VI. DEFENSES Kinds: 1. Real/A Real/Abso bsolute lute Defen Defenses ses - those those that that attach attach to the instr instrume ument nt itself itself and are availa available ble agains againstt all holder holders, s, whe whether ther in due course or not. Examples: a. Al te terat io ion; b. on-de on-deliv liver! er! of incom" incom"lete lete instrum instrument; ent; c. Dure Duress ss amo amoun untin ting g to forg forger! er!;; d. #raud #raud in factum factum or or fraud fraud in in esse esse contra contractus ctus;; e. $inorit!; f. $arr $arria iage ge in the the cas case e of of a wife wife;; g. %nsani %nsanit! t! where where the insa insane ne "erso "erson n has a guard guardian ian a""o a""oint inted ed b! the court; h. <ra <ra vires vires acts acts of a cor"or cor"oratio ation, n, where where the the cor"ora cor"oratio tion n is absolutel! "rohibited b! its charter or statute from issuing an! commercial "a"er under an! circumstances; i. 'ant ant of of auth author orit it! ! of of age agent nt;; (. )*ecuti )*ecution on of of instr instrumen umentt betwee between n "ubli "ublic c enemi enemies; es; +. %llegal %llegalit! it! of of contrac contractt where where it is the contra contract ct or instru instrument ment itself which is e*"ressl! made illegal b! statute; and l. #orger!. erso ersonal nal/) /)uit uitabl able e Defenses Defenses those those which are are availabl available e onl! against a "erson not a holder in due course or a subseuent holder who stands in "rivit! with him. Examples: a. Absence Absence or or failure failure of consi consider deratio ation, n, "artia "artiall or total; total; b. 'ant 'ant of of deliv deliver! er! of com" com"lete lete instrum instrument; ent; c. %nse %nsert rtio ion n of wrong wrong date date in an instr instrum umen ent, t, where where it is "a!a "a!abl ble e at a fi*e fi*ed d "eri "eriod od afte afterr date date and and it is issu issued ed undated or where it is "a!able at a fi*ed "eriod after sight and the acce"tance is undated; d. #illin #illing g u" of blan+ blan+ contra contrar! r! to author authorit! it! given given or not not within within reasonable time, where the instrument is delivered; e. #rau #raud d in in ind induc ucem emen ent; t; f. Acuis Acuisitio ition n of instr instrume ument nt b! forc force, e, dures duress, s, or fear fear;; g. Acuis Acuisitio ition n of the the instrum instrument ent b! unlaw unlawful ful mean means; s; h. Acuisition Acuisition of the instrum instrument ent for for an illegal illegal considerati consideration; on; i. ego egoti tiat atio ion n in in bre breac ach h of of fai faith; th; (. egoti egotiati ation on under under circu circumst mstanc ances es that that amoun amountt to fraud fraud;; +. $ista+e; l. %nto*i %nto*icati cation on 0acc 0accord ording ing to bett better er autho authorit! rit!; ; m. <ra <ra vires acts acts of cor"orat cor"oration ionss where the cor"or cor"orati ation on has the "ower to issue negotiable "a"er but the issuance was not authori2ed authori2ed for the "articular "articular "ur"ose for which it was issued; n. 'ant 'ant of of author authorit! it! of agen agentt where where he has has o. a""a a""are rent nt auth author orit it!; !; ". %nsani %nsanit! t! where where there there is is no notice notice of of insani insanit! t! on the the "art of of the one contracting with the insane "erson; and . %lleg %llegali alit! t! of contr contrac actt wher where e the form form or cons consid idera erati tion on is illegal.
diligence could have discovered the nature of the instrument, the fraud cannot be considered a real defense, as where a "erson, who can read, signed a note but failed to read it.
Effects of Defenses: 1.
