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.
Does any person have the right to complete an instrument which is wanting in any material particular? Only a person in possession thereof has a prima facie authority to complete it by filling up the material particular wanting on such instrument therein.
What is this prima facie authority? This prima facie authority is a presumption by law from the following facts:
(1) want of a material particular in the instrument.
(2) possession thereof by a person;
(3) that such a person had authority to fill up the blanks.
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A signature on blank paper delivered by the person making the signature in order to convert the paper into a negotiable instrument: What is the effect? It operates as a prima facie authority to fill it up as such for any amount.
Should it be filled up strictly in accordance with the authority given by the person who delivered it? Yes, in order that a subsequent holder may enforce the instrument against any person who became a party thereto prior to its completion.
When should the insertion be made? The insertion should be made within a reasonable time.
What is reasonable time? In order to determine what is a “reasonable time”, regard is had:
(1) to the nature of the instrument;
(2) usage of trade or business with respect to such instrument and (3) the facts of the particular case.
What if the instrument is given to you by the maker, with instruction to fill up the blank. You fill up the instrument after a period of (1) one year because you are from Zamboanga and the city was under sieged by the rebels. Can you still consider that as filling up the instrument within a reasonable time? Yes, because of the fact that the delay in filling up the said instrument was caused by a fortuitous event and such delay may be considered reasonable.
What is the effect of an insertion of a wrong amount with respect to a holder in due course? 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.
I promise to pay Y or order the sum of ___________ payable on demand. (Sgd.) X; He delivered the instrument to Y. The instruction is that Y should put in the blank only P1 million. However, Y believed the bigger, the better, so he inserted in the instrument the amount of P2 million. The instrument was endorsed by Y to A, A to B, B to C. C, being a holder in due course. May C enforce the instrument against X, the maker? Yes because where the instrument is incomplete and delivered, but completed contrary to the authority given, or not completed within a reasonable time, and the holder is a holder in due course, he can enforce the instrument, as if it had been filled up strictly in accordance with the authority given and within a reasonable time, against parties prior or subsequent to the completion.
Why can a holder in due course claim against a party even prior to its wrongful insertion? The personal defense of parties prior to the completion, such as A, is that it is not filled up strictly in accordance with the authority given or that it is not filled up within a reasonable time, is not available against a holder in due course because under the law, in the hands of such holder, the complete but delivered instrument is valid and effective 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.
Supposing C is not a holder in due course, may he enforce the said instrument against the maker? Yes, but in order that a subsequent holder who is not a holder in due course may enforce the instrument against a party prior to the completion of the note: (1) the blank must be filled up strictly in accordance with the authority given and (2) it must be filled up within a reasonable time.
In the example, who are liable to C, who is not a holder in due course? Y the payee; A and B, the endorsers.
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Why are they liable? As to Y, he is liable because (1) he was the one who placed the amount and (2) as endorser, he warrants that the instrument is in all respects what it purports to be and (3) if he is a general endorser, that it is valid and subsisting. A and B are also liable because (1) they parties subsequent to the completion and (2) as endorsers, they warrant that the instrument is in all respects what it purports to be and (3) if they are general endorsers, that it is valid and subsisting.
What are the warranties that endorsers make? An endorser warrants that the instrument is:
(1) in all respects what it purports to be; and in addition, if he is a general endorser, (2) that it is valid and subsisting.
What are the steps in the execution of negotiable instruments?
1) Writing a complete instrument in accordance with Section 1 of the NIL.
2) Delivery of the instrument, i.e, transfer of possession with the intent to transfer title.
Bills of exchange or promissory note executed in blank and delivered to another to fill in and negotiate on behalf of the maker of the instrument. How do you call this instrument? It is an incomplete but delivered instrument.
What does material particular refer to? Material particular may be:
(1) a particular the omission of which will render the instrument non-negotiable, such as, the name of the payee or the name of the drawer; or
(2) ) a particular the omission of which will not render the instrument non-negotiable such as the date, the rate of interest, place of payment.
A makes a note and the name of the payee is not written, and the note is in possession of B. May B write his name as a payee? Yes, under Section 14 of the NIL, 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.
Is the instrument wanting in a material particular, and why? Yes, it is wanting in a material particular, because in our example, the name of the payee is not stated in the instrument.
Is B in possession of the instrument? If so, what is the authority of B to fill out the instrument? Yes, B is in the possession of the instrument and being such, has a prima facie authority to complete it by filling up the blanks therein.
What are the requisites before a person can insert a material particular in an instrument?
(1) that the instrument is wanting in any material particular;
(2) that he in possession of such instrument;
(3) you are the prima facie authorized to complete the instrument by filling in the material particular which is wanting in the said instrument.
