Commercial Law Review Transcription of Lecture by Atty. Minda C.

Gapuz PLM College of Law November 12, 2011

Well this subject is composed of so many laws. You have negotiable instruments law, you have transportation law, corporation law, insurance law, banking laws, revised securities act, intellectual property and then the small laws. For small laws we have trusteeship law, letters of credit, well the banking laws are so many, Chattel mortgage law, real estate mortgage law. We will first tackle the big laws. There are 7 of big laws. Well dont worry we will finish before the end of the semester. Thats why we have to budget our time for Nego, we have 2 meetings only, for transpo: 1 meeting only, for insurance: 2 meetings, for corporation marami ito we shall have 3, banking laws: 1, Revised securities act: 1, intellectual property code: 1, we have 11 Saturdays. Can you check your calendar kung kelan yung pang 11? You remove the holidays. Dont include today. When will that be? February 11. When are the final exams? March 10. Okay so we are within the schedule because the rest will be devoted to small laws and special laws related to commercial laws. Okay first subject we shall tackle before transportation is negotiable instruments law. In the meantime, I will give you a syllabus of the 3 subjects. Kaya lang this is not really a syllabus. These are my notes of the subjects. These are the important features of the 3 subjects. You take care of the rest. You must have a codal. Vol 1 and 2 of Commercial Law. Just the codal. You know why because of the multiple choice. But you should not be absent because during my lecture, in my examples and discussion I will be discussing some decisions of the Supreme Court. My examples are lifted from decisions of the SC. Talaga yung secretary ko mahilig sa text. Anyway bahala na kayo mahilig naman kayo sa text eh. Well these notes does not mean na eto lang pagaralan nyo. I just gave the important features of the subject which you should remember but it does not mean that these are what you will only study. Kaya nga I said you should have a codal. Well since you are my students you already know my style: Recitation, Lecture, Exams, Surprise Quiz. During recitation, close notes. Nobody will open notes or books. Okay for now pagbigyan ko kayo although I gave you an assignment. Who was your professor in Nego? You po. Lahat ba kayo? Yes. Eh di na natin idiscuss. Transcribed by: JMQuibolen Okay reminder na lang. I emphasized Sec 1 which you should memorize from the very beginning. You should memorize that because now there are so many commercial documents. And the negotiable instrument is one of them. There are so many commercial documents and you may not be able to determine whether this is negotiable or not, that is why you have to memorize Sec 1 because these elements are concurring. Meaning, the absence or defect of one element would render the instrument nonnegotiable. And if you recall our discussions before there are so many commercial documents, you have credit cards, letters of credits, warehouse receipts, treasury bonds. These are not negotiable instruments although they are commercial documents and valid contracts also. So that all negotiable instruments are contracts but not all contracts are negotiable instruments. Because of that you have to apply Sec 1 because negotiable instruments are commonly and widely used now because of its convenience and the ease of transferring. The words negotiable makes that instrument very easy to transfer by indorsement lang. So for other contracts, contracts can also be transferred from one person to another kaya lang you have to execute a separate document or deed or separate contract to transfer that contract like deed of assignment, deed of sale, deed of donation. So there are so many kinds of deeds to transfer a contract. But if it qualifies as a negotiable instrument because all the elements of Sec 1 are present, then the mode of transferring that would be by simply by indorsement. Although there are many kinds of indorsement which we have discussed before but the fact that indorsement is one of the modes of transferring of instrument, there is a need for the transferor or indorser to sign that in order that the indorsee has the right to retain it or enforce it against prior parties and has the right to be given discharge of the instruments. Okay that is the beauty of negotiable instruments, the accumulation of several contracts and how will you accumulate? By the mere indorsement that is already accumulation of contract because when you indorse a negotiable instrument there is an agreement between you and the transferee or indorsee. It is

