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.
Non-Delivery of Complete Instrument (Section 16)
 

PRESUMPTION: 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.

REQUIREMENTS:  Every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of giving effect thereto.
There must authority to deliver.

PERSONAL DEFENSE: As between immediate parties and remote parties who are not
holders in due course, it may be established that there was no delivery at all of the
complete instrument, but as to holders in due course, this defense shall not prevail
because as to him, the delivery is conclusive.
Conditional Delivery of Complete Instrument
(Section 16)

PRESUMPTION: 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.

PERSONAL DEFENSES:
1.    It  wasn’t  delivered  either  by  or  under  the  authority  of  the  party making, delivering,
accepting or indorsing the instrument 
2.    It was for a conditional purpose. 
3.    It was for a special purpose only.

However, the delivery is conclusively presumed and unconditional and for the purpose of transferring
title with
Rules on delivery of negotiable instruments:

1)    Delivery is essential to the validity of any negotiable instrument

2)    As between immediate parties or those is like cases, delivery must be with intention of passing title
3)    An instrument signed but not completed by the drawer or maker and retained by him is invalid as to
him for want of delivery even in the hands of a holder in due course
4)    But there is prima facie presumption of delivery of an instrument signed but not completed by the
drawer or maker and retained by him if it is in the hands of a holder in due course. This may be rebutted
by proof of non-delivery.
5)    An instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due
course, delivery to the agent or custodian is sufficient delivery to bind the maker or drawer.
6)    If an instrument is completed and is found in the possession of another, there is prima facie
evidence of delivery and if it be a holder in due course, there is conclusive presumption of delivery.
7)    Delivery may be conditional or for a special purpose but such do not affect the rights of a holder in
due course.
REAL DEFENSE OF MINORITY

Sec. 22 Effect of indorsement by an infant or a 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.
The provision explicitly provides that an infant may incur no liability considering
the fact that an infant/minor has no capacity thereon to sign or indorse an
instrument. This provision in the Negotiable instruments law is in conformity or is
interwoven by pertinent provisions provided for in our Civil Code and our Revised
Penal Code which removes the liability of minors.
New Civil Code:
"Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors (There are no more unemancipated minors because of
the repealing of Art. 399 by the Family Code of the Philippines. Unemancipated
minors are now just considered minors)“

The civil code in effect determined that the capacity to contract of a party is an
essential element of a contract, it is an indispensable requisite of consent, in this
case a minor.
However, it was held in Braganza vs. Villa Abrille, the minors were
held liable in the amount they profited in a contract of loan.

Facts showed that Rosario Braganza and her sons loaned from De Villa
Abrille P70,000 in Japanese war notes and in consideration thereof,
promised in writing to pay him P10,00 + 2% per annum in legal currency
of the Philippines 2 years after the cessation of the war. Because they
have no paid, Abrille sued them in March 1949. The Manila court of first
instance and CA held the family solidarily liable to pay according to the
contract they signed. The family petitioned to review the decision of
the CA whereby they were ordered to solidarily pay De Villa Abrille
P10,000 + 2% interest, praying for consideration of the minority of the
Braganza sons when they signed the contract.
ISSUE: Whether the boys, who were 16 and 18 respectively, are to be bound by the
contract of loan they have signed.

HELD: The SC found that Rosario will still be liable to pay her share in the contract
because the minority of her sons does not release her from liability. She is ordered
to pay 1/3 of P10,000 + 2% interest. However with her sons, the SC reversed the
decision of the CA which found them similarly liable due to their failure to disclose
their minority. The SC sustained previous sources in Jurisprudence – “in order to
hold the infant liable, the fraud must be actual and not constructive. It has been
held that his mere silence when making a contract as to his age does not constitute
a fraud which can be made the basis of an action of deceit.” The boys, though not
bound by the provisions of the contract, are still liable to pay the actual amount
they have profited from the loan. Art. 1340 states that even if the written contract
is unenforceable because of their non-age, they shall make restitution to the extent
that they may have profited by the money received. In this case, 2/3 of P70,00,
which is P46,666.66, which when converted to Philippine money is equivalent to
P1,166.67.
Revised Penal Code:
"Art. 12. Circumstances which exempt from criminal liability. - The
following are exempt from criminal liability:
2. A person under nine years of age
3. A person over nine years of age and under fifteen, unless he has
acted with discernment, in which case, such minor shall be
proceeded against in accordance with the provisions of Article 80 of
this Code.

Likewise, the Revised Penal Code also offers exemption to those

minors which would have ordinarily incurred them criminal liability.
Prescription:

 In Evangelista vs Screenex, the prescriptive period

of 10 years starts during the date inserted in the
negotiable instrument, when no date is
applicable, the issuance of the negotiable
instrument should be the start of the counting for
the prescription.
A check is subject to prescription of actions upon a
written contract. Article 1144 of the Civil Code provides:

Article 1144. The following actions must be brought

within ten years from the time the right of action
accrues:
 1) Upon a written contract;
 2) Upon an obligation created by law;
 3) Upon a judgment. (Emphasis supplied)
 "...Given the foregoing, the cause of action on the checks has become
stale, hence, time-barred. No written extrajudicial or judicial
demand was shown to have been made within 10 years which could
have tolled the period. Prescription has indeed set in.

It is a settled rule that the creditor's possession of the evidence of

debt is proof that the debt has not been discharged by payment It is
likewise an established tenet that a negotiable instrument is only a
substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment. Thus, in BPI v.
Spouses Royeca, BPI v. Spouses Royeca, we ruled that despite the
lapse of three years from the time the checks were issued, the
obligation still subsisted and was merely suspended until the payment
by commercial document could actually be realized.
 However, payment is deemed effected and the obligation for
which the check was given as conditional payment is treated
discharged, if a period of 10 years or more has elapsed from the
date indicated on the check until the date of encashment or
presentment for payment. The failure to encash the checks
within a reasonable time after issue, or more than 10 years in
this instance, not only results in the checks becoming stale but
also in the obligation to pay being deemed fulfilled by operation
of law.
 
Art. 1249 of the Civil Code specifically provides that checks should be presented for payment within a
reasonable period after their issuance, to wit:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in the abeyance.
This rule is similarly stated in the Negotiable Instruments Law
as follows:
Sec. 186. Within what time a check must be presented. - A
check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.
 
Thank you.