In the first instance under Section 14, is it required that the said instrument must be delivered with intent to convert it to a negotiable instrument? No, it is not required. The law merely requires that it be in (1) possession of a person other than the drawer or maker and (2) that the instrument is wanting in a material particular.
When is it required that the instrument must be delivered with intent to convert it to a negotiable instrument? It is required when the person only placed his signature on a blank paper.
What are the requisites in order for a person to fill the instrument up to any amount? The requisites are:
(1) a signature on a blank paper
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(2) that the person signing in blank delivers it in order that the paper may be converted into a negotiable instrument.
Mere possession is not enough.
What if I make an instrument and deliver it to another person without such intent to make it a negotiable instrument. Does the person who received it have the authority to fill the instrument up to any amount? No, because the intent to convert it to a negotiable instrument is not present.
Is mere possession enough? No, mere possession is not enough.
A signs a paper in blank and delivers it to B. May B fill in with the said paper any amount? It depends on the intention of A.
*What are the requisites before any such instrument when completed may be enforced against any person who became a party thereto prior to its completion?
(1) it must be filled up strictly in accordance with the authority given and (2) within a reasonable time.
I promise to pay B or order the sum of __________ on demand. (Sgd.) A; A delivers it to B with the authority to fill the instrument up to P1 million. B fills up P1 million and negotiates it with C. May C enforce it against A?
It depends. Even if B fills up the instrument in accordance with the authority given, we still have to determine whether the instrument was fill up by B within a reasonable time. Otherwise, if it was not fill up within a reasonable time, C may not enforce the instrument against A. Except if C is a holder in due course.
In the same example given above, instead of putting in P1 million, B puts in P2 million. B then negotiated it to C, C to D, D to E. E is not a holder in due course. May E enforce it against A, the maker? There are two views on this point:
(1) The first view is that the one who is not a holder in due course cannot enforce the instrument against a party prior to the completion of the instrument, such as A, if the instrument is not filled up strictly in accordance with the authority given or within a reasonable time.
(2) The second view is that, in such a case, the holder can enforce the instrument according to the authorized tenor. In other words, E can collect from A the amount of P1 million.
The better view seems to be the first one. The law provides that in order that one who is not a holder in due course may enforce mechanically incomplete but delivered instrument, the two requisites must exist. The implication is that when one or both of the requisites are absent, the instrument may not be enforced.
In the same example given above, may E enforce the instrument against B, the person who caused the wrongful insertion, and against the subsequent endorsers? Yes, E may enforce the instrument against B because (1) the latter was the one who placed the amount, and because (2) as endorser, he warrants that the instrument is in all respects what it purports to be and (3) if he is a general endorser, that it is valid and subsisting.
May E enforce the instrument against C and D? E may also enforce the instrument against C and D because (1) they are parties subsequent to the completion and because (2) as endorsers, they warrant that the instrument is in all respects what it purports to be and (3) if they are general endorsers, that it is valid and subsisting.
In what ways or instances can B be held liable? He can be held liable for:
(1) inserting the wrong amount on the instrument
(2) as an endorser, B warranted that the instrument is in all respects what it purports to be and (3) if B is a general endorser, he also warranted that the instrument is valid and subsisting.
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When you endorse an instrument, what are the warranties you guarantee?
(1) as an endorser, you warrant that the instrument is in all respects what it purports to be and (2) if you are also an general endorser, you warrant that the instrument is valid and subsisting.
Suppose, however, that E is a holder in due course, may he enforce the instrument against A, the maker? Yes, under the law, 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.
In our example, what are the defenses of A, the maker of the instrument? The personal defenses of parties prior to the completion, such as A, is (1) that it is not filled up strictly in accordance with the authority given or (2) that it is not filled up within a reasonable time.
What is the difference between real defense and personal defense? Real defense is a defense which you can put up even against a holder in due course while a personal defense cannot be raised against a holder in due course.
Give us a summary of the rule where the instrument is incomplete but delivered: In the case of an instrument that is incomplete but completed contrary to the authority given, or not completed within a reasonable time:
(1) where the holder is a holder in due course, he can enforce the instrument as complete against parties prior or subsequent to the completion.
(2) where the holder is not a holder in due course, he can enforce the instrument as completed only against parties subsequent to the completion, but not against those prior thereto.
Is it already time class? Yes Sir. You want to continue? [insert here the sound of crickets chirping]
I promise to pay X or order the sum of _____________ 30 days after date. (Sgd.) A. Supposing this was delivered by A to X: How do you classify this kind of instrument? This is an undated instrument. It is also an incomplete because there is a blank, but it is a delivered instrument.
Will the filling up the blanks with any date, avoid the note in the hands of a holder in due course? The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course.
Furthermore, the wrong date inserted will be regarded as the true date.
SECTION 15.Incomplete Instrument Not Delivered. — Where an incomplete instrument has not been