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Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
very important that you memorize Sec 1.1 Remember that these are concurring elements such that in a multiple choice, supposing the elements are there. The following are requisites of a negotiable instrument: a, b, c, d, e, any of the above or all of the above. Alin any of the above or all of the above? All of the above kasi concurring, all must be present hindi pwede yung any of the above. So, there are 2 general classifications of negotiable instrument, you have the negotiable promissory notes and negotiable bills of exchange. I specified negotiable because a PN could also be a valid contract but not negotiable. So what makes it non-negotiable. Supposing you failed to pay your tuition fee and the school would require you to execute a PN. It is a very simple PN: I promise to pay PLM or order the sum of P21,000. Sgd. Negotiable or not? Answer: Negotiable. The fact that it did not state whether it is payable on demand or at a fixed determinable future time, that is considered as payable on demand.2 Because under Sec 7 the fact that it is not dated or does not specify the date when it is to be paid, it is still payable on demand or the owner can always insert the true date of issue or indorsement, that will not render the instrument not negotiable. It would be otherwise, if I promise to pay PLM P21,000. That is not negotiable but it is a valid contract between you and PLM. I would like to emphasize that. If you recall our study before, negotiable instruments are only substitutes for money, these are not legal tender and the Civil Code and even Banking Laws provide that obligations should be paid in Philippine currency and no person can be compelled to accept a PN, a BE or any negotiable instrument. You cannot be compelled to accept. Eh bakit pa natin pinagaaralan? Because it is now widely accepted or used and very convenient to use as a substitute for money. Anyway, when the instrument matures, you can now proceed and present it to the principal and have it paid. Well this very old. Older than the first constitution. 1911. Matandang matanda na itong law na to that is why I discussed it first. And yet it is widely used and there are so many controversies regarding its usage and thats why the SC is replete with cases regarding negotiable instruments. So like bouncing checks. Checks are special BE. Now if you know how the checks operate, all negotiable instruments are also transacted that way. The only difference is that a check has limited indorsement because banks do not allow 2nd indorsement except for valued clients. So checks being negotiable instruments have limited negotiation but for other negotiable instruments they can be transferred so many times even 100 times especially if the instrument is payable to bearer because it does not need indorsement, so the transfer, the negotiation would be more than what you expect because it is a substitute for money. Well our Philippine peso is legal tender, however, it is also a PN, payable to bearer. If you read what is written in your Philippine bill, ang salaping ito ay bayarin ng bangko sentral. So it is a bearer PN of the Bangko Sentral, the negotiation or transfer is by mere delivery. Pinipirmahan ninyo ba yung peso pag itransfer nyo? Di ba it is a bearer instrument. You dont transfer by indorsement bawal pa ngang sulatan yang bill nay an eh. Now if the state decides later on to demonetize the Philippine peso or to change our legal tender into Philippine dollar, you will surrender your bills and these will be paid by Bangko Sentral through the commercial banks. Because that is a bayarin ng Bangko Sentral, a PN of the Bangko Sentral. Well you can make your own negotiable instrument that is why there are not so many forms of negotiable instruments, you can make your own because Page 2 of 8

Sec 1: Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: a. It must be in writing and signed by the maker or drawer; b. Must contain an unconditional promise or order to pay a sum certain in money; c. Must be payable on demand, or at a fixed, or determinable future time; d. Must be payable to order or to bearer: and e. When the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. 2 Sec 7: When payable on demand. An instrument is payable on demand: a. When it is so expressed to be payable on demand, or at sight, or on presentation, or b. In which no time for payment is expressed. Where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person so issuing, accepting or indorsing it, payable on demand.

