Negotiable Instruments Notes: Form and Interpretation (Sec. 17 - 23)

*Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;   (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;   (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;   (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;   (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;   (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;   (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. (solidary)


*Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. 

*Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency. 
  • GR: signature does NOT appear = NOT liable

  • EX:

  1. Where a duly auth (oral or written) agent signs for a person, principal - liable (right to collect does NOT include indorsement)

  2. Forger is liable (Sec. 23)

  3. Allonge (paper attached separate from the instrument) (Sec. 134 and 135)

  4. Where a person uses an assumed or trade name = his signature  (Sec. 22)

*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.
  • Req for agent to escape liability (missing 1 = liable)

  1. duly auth

  2. add words to his signature indicating that he signs as an agent on behalf of a principal or in representative capacity (NOT sufficient that it is trustee, administrator or guardian)

  3. disclose his principal (need NOT be in signature)

  • NOT applicable to gov't officers - neither he nor the gov't is bound

*Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.
  • procuration = warning limited authority

    • Example

      • Principal name, Per Procuration: Agent name

      • Principal name, Per Proc.: Agent name

      • Principal name, PP/Pp.: Agent name

*Sec. 22. Effect of indorsement by infant or 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.
  • GR: Minor or corp. (or other incapacitated i.e. lunatics and imbeciles) CANNOT give consent to contracts = VOIDABLE (ultra vires)

  • EX: can indorse and it can be enforced against the maker or acceptor or other parties prior to the minor corp.

*Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. 
  • Forgery - CANNOT be presumed

    • counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another's name, or the alteration of an instrument in the nam, amount, descruption of the person and the like, with intent to defraud

  • Sec 23: applies only to forged SIGNATURES (NOT amount Sec. 124) w/o auth of the person who it purports to be

  • Kinds of fraud amounting to forgery - real defense

  1. fraud in factum or fraud in esse contractus - no intetion to issue an instrument

  • diff. from: fraud in inducement - personal defense only -there is an intention to issue an instrument

     2.  duress amounting to forgery (NOTE: duress NOT amounting to forgery = personal defense)
     3. fraudulent impersonation in certain cases (misrepresented himself to be someone else)
  • Double intent

    1. intend to make the instrument payable to the person bef. him or to the person writing at the other end of the line, in case the negotiation is by correspondence

    2. intends to make the instrument payable to the person whom he believes the stranger to be

  • Basis: theory of actual intent and theory of estoppel - drawer bears the loss

  • Rule qualified where impostor represents himself as agent of payee

    • doctrine of actual inent does NOT apply

    • loss: drawee or purchaser and NOT the drawer

  • Admission of genuiness and due execution -  one who bears his signature admits

  1. he signed it or that it was signed by another for him w/ his auth

  2. at the time it was signed, it was in words and figs exactly as set out in the pleading of the party relying upon it

  3. any formal requisites required by law such as swearing and acknowledgment or revenue stamp w/c it requires are waived by him

  • Defenses cut off by admission of genuineness etc (failure to make a verified specific denial)

  1. the defense that the signature is a forgery

  2. that it was unauth. as in the case of an agent signing for his principal, or 1 signing on behalf of a partnership or a corp. or that in the case of the latter, that the corp. was NOT auth under its charter to sign 

  3. Party charged signed the instrument in some other capacity than that alleged in the pleading setting it out

BUT defenses or new matters w/c are NOT inconsistent w/ the exec. and genuineness of the instrument may be made such as:
  • payment

  • statute of limitation

  • compromise

  • illegality or want of consideration

  • fraud

  • estoppel

  • coercion

  • imbecillity

  • mistake

  • Failure to identify the instrument will NOT necessary defeat the claim

  • Effect of forgery in general (Sec. 23)

    • GR:  signature forged or made w/o auth = wholly inoperative

      • NO right to retain the instrument, or to give discharge thereof, or to enforce payment thereof against any party 

    • EX:   can give discharge therefor or to enforce payment thereof

      • As against party precluded from setting up the forgery or w/o auth

  • Extent of effect of forgery

  1. Only the signature forged or made w/o auth is stated by law to be inoperative (NOT instrument itself nor the genuine signature) -w/ right of recourse against the forger

  2. The instrument can be enforced by holders to whose title over the instrument the forged signature is NOT necessary (i.e. those indorsed in blank or payable to bearer) - as long as complete bef. delivery

  3. can be enforced as against party precluded from setting up the forgery or w/o auth even against those whose signatures are forged - 2 classes - those who:

    1. warrant or admit the genuineness of the signature in question 

      1. indorsers (qualified and general) (sec. 65 and 66)

      2. persons negotiating by delivery

      3. acceptors

    2. are precluded from setting up the defense of forgery by their

      1. declaration

      2. acts

      3.  

        1. omission/silence (unreasonable delay in giving notice of forgery) or 

          1. unreasonable delay (relative)

          2. one who apprised of the forgery must be prejudiced

        2. negligence (negligence in delivery)

  • Cases of forgery

    • Forgery of PN

2.           forgery of an indorsement in the note
3.           forgery of the maker's signature
    • Forgery of bills of exchange 

    1. forgery of an indorsement on the bill

    2. forgery on the drawer's signature

      1. w/ acceptance of by the drawee

      2. w/o such acceptance but the bill is paid by the drawee

        • drawee -liable for negligence or estoppel

  • Liabilities

    • indorsement

      1. necessary

        • signature forged and prior parties to him CANNOT be held liable

        • forger no right as against prior parties

      2. not necessary (bearer)

        • signature forged and prior parties to him can be held liable

    • maker's signature forged - maker CANNOT be held liable

    • drawee pay's forged instrument - CANNOT reimburse from drawer

      1. reason: 

        • absolute and contractual duty to those made payable by genuine indorsement

        • bound to scrutinize checks to determine genuineness and regularity

      2. CANNOT relieve himself from the amount of care exercised

      3. drawer CANNOT recover from the collecting bank damages bec. drawee only liable to the payee

      4. drawee can recover from the collecting bank

      5. payee can recover from the recipient (collects upon an unauth or forged indorsement)

      6. collecting bank is liable to payee regardless whether the instrument was delivered to payee (for convenience of shortcut)

      7. payee CANNOT recover from drawee bec. payee only has action against the bank which it is drawn UNLESS the check has been certified or accepted 

  • conversion - unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or exclusion of the owner's right

  • payment is NOT equal to acceptance (promise to pay in the future)

  • mere possession of forged document = NOT guilty

  • depositor's (drawer) duty 

    • does NOT extend to determine genuineness and regularity

    • negligence NOT to provide adequate security measures - precludes him

    • failure to prompt bank recon = negligence

    • notice inaccuracies or forgeries w/in reasonable time - otherwise: negligence

    • stolen-GR: NOT guilty

  • payee who assits in fraud - NOT allowed to keep the proceeds

  • Doctrine of comparative negligence bet. drawee and paying bank

    • constructive negligence of the drawee bank

    • actual negligence of the paying bank -  enforce precaution, identification,determine genuineness

  • Doctrine of comparative negligence bet. drawee and paying bank

    •  

    • constructive negligence of the drawee bank

    • actual negligence of the receipient

  • drawer and payee signature are forged = bearer instrument

  • Forgery of sign. in inst = falsification of priv doc

  • swindling or estafa by signature (RPC)

    • Forger need NOT imitiate genuine signature

  • where payee is an imposed, debtor still liable to the real creditor