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FRAUD IN FACTUM 1. %t e*is e*ists ts in in tho those se case casess in in whic which h a "ers "erson on,, with witho out neg neglige ligenc nce, e, has has sig signe ned d an an in st st ru rument wh which was in fact a negotiable instrument, but was deceived as to the chara characte cterr of of the the ins instr trum ument ent and and wit witho hout ut +now +nowle ledg dge e of of its, as where a not was sign ed ed b! b! one un under th the beli belie ef tha thatt he he was was sig signing ning as a witness to a deed. . 3his his +in +ind d of of fra fraud ud is a real real def defens ense e bec becau ause se ther there e is no no c on ont ra rac t. t. % t im"l ie ie s that the "erson did not +now what he was signing. 5ut where the signer b! the e*ercise of reasonable
FRAUD IN INDUCEMENT 1. %t is that that whi which ch relat related ed to the the ual ualit it! !, ua uantit ntit! !, valu value e or or ch charac aracte terr of of the the con si side ra ration of the instrument. %n this case, the signer is led b! dece"tion to e*ecute what he +now +nowss is is a nego negotia tiable ble inst instru rume ment nt.. %t %t im" im"li lies es that that the signer +new what he was si sign in ing but th that he he w wa as indu nduced ced b! b! fra fraud ud to sign. ign. . 4uch 4uch t!" t!"e of of fra fraud ud is onl! onl! a "er "erso sonal nal defe defens nse e bec becau ause se it do doe s not "r "re ve ve nt nt a contract.
Complete and undelivered instrument as between immediate "arties "arties and as regards a remote "art! other than a holder in due course, the deliver! must be authori2ed in order to be effectual where the instrument is in the hands of a holder in due course, a valid deliver! thereof b! all "arties "rior to him so as to ma+e them liable to him is conclusivel! "resumed where the instrument is no longer in the "ossession of a "art "art! ! whos whose e sign signat atur ure e a""e a""ear arss there thereon on,, a vali valid d and intentional deliver! b! him is "resumed until the contrar! is "roved
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Incomplete but delivered instrument where the instrument is wanting in an! material "articular, the "erson in "ossession thereof has a "rima facie authorit! to com"lete it b! filling u" the blan+s therein. it must must be fill filled ed u" stri strict ctl! l! in acco accord rdan ance ce with with the the authorit! given and within a reasonable time if an! such instrument, after com"letion, is negotiated to a holder holder in due course, course, it is valid valid and effectual effectual for all "ur"oses in his hands, and he ma! enforce it as if it had been filled u" strictl! strictl! in accordance accordance with the authorit! authorit! given and within a reasonable time. •
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Incomplete and undelivered instrument it will not, if com"leted and negotiated without authorit!, be a valid contract in the hands of an! holder, as against an! "erson "erson whose whose signatu signature re was "laced "laced thereon thereon before before deliver!. 7owever, subseuent indorsers are liable. •
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Forgery counterfeit ma+ing or fraudulent alteration of an! writing, which ma! consist of: 1. signin signing g of another another9s 9s name name with inten intentt to defrau defraud; d; or . alte altera rati tion on of an instr instrum umen entt in the name name,, amou amount nt,, name of "a!ee, etc. with intent to defraud. •
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)ffect: )ffect: signature signature is wholl! ino"erative, ino"erative, and no right to retain the instrument, instrument, or to give a discharge discharge therefore, therefore, or to enforce "a!ment thereof against an! "art! thereto, can be acuired through or under such signature )*ce"tion: unless the "art! against whom it is sought to enforce such right is "recluded from setting u" the forger! or want of authorit!.
