NIL / 4 September 2018 / Tuesday
fraud in commercial transactions. As well as from B,
As a rule, because it does not avoid the instrument in
the hands of a holder in due course, that means that the
insertion of a wrong date cannot be raised as a personal
defense against such holder. But this is only with regard
to parties who become parties to the instrument prior
to such event (insertion of wrong date). Thereafter, you
can still go after them because of the warranties that
they extended, which, in this case, that the instrument
is genuine and in all respects what it purports to be.
Give me an example:
I promise to pay X or order P10,000 today(?).
(Sgd. Y)
X ---> Y ---> A (wrong date)---> B ---> C
Here's the thing, when A negotiated it to B, B already
received it then.
Why will they give up the instrument? It has to be
because there is a ___(inaudible)___ date.
What if it was the other way around? Instead of the
instrument to be today, you place there August 16,
2018 to hasten the date of payment. What is the effect?
S: C can collect from Y since there is no other
information so C is a holder in due course, thus Y cannot
interpose the personal defense of insertion of wrong
date against C who is a holder in due course.
C can also collect from X is also subsidiarily liable. Also,
he cannot interpose the personal defense of insertion of
wrong date against C since the latter is a holder in due
course.
C may also collect from A since A is the perpetrator of
the fraud and the law does not tolerate fraud in
commercial transactions.
C can collect from B since B is the indorser and
guarantees to the former that the instrument is genuine
and in all respects what it purports to be.
Will your answer change if C knows about the defect?
S: Yes. C now will be considered as NOT a holder in due
course and he can no longer collect from Y since the
latter can now interpose the personal defense of
insertion of wrong date. C also cannot also collect from
X for the same reasons.
But C can collect from A since the law does not tolerate
because B is an indorsed; he warranted to C that the
instrument is genuine and in all respects what it
purports to be.
Is that right?
S: Not right. It would depend on whether B is a holder in
due course and C being covered by the shelter principle.
If B is a holder in due course, C not being a party to the
fraud he will be covered by the shelter principle.
So is B a holder in due course?
S: If we presume that B is a holder in due course, then C
not having any knowledge to the defect or illegality will
be covered by the shelter principle.
C will be considered what?
S: C is a holder through a holder in due course. Being
such, he may go after the prior parties.
Could there be any other reason why should A be held
liable?
If both B and C knew about the defect at the time the
instrument was to be negotiated to B, will your answer
change?
Shelter principle may no longer apply to C.
What if C knows about the defect?
C, not being a holder in due course, cannot apply the
shelter principle and go after Y. Y cannot be compelled
to pay because he can raise the personal defense of
insertion of a wrong date. Same goes for X for the same
reasons.
C can go after A and B because as indorsers, they
warranted that the instrument is genuine and in all
respects what it purports to be. Ultimately, C can go
after A, A being the perpetrator of the fraud shall be
held liable for the consequences of his actions.
If this is a bearer instrument, how would your answer
change?
SECTION 57.Rights of Holder in Due Course.
— A holder in due course holds the
instrument free from any defect of title of
prior parties, and free from defenses
available to prior parties among
themselves, and may enforce payment of
 the instrument for the full amount thereof
against all parties liable thereon.
SECTION 58.When Subject to Original
Defenses. — In the hands of any holder
other than a holder in due course,
a negotiable instrument is subject to the
same defenses as if it were non-negotiable.
But a holder who derives his title through a
holder in due course, and who is not himself
a party to any fraud or illegality affecting
the instrument, has all the rights of such
former holder in respect of all parties prior
to the latter.
Q. First situation C is a holder in due course. He can go after
- Y, because is primarily liable, and the insertion
of a wrong date is a personal defense which he
cannot set up against C, because he is a holder
in due course.
- X, cannot be held liable because he did not
warrant anything.
- A, can be held liable not because of his
warranty, but because he is the perpetrator of
the crime, and should be punish for all the
consequences of his act.
- B, can be held liable because as an immediate
transferor he warrants that the instrument is
genuine and in all respects what it purports to
be.
Q.If C, is a holder through a holder in due course will your
answer change?
- No, because C, as a holder through a holder in
due course, gets to exercise the right of a holder
in due course.
Q.If C is not a holder in due course, and B is not holder in due
course, will your answer change?
- Yes. C cannot go to Y and compel him to pay
because Y can set up the personal defense of
insertion of a wrong date.
SECTION 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.
SECTION 125.What Constitutes a Material