Transcribed by: JMQuibolen

Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
you just comply with the requisites and that is a negotiable instruments as long as you comply with the requisites If you recall again there are more negotiable instruments in circulation than our Phil peso or legal tender. Do you believe that? Yes. There are more NI in circulation that the Phil peso. Okay just to give you 1 example, if you buy a car, lets say 1M. You just made a downpayment of 100,000. The balance in installments, 5 yrs, 3yrs or 2 yrs depende. So the dealer would ask you to sign a 2-page PN. And if you examine carefully the document you sign, it is a NI. Hindi naman ilalagay dun na negotiable PN. Nakalagay lang dyan PN. It will not state whether it is negotiable PN or not but you have to read carefully kung negotiable ba to or hindi thats why you need Sec 1 although there are many negotiable instruments. Bonds for example, bonds issued by the Bangko Sentral, bonds issued by big corporations. Bakit bonds? These are modes of generating capital for a certain corporation. Corporation issues bonds. The public will not be induced or enticed by bonds kung hindi naman attractive yung return of investments like yung interest. So if the interest is big enough, you will be enticed to buy bonds like bonds of the Bangko Sentral. Even bonds issued by big companies like San Miguel, Petron, Shell, mining companies, they are issuing bonds and these bonds are PNs. So nakalagay lang dyan bonds but if you read the contents of these bonds they are negotiable PNs. Nakalagay dyan I promise to pay _____ or holder. Well its not as simple as what is written in text. But in actual practice mahahaba yung nilalagay dun. May nakalagay na interest, penalties, escalation clauses, collateral, additional collateral. In fact, if you have signed already a negotiable PN for the balance of your installment, some companies would actually require you to issue post-dated checks, di negotiable instrument na naman yan. Kaya for a 1M car, you only paid 100,000, the balance is PN. O di ba mas malaki, there are more NI in circulation than the legal tender. House and lot, ganun din. You buy condominium ganun din. Definitely you will be asked to sign something. And that something is a PN, and that PN is negotiable. Thats why all transactions need not be settled in Phil currency or peso because of the use of NI, we are accepting NI as a mode of paying your obligation, although the civil code or Transcribed by: JMQuibolen banking laws, that you cannot be compelled to accept NI to pay your obligations although if you recall again there are decisions of the SC also which stated that in case of foreclosure of mortgage, if you have a loan and secured by a REM, when you are in default or unable to pay your loan, the bank will foreclose and the bank will sell your property. Buyers will now become the owner it and you exercise your right to redeem and you have 1 yr to redeem your foreclosed collateral w/in 1 yr from the date of the sale. You can still buy back that property by paying whatever your obligations with the bank. So if you tender a check, sabi ng SC, when a mortgagor redeems his property and tenders a check to redeem a property, where the Lower Courts denied the check as a tender of payment because the lower court that no person can be compelled to accept a check and all obligation must be paid in Phil currency so sabi ng Lower Courts hindi pwede yan, there are laws that provide that all obligations must be paid in Phil currency. To make the long story short, when appealed to SC, anong sbi ng SC. IT reversed the LCs decision because the tender of a check is only a mode to exercise a right to redeem. So the check was not used as payment of obligation. It is only being tendered for purposes for exercising the right under the law and that is the right to redeem. So be careful with this. Now the words Order or Bearer. Take note that these are actually the most important elements although as I said concurring elements, but these are most important elements because these are words of negotiability. Meaning, without these you cannot transfer the instrument by negotiation. The technical word negotiation means you transfer that by indorsement + delivery or if payable to bearer by mere delivery. Thats why these are very important in order to determine how will you transfer that instrument from one person to another. And in solving problems regarding forgery, the words order or bearer are very important. So we discussed before what forgery means and remember that the rule on forgery is found

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Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
under Sec 233. And remember that in the case of forgery, it makes that signature wholly inoperative. Meaning, only that signature, not the instrument, it does not render the instrument wholly inoperative. Anong ibig sabihin ng wholly inoperative? It is void against that person. It does not make the instrument void, it is only void as to that person whose signature was forged. So because of that forgery is a real defense of a person whose signature was forged. It is a real defense of anybody whose liable in that instrument whether that person is primarily liable, secondary liable. So how was it negotiated, how was it transferred. Was it an order instrument or a bearer instrument? Because that will determine how the instrument will be transferred and it will also determine the liability of the different parties. So the most important stage of a life of NI is in fact, negotiation. Kaya nga negotiable instruments. That is the lifeblood of a NI. So we mentioned about forgery. What is that? What is forgery? How about alteration? Is forgery same with alteration? Well forgery applies only to signature, the counterfeiting, simulation of signature while alteration is simulation or counterfeiting the material particulars of the instruments and these are the amount, date, interest, currency, all these, material particulars that changes the effect or terms of the instrument. So forgery applies only to signatures, alteration to material particulars of the instrument. Remember the word: wholly inoperative. So that if the signature is forged like supposing Maria issued a PN, I promise to pay X or order 1M pesos, Sgd Maria. If the signature of Maria is forged but it appears that her signature was signed but that is not her real signature because somebody forged it. Since this is payable to order X can transfer this instrument by indorsment. Supposing may
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utang si X kay A. So X transferred it to A, A eto na yung pambayad ko sa utang ko. Indorsed to A, Sgd X. And A further negotiated it to B and then to C. C now is the holder. Can C compel or demand payment from Maria if C is a holder in due course under Sec 52? Under Sec 524, who is a holder in due course? You have to memorize this just like Sec 1 because in answering problems. Well you will not be asked who is a holder in due course. You will not be asked that simple question. But along the line you will be asked ano ba to holder in due course ba ito? First, that it is complete and regular; Second, that he took it in good faith and for value, meaning there was a transaction and in that transaction you offer something at ano ba yung something nay un, you offered a NI as a payment or consideration of that transaction so it could either be for an account or a value, for account maybe for payment of an existing obligation, for value maybe may binili ka sa kanya or for exchange of something. So there is a consideration always. So you took it in good faith or for value. But remember that all holders are presumed to be holders in due course. There is a presumption. Like a person, presumed innocent until proven guilty. Ganon din, all holders are presumed holders in due course unless proven otherwise. So you must be a holder of the instrument which is complete and regular in its face, nung binigay sayo kumpleto yan. It was signed, it was filled up, all the material particulars are filled up, so it is complete or regular on its face. That is not overdue, tignan mo yung date di pa ba yan overdue? But kung nakalagay dun Oct 15, 2011 ang date and you still accepted that instrument despite the fact that it is overdue, you are a holder not in due course but it does not mean that you cannot collect. You can still demand a payment for that instrument kaya lang it will depend to that person if he will pay you or not.
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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 therefore, 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.

