MODELO IN DCLAS

Negotiable Instruments Law

Material alteration:

- Any alteration which changes the date, the sum payable, the time or place, number or relations of the parties, or medium or currency of

payment, or adds a place of payment where none is specified, or which alters the effect of the instrument in any respect (Sec. 125)

Effect:

Material alteration avoids the instrument except as against a party who has himself made, authorized, or assented to the alteration, and subsequent indorsers. (Sec. 124)

Exception:

When a materially altered instrument is in the hands of a holder in due course not a party to the alteration, he may enforce payment according to

Negotiable Instruments Law

Exercise:

A check for P100,000 was drawn against Philbank and made payable to Phil-Asia Security Company or order. The check was deposited with the payee’s account at IBank which then sent the check for clearing to Philbank.

Philbank refused to honor the check on the ground that the serial number thereof had been altered. Phil-Asia Security

Company sued Philbank.

Is it proper for Philbank to dishonor the check for the reason that it had been altered?

Negotiable Instruments Law

Exercise: alteration of amount

Amy issued a negotiable promissory note to Faith in the amount of P5,000. however, Faith changed the amount to P10,000. She then negotiated the note to Jenny who had knowledge of the infirmity.

Jenny in turn negotiated said note to Marie for value and who had no knowledge of the infirmity.

1. Can Marie enforce the note against Amy and if she can, for how much?

2. Supposing Marie endorses the note to Rose for value but who has knowledge of the infirmity, can the latter enforce the note against Amy?

Negotiable Instruments Law

Exercise: alteration in the name of indorsers

Pedro writes out a check for P10,000 in favor of Jose or order

against his current account with BPI. Juan steals the check, erases the name of Jose and superimposes his own name. Juan deposits the check at Global Bank and after clearing, Juan withdraws the amount and absconds. Upon discovery by Pedro of the material alteration, he lodged a complaint at the BPI which credited the amount to Pedro. BPI demands reimbursement from Global Bank which refused on the ground that it only acted as an agent for

collection. Who bears the loss?

Negotiable Instruments Law

ACCOMMODATION

Negotiable Instruments Law

Accommodation:

- a legal arrangement under which a person called the

accommodation party lends his name and credit to another called the accommodated party, without compensation

Accommodation party:

- one who has signed the instrument as make, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of

lending his name to some other person.

Requisites:

1. accommodation party must sign as maker, drawer, acceptor or indorser

2. No value is received by accommodation party 3. Purpose is to lend accommodation party’s name

Negotiable Instruments Law

Effect:

A person to whom the instrument thus executed is subsequently

negotiated, has a right of recourse against the accommodation party inspite of the former’s knowledge that no consideration passed

between the accommodation and accommodated party.

Points to remember:

- The accommodation party has the right, after paying the holder, to obtain reimbursement from the party accommodated since the

relation between them is that of principal and surety, the accommodation party being the surety.

- The liability of an accommodation party does not extend to corporate accommodation because the act of the corporate officers is ultra vires. However, these officers are personally liable.

Negotiable Instruments Law

Exercise:

To accommodate Carmen, maker of a promissory note, Jorge signed as indorser thereon, and the instrument was negotiated to Raffy, a holder for value. At the time Raffy took the instrument, he knew Jorge to be an accommodation party only. When the

promissory note was not paid, and Raffy discovered that Carmen had no funds, he sued Jorge. Jorge pleads in defense the fact that he had indorsed the instrument without receiving value therefor, and the further fact that Raffy knew that at the time he took the instrument Jorge had not received any value or consideration of any kind for his indorsement.

Is Jorge liable?

Negotiable Instruments Law

On June 1, 2005, A obtained a loan of P50,000 from B, payable not later than November 15, 2005. Since he does not have any checking account, A, with the knowledge of B, requested his friend C, president of KLM

Marketing Corporation, to accommodate him. C agreed; he sighed a check for the aforesaid amount dated November 15, 2005, drawn against KLM’s account with Security Bank. The by-laws of KLM requires that checks

issued by it must be signed by the president and the treasurer or the vice-president. Since the treasurer was absent, C requested the vice-president, D, to co-sign the check, which the latter reluctantly did. The check was

delivered to B; the check was dishonored upon presentment on due date for insufficiency of funds.

1. Is KLM Marketing Corporation liable on the check as an accommodation party?

2. If it is not, who then, under the above facts, is/are the accommodation party/parties?

Negotiable Instruments Law

EXECUTION AND NEGOTIATION

- BY AGENTS

- UNDER TRADE NAME

- BY MINOR OR CORPORATION

Negotiable Instruments Law

By agents

Requisites:

1. The agent must be authorized 2. He must disclose his principal

3. He must sign for and on behalf of his principal

Rule if principal is not disclosed:

- agent is personally liable on the instrument even if he is duly authorized

Negotiable Instruments Law

Under a trade or assumed name

Effect:

- The person so signing his trade name or assumed name is liable as if the name were his own

Indorsement by minor or disqualified corporation

Effect:

- Indorsement by minor or other incapacitated person – passes title to the holder and parties prior to the minor/incapacitated can be held liable

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Negotiable Instruments Law

Exercise:

Aubrey makes a promissory note for P5,000 payable to Myles, a minor, to help him buy school supplies. Myles indorses the note to Chris who knows of Myles’ minority. If Chris sues Aubrey on the note, can she set up the defense of minority and lack of

consideration?

Negotiable Instruments Law