Alteration. — Any alteration which changes
—
(a)The date;
(b)The sum payable, either for principal or
interest;
(c)The time or place of payment;
(d)The number or the relations of the
parties;
(e)The medium or currency in which
payment is to be made;
Or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect, is a material
alteration.
According to Atty. Section 125, enumerates “material
particular”-anything which affects the liability of the parties in
an instrument, specifically that which affect the relationship
of one party to another because it still affect the liability of
the person primarily liable in relation to all other parties who
may become such in relation to the instrument.
Section 14 contemplates only of an amount. That’s the only
instance, there could be no other defect which can go along
with it. imagine if there will be an additional defect aside
from the amount not being certain, as in the case where
what is left blank is the name of the payee, true it may be
considered a necessary element to the instrument, but
then again it goes as well to the issue whether this
instrument is negotiable or not, then who will be able to
make the endorsement.
Let’s just say it’s a bearer instrument, then it goes to the
issue of delivery as well.
So, SECTION 14 should be understood as one
contemplating only of an instrument where there is a
blank portion for the amount. When it says, “In order,
however, that “any such instrument” – would refer only to
the instrument mention on the 2nd sentence.
The introductory sentence would simply tell us that if ever
there is a missing material particular, there’s always an
authority to insert or to fill out the blanks.
And then it went on to say that if however what has to be
fill out is the amount of the instrument then,
a. “it must be filled up strictly in accordance with the
authority given
b. within a reasonable time
that is how it should be understood, otherwise it will be in
conflict with the other rules of NIL.In a sense, that it has to
be another provision that will apply rather than Section 14.
- It is not just a signature that is on a blank
paper, otherwise it cannot be considered a
negotiable instruments, no words of
negotiability.
- “signature on a black paper” contemplates of
a pro forma instrument like a check, a blank
check is not just blank, there are actually
printed words there, that all you need to do is
fill out certain form.
- In Section 14 what is filled out is only the
signature of the maker, it gives the party to
the instrument the authority to fill it out.
Q. What’s the rule if the missing amount is filled out not in
accordance to the authority given and within a reasonable
time?
- It is valid and effectual for all purposes in the
hands of a holder in due course, as if it had been
filled out strictly in accordance with the authority
given and within a reasonable time.
Q. Since that is the effect, what does it tells us about
Section 14?
- That the incomplete and delivered instrument is a
personal defense, because it cannot be use against
a holder in due course. After all, it is valid and
effectual for all purposes in his hands. There is a
presumption that is filled out strictly in accordance
with the authority given and within a reasonable
time.
Q. Incomplete but delivered instrument.
“I promise to pay X or order ______.
Sgd. Y”
Y—X—A (inserted 100k)—B—C Y only
intended to pay 10k but A inserted 100
- absent any information C is presumed to be a
holder in due course, he may go after Y, and
compel him to pay because Y cannot set up the
personal defense of an incomplete but delivered
document because C is a holder in due course.
C, may go after X for the same reason as Y.
C, may also go after A and compelled him to pay,
not only because he warrants that the instrument is
genuine and in all respects what it purports to be,
but also because he is the perpetrator of the crime,
and must be punish for all the consequences of his
action.
C, may also go after B, and compel him to pay
because he warrants that the instrument is genuine
and in all respects what it purports to be
Q. If C, is not a holder in due course will your answer
change?
- No, because absent any information, B is
presumed to be a holder in due course, the shelter
principle will apply to C. C, will be considered a
holder through a holder in due course, and he gets
to enjoy the right of a holder in due course.
Q. If C and B are not holder in due course
- C, cannot compel Y to pay because since he is not
a holder in due course, Y can set up the personal
defense of incomplete but delivered instrument.
C, cannot compel X to pay, for the same reason as
Y.
A and B, can still be compelled for same reason as
in the previous question.
Q. If this is a bearer instrument
- Y can be compelled to pay, because he cannot set
up the personal defense of incomplete but
delivered instrument, C being a holder in due
course.
 A, can also be compelled to pay because he is the
perpetrator of the crime and must be punish for all
the consequence of his acts.

B, can also be compelled to pay because as an

immediate transferor he warrants that the
instrument is genuine and in all respects what it
purports to be.

Q. If C is not a holder in due course

-The answer will not change because C can be a

holder through a holder in due course who gets to
exercise the rights of a holder in due course.