Sec 52: What constitutes a holder in due course. A holder in due course is a holder who was taken the instrument under the following conditions: (a) That it is complete and regular upon its face: (b) That he became the holder of it before it was overdue, without notice that it has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Transcribed by: JMQuibolen

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Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
And he can always interpose that no I will not pay you because you are a holder not in due course. Something like that. Now, in the case of a check, if you accepted a check that is overdue, remember that a check has a life of 6 months only. So, nakita mo yung date doon Jan 15, 2011. And despite that you accepted it, overdue na. Again you are a holder not in due course. Can you demand payment of that instrument? Of course not, because it is a stale check. But it does not render your obligation null and void, it will only render the instrument null and void. May utang ka pa rin. It only discharges that instrument because it is overdue. Try to deposit it to a bank, it will be dishonored. Tatakan nila ng stale check so di ka mabayaran but the obligation on the transaction is still there, it will not discharge your obligation to pay, valid naman yung transaction. It only discharges that particular instrument. Alright so that you are not aware of any defect or infirmity of the instrument. Eh kung sabihin ni C na hindi ko naman alam na forged yung signature ni Maria dahil inindorse lang sakin ni B yan eh pinambayad nya ng utang sakin. Anong malay ko na forged signature ni Maria. He who alleges or if Maria alleges that No I will not pay you because you are not a holder in due course. You prove that he is really not a holder in due course. Who proves it? Maria. If she can prove it then Maria is not liable. But in the case of forgery. Forgery is a real defense. It is a real defense on the person liable against everybody, against the whole world. So whether holder in due course ka or not, against the whole world. So he is not liable to anybody. Why? Because it lacks the very essential element of a valid contract, which is consent. The fact that this is forged, she did not meant to be bound by that instrument. Whoever is the holder, she can interpose that real defense against anybody. Okay but supposing that this signature is genuine (Marias signature) (Pay to XX or order 1M pesos, Sgd Maria), X here is the original payee but A may be the secretary of X ninakaw nya yung instrument na yan kasi secretary sya eh. At anong ginawa ni A, nilagay nya. Pay to A, Sgd X. She forged the signature of X and so on. Napunta kay B, napunta kay C. C is now the holder-in-due course. Again C now proceed against Maria. That signature being genuine, Transcribed by: JMQuibolen can she now compel Maria to pay the instrument? The original payee is XX and in order to indorse the instrument to her (A) finorge nya ung signature ni X. If payable to order, indorsement is necessary. Naindorse ba talaga kay A? Indorsement is necessary because it is payable to order, therefore, A here have no right to retain, enforce, give discharge to the instrument even to the succeeding parties. So C cannot enforce the instrument against Maria because it was not properly indorsed. So he had no right to retain, enforce or give discharge or even to transfer the instrument. C cannot enforce the instrument against Maria because Maria is a party prior to the forgery. So Maria, X, A, B, C ganito ang sequence nya. Signature of X was forged. Okay so again, can C proceed against X? No because my signature is forged so that signature is wholly inoperative against anybody. So this forged instrument cannot be enforced against X including party prior to the forgery. C cannot enforce the instrument against Maria even if her signature is genuine because of the CUT-OFF RULE, okay? Take note of Sec 95. When is instrument payable to bearer, okay? Would your answer be the same in this scenario? Can C proceed against Maria? No. In that case, C can enforce the instrument against Maria. In case of payable to bearer, the mode of transfer is only by delivery, even if the signature of X was forged, it is still a valid delivery. In this case, bearer, halimbawa nilagay sabi ni X, Maria wag mo na lang ilagay X or bearer nilagay na lang Pay to Cash. Sinabi nya Maria may utang ka sakin di ba? Pwede ba wag mo ng ilagay yung pangalan ko, kasi wala akong account sa banko eh pwede ba ilagay mo na lang Pay to Cash. So the same thing, payable to bearer pa rin, because the name of the payee does not purport to be the
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Sec 9. When payable to bearer. The instrument to payable to bearer: a. When it is expressed to be so payable; or b. When it is payable to a person named therein or bearer; or c. When it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable; or d. When the name of the payee does not purport to be the name of any person; or e. When the only or last indorsement is an indorsement in blank.

