III.

COMPLETION AND DELIVERY OF INSTRUMENTS

A. PRELIMINARIES: CONCEPT OF A HOLDER AND A

HOLDER IN DUE COURSE
1.

What is a Holder? Sec. 51

Sec. 57. Rights of holder in due

course. A holder in due
course holds the instrument
free from any defect available
to
prior
parties among
themselves, and may enforce
payment of the instrument for
the full amount thereof against
all parties liable thereon.

Sec 51.Right of holder to sue; payment. The holder of a

negotiable instrument may sue thereon in his own name;
and payment to him in due course discharges the
instrument.
a.

Meaning of a holder

Holder means the payee or indorsee of a bill or note who

is in possession of it, or the bearer thereof (Sec. 191, par.7.)
entitled to receive the sum for which it calls.

The payee refers to the person to whom the instrument

was originally issued by the maker or drawer, while the
indorsee, to the person to whom the instrument was
negotiated by indorsement and/or delivery. Thus, the
term holders includes not only persons possessing bearer
instruments but also payees and indorsees possessing
order instruments. (De Leon)
b.
1.
2.

Sec. 51
Sec. 26. What constitutes
holder for value. Where value
has at any time been given for
the instrument, the holder is
deemed a holder for value in
respect to all parties who
become such prior to that time.
-

3.

Classes of Holders

Holders
simply
Holders for
value

Holders in due
course

One who has given a

valuable
consideration for the
instrument
Holder is deemed as
such not only as
regards the party to
whom value has been
given by him but also
in respect to all those
who became parties
prior to the time
when
value was
given.
Sec. 52. What constitutes a
holder in due course. A holder
in due course is a holder who
has 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,
and without notice that it
had
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.
-

Bona fide holder

Bona fide holder for
value without notice

He
takes
the
instrument free of
most defenses, or
adverse claims to it by
other parties.

c.

Shows
the
commercial
importance of due
course holding.
Principles of public
policy, with regard to
the
utility,
free
circulation, and credit
of negotiable paper in
the commercial world
Protection of holder
in due course as an
estoppel

Rights of a holder in general

(1) To sue
(2) To receive payment
Payment in due course (if, then instrument is
discharged) payment made at or after the
maturity of the instrument to the holder thereof
in good faith and without notice that his title is
defective. (Sec.88)
2.

What is a Holder in Due Course? Sec. 52

a. What constitutes a Holder in Due Course?

Sec. 52. What constitutes a holder in due course. A holder

in due course is a holder who has taken the instrument
under the following conditions:
(e) That it is complete and regular upon its face;
(f) That he became the holder of it before it was overdue,
and without notice that it had been previously
dishonored, if such was the fact;
(g) That he took it in good faith and for value;
(h) 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.
b.

When is a holder presumed as a Holder in

Due Course? Sec. 59

Sec. 59. Who is deemed holder in due course. Every holder

is deemed prima facie to be a holder in due course; but when
it is shown that the title of any person who has negotiated
the instrument was defective, the burden is on the holder
to prove that he or some person under whom he claims
acquired the title as holder in due course. But the last
mentioned rules does not apply in favor of a party who
became bound on the instrument prior to the acquisition
of such defective title.
-

3.

Arises only in favor of a person who is a holder

Holder means the payee or indorsee of a bill or
note, who is in possession of it, or the bearer
thereof (Sec.191)
Cases:

De Ocampo vs. Gatchalian, 03 SCRA 596

Yang vs. CA, G.R. No. 138074, August 15,
2003.
Mesina vs. IAC, 145 SCRA 497.

B.

INCOMPLETE BUT DELIVERED INSTRUMENT Sec. 14

Sec. 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.
Steps in issuance of negotiable instrument
(a) Mechanical act of writing the instrument
completely and in accordance with Sec. 1; and
(b) The delivery of the complete instrument by the
maker or the drawer to the payee or holder with
the intention of giving effect to it.
1.

Authority to complete the instrument

Rules:
(a) Authority to fill up the blanks
i.
Holder/person in possession
ii.
Material particular any particular
proper to be inserted in a negotiable
instrument to make it complete
iii.
Authority to complete is not authority to
alter. Neither may authority be
presumed, unless the character of the
instrument directly indicates it, to add at
the end of the instrument the words
with interest.
(b) Authority to put any amount
i.
If a blank document is delivered by the
person making the signature, the holder
has prima facie authority to fill it up for
any amount if the person making the
signature intended to convert it into a
negotiable instrument.
ii.
The person who signed his name has the
burden to rebut the presumption.
iii.
reasonable time reckoned from the
time of the issuance of the instrument
(because the interest involved is that of
the issuer, and not from the time of each
successive negotiation)
2.

