WWW NIL September 09, 2018, Tuesday by: Dominic Ong

Before we proceed to the next topic, is there any situation that you would like to
address to anyone in relation to defects?
Bluebert to Atty: Give scenario where at least there are more than one defect.

Suppose:
X issued the instrument to Y (payee) but it is incomplete in its amount, and
undelivered. Y stole the instrument. Y negotiated this to A with blank as the
amount. Suppose A negotiated it to B with the amt of 100,000, instead of the
intended 10,000, and later on to C who is a HDC. What is the ultimate liability of
Y - the 10,000 or 100,000?
It is only X that cannot be compelled to pay since real defense of incomplete but
undelivered instrument.
Y, A and B, are liable to C for they warranted that they had a good title. (no
amount stated by Atty)
A, B are further liable for the full amount of 100,000 for they warranted
genuineness in all respects in what it purports to be.
Y is ultimately liable for the 100,000, being the perpetrator.

Suppose:
X issued a bearer instrument, but left the payee blank. Instrument was issued to
Y, the intended payee. Instrument was later delivered to A, who placed his own
name as the payee. Delivered to B, and later on to C. Can C go after X, even if C
is not an HDC?
X is liable despite the personal defense of incomplete but delivered instrument
since name of the payee is not necessary in a bearer instrument.
What if this was an order instrument?
Atty: “Could it not be that the placing by A of his own name is considered as a
material alteration, because at the back of the instrument you would know who
was supposed to indorse it and then you just put the name of A when clearly at
the back of the instrument it can already be shown that it was Y who was the
payee of the instrument. A lot of things can be factored in. That’s why this should
be understood to mean only an insertion of wrong amount.”
???

Atty: Another instance that most likely a person would insert another name is
because he must have stolen the instrument so there is an issue now on non-
delivery on the issue to the insertion of a wrong payee. So what will apply is no
longer Section 14 but Section 15. Because Section 15 is not limited to just
incomplete amount – it can be to any incomplete insertion. But for Section 14, it
must be limited only to amount.

Reverse recits bec Amistad gave an example to Atty:

X issued instrument to Y (complete instrument). Y negotiated it to A. But B stole
it from A. Can it still be considered complete but undelivered instrument,
because it was stolen?
X and Y may raise the defense of complete but undelivered instrument.
Atty: The non-delivery refers to any delivery where the intention is not to make
the person receiving it as a “holder”. So, in this case, the instrument was stolen
by B from A, then there really was no delivery and all the other parties can raise
the same defenses as they are parties prior to the defect. Considering that there
is this defense of prior parties, they may raise it. Not limited solely to A. X and Y
are not precluded to raise that same defense because A really did not deliver
the instrument to B.
Atty: We proceed (to recitations). Umm Mr. Amistad…para maka baws sad ko.
What is material alteration?
It is any alteration which changes the liability of the party.
What must be altered?
Section 125.
1) The date
2) The sum payable, either for principal or interest
3) The time or place of payment
4) The number or the relations of the parties
5) The medium or currency in which payment is to be made
6) 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

If the instrument says:

“I promise to pay X or order 1m.
SGD Y”
but date was changed from Aug 1 to Sep 11. Is there material alteration?
No. For it to be material alteration, it must change the liability. Date has to be one
that can change the liability.

Will Sec 124 apply, if date is necessary to the instrument or if there has been a
change in the date? Will it be Sec 124 or Sec 13 that should apply?
Section 124 if it changes liability.

Give me an example where alteration of the date will change the liability
Akeem:
I promise to pay X or order, P10,000 30 days after December 01, 2018.
Sgd Y.
Upon negotiation, one of the parties changed the date from December 01 to
November 01. So the maturity date would be hastened and thus, the liability
would be sooner, changing the liability.

What type of defense is material alteration?

Akeem: a real defense.

Do you agree? *calls Fronda

Fronda: Yes, Atty….Yes, classmates. It is a real defense. Y can raise the real
defense of material alterations however, he is still compelled to pay based on the
original tenor of the instrument (Dec 01), if HDC.

If not HDC – No payment in both instances.

Atty: Sec 124 or 13, same effect. Sec. 124 – refer to the original tenor of the
instrument (Dec 1), if altered date. But ordinarily, Sec 124 refers to changes in
the amount of instrument.

Distinguish Sec 124 from Sec 14.

Fronda: Sec 14 is pro forma instrument, and amount is in blank, and intention to
make it a negotiable instrument. In this case, there is an amount but there is
physical alteration in the amount by a stranger or subsequent indorser.

How can it be justified that insertion will only be considered a defense if it

exceeds the authority granted. Is that not the same as when you alter the
amount? Whats so special in a blank instrument and one who has already an
amount? Why should the rule change if there’s already an amount placed
thereon, as to when there’s no amount placed?
Fronda: In Sec 14, although the amount is in blank, the subsequent holder has the
prima facie authority to complete it. In Sec 124, if altered without the assent of
parties liable, the instrument is deemed void.
Atty: it is actually to maintain the integrity of instrument. There has to be a more
stringent rule when you change an instrument as to when you just add something
that is missing. Otherwise, if you don’t make it as stringent, then any party may
just insert an amount there and rely on a lesser rule (Sec 14). Lesser in the sense
that if you just happen to be a holder through a HDC. There’s still a possibility that
you can enforce the instrument for the whole amount. In material alteration, you
cannot enforce the instrument at its altered amount but only on the original
tenor.

Sec 14 – no amount placed.

Sec 124 – there’s an amount but altered.

Atty gave an illustration:

BoE:
“To X:
Pay A or order P10,000.
Sgd. Y.”

-End-