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Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
name of the person. Eh nakalagay nya jan pay to the order of Cash, or pay to the order of Superhero (nonexistent person). Eh may nakalagay na order so dapat indorsed. But san mo hahanapin si superhero o si Cash na pipirma na magindorse. So these persons are fictitious, they are not persons who can sign, consider that as bearer instruments para theres no problem in transferring that, di na kelanganang pirmahan. Sa movies lang meron yang mga tao. So they are inexistent so pwede ba nilang pirmahan yan. And since these are bearer instruments, indorsements are not necessary. Inindorse man ni X kay A, forged na yung signature dyan. Indorsement is not necessary kasi bearer instrument yan. No need to indorse. But in case of a check, di ba, theres such thing as clearing. 3 days clearing or theres such thing as a check being accepted. Binayaran ka ng banko, sige accepted or you must clear. Once cleared, these are accepted, meaning there is presumption that the signature of the drawer is genuine because once inaccept ng drawee bank yan it warrants the signature of the drawer kahit forged yan. Kahit naforged yan babayaran nya yung holder. So who should bear the loss? Can the bank now charged or debit the account of its depositor? Of course not. Oy bakit mo binawasan yung account ko ng 1M forged signature ko dyan. Because by acceptance the drawee warrants the signature of the drawer so he bears the loss. It cannot charged the account of its depositors. Kasalanan nya yan. Take note the relationship between of the bank and depositors is that of debtor-creditor relationships. So banks have records of specimens of signatures of its client so its in a better position to know if the signature is genuine or not. Okay but supposing, PNB is the drawee bank, kasi walng account sa PNB dineposit nya sa BDO. BDO is a collecting bank kasi dineposit ni C sa BDO. Di nya madeposit sa PNB kasi wala shang account so sa BDO nya dineposit. BDO is a collecting bank, nangongolekta sya. Check was issued by Maria. Kaya lang forged naman. There was forgery. Indorsers are secondarily liable. The collecting bank is an indorser. It indorses that to the drawee bank for collection and if you have seen a bounced check: all prior indorsements guaranteed. Who guarantees Transcribed by: JMQuibolen that? The collecting bank. It warrants all prior indorsements. So even if the signature of X is forged, because of that warranty, BDO bears the loss. Not the drawee bank because the drawee bank only warrants the signature of its clients. The collecting bank as indorsers warrants all prior indorsements so this is a prior indorsement, So forged pala signature ni X dyan, because of its warranty, BDO bears the loss. Those are the important features of forgery. Forgery is a real defense. Also in the case of Sec 156, when the instrument is incomplete and undelivered. Bat nagkagnon, incomplete na sya hindi pa nadeliver. Bakit incomplete? The material particulars are not filled up and there is no signature. Kaya incomplete and undelivered. Okay so bakit may problema eh incomplete pala and undelivered because along the line, somebody completed it and somebody delivered it. Finillup and dinilever and you are now the last holder of the instrument. Nakita mo ung instrument kumpleto na. Signed, fully indorsed, amount, signature. But you did not know as a holder that the instrument is originally incomplete and undelivered but its reached the ends of the transferee or holder who claims to be now a holder in due course. Nung binigay sakin complete and regular in its faith, that it appears to be in good faith or for value, that it is not overdue, that I am not aware of any infirmity. Is the maker liable? No. Because in his ends, it was not delivered, it was incomplete, somebody forged it, signed it for him. That is also a real defense of the person primarily liable. Real in the sense that whoever is the holder. The principal primarily liable is not liable under incomplete and undelivered instrument, although completed in the end but in the beginning it was not. So far as the maker is concerned he did not sign it. By the way, even in genuine signatures, when you were asked to sign under duress or misrepresentation, halimbawa tinutukan ka ng baril, that signature

Sec 15. Incomplete instrument not delivered. 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.

