HANDOUT NO.

5N

Rules under the Negotiable Instruments Law

1) Incomplete but Delivered Instrument (Section 14)

a) Holder has prima facie authority to complete the instrument;

b) Completion to be done within a reasonable time and according to the

authority given;

c) Holder in due course of the instrument previously completed in breach

of instructions can enforce the same as if regularly completed.

2) Complete but Undelivered Instrument (Section 16)

a) Between immediate parties and a remote party not a holder in due

course, delivery to be effectual must be made by or under the authority
of the maker, drawer, acceptor or indorser, as the case may be;

b) If the instrument is in the hands of a holder in due course, all prior

deliveries are conclusively presumed valid;

c) If the instrument is out of the hands of the person who signed it, a valid
and intentional delivery is disputably presumed.

3) Incomplete and Undelivered Instrument (Section 15)

a) If the completed and delivered without authority, the instrument is not a

valid contract against any person who signed before delivery.

4) Absence or Failure of Consideration

a) Absence of consideration – is the total lack of consideration, no

consideration or illegal consideration.
b) Failure of consideration – is failure of the agreed consideration to
materialize.
c) Both absence and failure of consideration are defenses personal to the
prejudiced party, and available against any person not a holder in due
course.

5) Forgery (Section 23)

a) Forgery – is the counterfeit making or fraudulent alteration of any

writing.
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b. Effect – The signature is wholly inoperative, and no right to retain the

instrument, or to give a discharge therefore, or to enforce payment thereof
against any party to it, is acquired through or under such signature.

6.) Material Alteration of Instrument (Section 124)

a) Material alteration – Any alteration which changes the date, the sum
payable, the time or place of payment, number or relation of the
parties, or medium or currency of payment, or adds a place of payment
where none is specified, or which alters the effect of the instrument in
any respect.

b) Effect – It avoids the instrument except as against the party who made,
authorized or assented to the alteration, and subsequent indorsers.

Where the altered instrument, however, is in the hands of a holder in

due course, not a party to the alteration, he may enforce payment
thereof according to its original tenor.

B–

Holder in due course (please refer to Section 52)

Rights – He may enforce the instrument and sue thereon in his own name.
He holds the instrument free from any defect of title of prior parties, free
from defenses of prior parties among themselves and he may enforce
payment of the instrument for full amount against all parties liable thereon.

Holder not in due course – is one who became a holder of the instrument
without any, some or all of the requisites under Sec. 52 of NIL.

Rights – He can enforce the instrument and sue under it in his own name.
Prior parties, however, even though remote, can avail against him any
defense among these prior parties and prevent the said holder from
collecting in whole or in part the amount stated in said instrument.

Holder for value – is one who has all the requisites for a holder in due course
except notice of want of consideration. He is not necessarily a holder in due
course; hence, prior parties may avail of defenses against said holder.
(Prudencio v. CA, 143 SCRA 596)

Source: Bar Review Materials in Commercial Law

Jorge V. Miravite, Eleventh Edition, 1998

A. Villegas