Rights of a Holder in Due Course

The defense that the instrument had not been filled up in

accordance with the authority given and within
reasonable time is not available as against a holder in due
course.
Sec. 14 merely raises a personal defense.
Principle that where one of two (2) persons must
suffer by the bad faith of another, the loss must
fall upon the one who first reposed confidence
and made it possible for the loss to occur.
3.

ii.
iii.

4.

making the signature intended to convert it into a

negotiable instrument.
The person who signed his name has the burden
to rebut the presumption.
reasonable time reckoned from the time of the
issuance of the instrument (because the interest
involved is that of the issuer, and not from the
time of each successive negotiation)
Cases:
Alvin Patrimonio vs. Napoleon Gutierrez &
Octavio Marasigan III, G.R. No. 187769, June
4, 2014.
John Dy vs. People of the Philippines, G.R. No.
158312, November 14, 2008.
Sps. Ojeda vs. Orbeta, G.R. No. 142074, July
10, 2006.

C.

INCOMPLETE AND UNDELIVERED INSTRUMENT

Sec. 15
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.
Rules:
(a) Defense against a holder in due course
i. Because the instrument is not a valid contract
in the hands of any holder
ii. Real defense exists.
(b) Defense available to parties prior to delivery
Only parties whose signatures appear on the
instrument BEFORE and not after DELIVERY
1.

Cases:
Pavilis vs. Livestock Co., 68 S.D. 96 (S.D. 1941)
(Check:
https://casetext.com/case/pavilis-vlivestock-co )
Weiner vs. Pennsylvania Co., 160 Pa Super 320
(Check:
https://casetext.com/case/weiner-v-thepenna-co-etc)
Linick vs. A.J. Nutting & Co., 125 N.Y.S. 93 (Check:
https://casetext.com/case/linick-v-nutting-co )
Bank of America NT & SA vs. Phil. Racing Club,
G.R. No. 150228, July 30, 2009.
Samson Ching vs. Nicdao, G.R. No. 141181, April
27, 2007.

D. COMPLETE BUT UNDELIVERED INSTRUMENT Sec. 16

Sec. 16. Delivery; when effective; when presumed. Every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose
of giving effect thereto. As between immediate parties, and
as regards a remote party other than a holder in due
course, the delivery n order to be effectual, must be made
either by or under the authority of the party making,
drawing, accepting, or indorsing as the case may be; and
in such case the delivery may be shown to have been
conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him
so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of
a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary
is proved.

Instruments delivered in blank

Authority to put any amount

i.
If a blank document is delivered by the person
making the signature, the holder has prima facie
authority to fill it up for any amount if the person

Rules
(a) GR: DELIVERY- to give effect to the instrument;
means transfer of possession, actual or
constructive, from one person to another with
intent to transfer title thereto

(b)
(c)

(d)
(e)

1.

Issue the 1st delivery of the instrument,

complete in form, to a person who takes it as a
holder
Important: DELIVERY the final act essential to
its consummation as an obligation
In possession of party other than a holder in due
course
i.
Prima facie presumption of delivery
subject to rebuttal
ii.
Immediate parties in the sense of
having or being held to know of the
conditions or limitations placed upon
the delivery of the instrument; PRIVITY
not proximity
iii.
Remote parties who are not in direct
contractual relation to each other
Delivered conditionally or for a special purpose
i.
Cannot enforce document
In the hands of a holder in due course
i.
A valid delivery thereof by all parties
prior to him is conclusively presumed.
ii.
Conclusive when it admits of no
evidence to the contrary
iii.
Principle: when one (1) or two (2)
persons must suffer by the acts of a
third, he who has enabled such third
person to occasion the loss must bear it;
party who made to suffer the loss has
reposed confidence in the third person
whose acts have occasioned the loss
Cases:
In Re Martens Estate, 226 Iowa 162, 283 N.W.
885 (Check: https://casetext.com/case/in-reestate-of-martens )
De la Victoria vs. Burgos, 245 SCRA 374.
Lim vs. CA, 251 SCRA 408.
Rizal Commercial Banking Corp. vs. Hi-Tri
Development Corp., G.R. No. 192413, June 13,
2012.

IV.

INTERPRETATION OF INSTRUMENTS

A. CONSTRUCTION
WHERE
AMBIGUOUS Sec. 17
1.

B.

Cases:

INSTRUMENT

IS

Republic Planters Bank vs. CA, G.R. No.

93073, December 21, 1992.
Sps. Evamgelista vs. Mercater Finance Corp.,
G.R. No. 148864, August 21, 2003.

LIABILITY OF PERSONS SIGNING AN INSTRUMENT

1.
2.
3.
4.

Signing under a Trade or Assumed Name Sec. 18

Signing as an Agent Secs. 19 & 20
Signature by Procuration Sec. 21
a. Case: Insular Drug vs. PNB, 58 Phil. 684
Indorsement by Infant or Corporation Sec. 22