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Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
even if its signature, it is wholly inoperative because you did not intend to be bound by the instrument under Sec 23. What are the exceptions? Estoppel, gross negligence, halimbawa tinawagan ka ng banko, Sir Maam meron kang pinirmahan ditto payable sa kapatid nyo? Sige na nga bayaran na kahit finorged yung signature nya ng kapatid nya. Estopped na sya. She can no longer invoke the defense of forgery simply because of estoppel or in some cases where there is gross negligence of the drawer herself. Bakit gross negligence? Eh di ba the bank usually sends you statements of account, nakikita nyo don yung binawas sa account, she did not make any action to call the bank and ask the bank to cancel the charges against her, it took one year until the auditor discovered the forgery of her signatures. Sabin g SC, gross negligence, she received statements of account every month and yet she did not make any actions, it was only after 1 year after sinabi ng auditor sa kanya. She cannot claim the defense of forgery. Although there is one authority,di ba in corporations, the officers are designated to sign certain instruments for certain amounts, may isang officer ngayon pinirmahan nya despite the fact that he was not authorized or designated. Halimbawa si Cojuangco, chairman ng San Miguel Corp pumirma ng document ng indorsement di pala sya authorized. The signature should not be recognized because he is not authorized. As an exception later on recognized, the fact that he is a chairman, under the Corporation Law, that is the doctrine of apparent authority. It is apparent being the chairman as an exception. How about alteration? Is the rule the same under Rule 1247? Alteration is the change, simulation of material particulars like the amount, date of payment, anything that is material that may change the effect of the instrument. Will the rule in forgery be the same
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in the rule of alteration. Well the rules are different but the effect is the same. In rule 124 it says that, when the instrument is materially altered, the instrument is void insofar as those parties who did not give their consent, or assent to the alteration meaning, if you are party to the instrument, you did not participate in the alteration or you are not aware or you did not give your consent to the alteration, naturally, you are not liable. But if you gave your consent or you are the one who altered it or participated in the alteration, of course, you are liable. That is the meaning of the rule of alteration. However, if the holder is a holder in due course, he can enforce the instrument according to the original tenor of the instrument. If the instrument is 1M pesos and the payee altered it ginawa nyang 7M pesos and negotiated further, syempre yung holder di na nya alam kung sinong nagalter. The rule in case of HIDC, again apply Sec 52, that holder is entitled to the original tenor. What is the original tenor? 1M. So entitled sya dun sa maker ng 1M pesos, otherwise, not entitled to anything because that instrument is void insofar as the parties who did not give consent to the alteration. Ganun din sa forgery di ba? In forgery, the person whose signature is forged, that signature is wholly inoperative. In alteration, the person who did not give consent, did not participate, did not know, the instrument is void against him, o di wholly inoperative din against him. The only difference there is if the holder in due course, original tenor. In forgery kahit na sino. When the instrument is payable Nov 12, 2011. You are the holder of the instrument, what will you do? Presentment for payment. You present the instrument to the person primarily liable. What is the purpose of presentment for payment? To charge persons secondarily liable hindi primarily liable. Because yung primarily liable, primarily liable sya eh so that you can proceed to those secondarily liable you present for payment. If presentment for payment to primarily liable is not honored, you proceed to those secondarily liable. You do that for purpose of charging persons secondarily liable. Meaning if the instrument is matured and kung kapitbahay mo si Henry Sy and he is one of the indorsers. The party primarily liable is Juan dela Cruz and you know very well that Juan dela Page 7 of 8

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and 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.

Transcribed by: JMQuibolen

Commercial Law Review Transcription of Lecture by Atty. Minda C. Gapuz PLM College of Law November 12, 2011
Cruz cannot pay you. Pumunta ka kay Henry Sy na kapitbahay mo. It discharges all parties secondarily liable. Your duty is to present first to the person primarily liable, that is the physical production of the instrument, in order for him to examine. Ito be yung instrument, ito ba yung pirma ko. Kung hindi naman you can now exercise your recourse against those secondarily liable.

Transcribed by: JMQuibolen

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