Cut-Off Rule eneral Rule: arties "rior to the forged signature are cutoff from the "arties after the forger! in the sense that "rior "arties cannot be held liable and can raise the defense of forger!. 3he holder can onl! enforce the instrument against "arties who became such after the forger!. )*ce"ti )*ce"tion: on: 'hen 'hen the "rior "rior "artie "artiess are "reclud "recluded ed from from setting u" the defense of forger!. Persons precluded from setting up the defense of forgery are: 1. 3hos 3hose e who who b! thei theirr acts, acts, silenc silence, e, or negli neglige genc nce, e, are esto""ed from setting u" the defense of forger!; . 3hos 3hose e who warr warrant ant or adm admit it the the genui genuine nenes nesss of the signature in uestion. 3hese include acts or omissions that amount to ratification, e*"ress or im"lied. Note: ersons "recluded from setting u" the defense of forger! ma! still recover damages under the "rovisions on uasidelicts.
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Rules on Forgery: Promissory Notes 1. $a+er9s signature forged Order Instrument a. $a+er is not liable because he never became a "art! to the instrument. b. %ndorsers subseuent to forger! are liable because of their warranties. c. art! who made the forger! is liable. Bearer Instrument a. $a+er is not liable. b. %ndorsers ma! be made liable to those "ersons who obtain title through their indorsements. c. art! who made the forger! is liable. . a!ee9s signature forged Order Instrument a. $a+er and "a!ee not liable b. %ndorsers subseuent to the forger! is liable. c. art! who made the forger! is liable Bearer Instrument a. $a+er is liable. %ndorsement is not necessar! to title and the ma+er engages to "a! holder. b. art! who made the forger! is liable 6. %ndorser9s signature forged Order Instrument a. $a+er, "a!ee, and indorser who signature was forged is not liable. b. %ndorsers subseuent to forger! are liable because of their warranties. c. art! who made the forger! is liable. 5earer %nstrument a. $a+er is liable. %ndorsement is not necessar! to title and the ma+er engages to "a! holder. b. %ndorser whose signature was forged is not liable art! who made the forger! is liable. •
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5. Bill of Exchange 1. Drawer9s signature forged In an Order Instrument a. Drawer is not liable. b. Drawee is liable if it "aid 0nor recourse to drawer because he admitted the genuineness of the drawer9s signature. Drawee cannot recover from the collecting ban+ because there is no "rivit! between the collecting ban+ and the drawer. 3here is no warrant! as to the signature of the drawer. 0 ssociated Ban! v" C c. %ndorsers subseuent to forger! are liable. d. art! who made the forger! is liable In a Bearer Instrument a. Drawer is not liable b. Drawee is liable if it "aid. Drawee cannot recover from the collecting ban+ because it is bound to +nown the drawer9s signature since the latt er is its de"ositor. c. art! who made the forger! is liable. .
a!ee9s signature forged Order Instrument a. Drawer, drawee and "a!ee not liable. ut-off rule a""lies. b. %ndorsers subseuent to forger! are liable. c. art! who made the forger! is liable Bearer Instrument a. Drawer is liable. 7is indorsement is not necessar! to "ass title. b. Drawee is liable. o "rivit! between drawer and
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"a!ee because indorsement of "a!ee is not necessar! 0 ng #e! $ian case% &' (C) *&* a!ee is not liable ollecting ban+ is liable because of warrant!. art! who made the forger! is liable.
%ndorser9s signature forged Order Instrument a. Drawer, "a!ee and indorser whose signature was forged are not liable. b. Drawee is liable if it "aid. c. %ndorsers subseuent to forger! are liable. d. art! who made the forger! is liable. Bearer Instrument a. Drawer is liable. %ndorsement is not necessar! to "ass title. b. Drawee is liable. c. %ndorser whose signature was forged is liable because indorsement is not necessar! to "ass title. d. art! who made the forger! is liable
lteration )ffect: the instrument is avoided )*ce"tions: 1. against a "art! who has himself made, authori2ed, or assented to the alteration . subseuent indorsers 6. holder in due course not a "art! to the alteration - he ma! enforce "a!ment according to its original tenor hanges constituting material alteration: 1. date; . sum "a!able, either for "rinci"al or interest; 6. time or "lace of "a!ment; 8. number or relations of the "arties; <. medium or currenc! in which "a!ment is to be made; =. that which adds a "lace of "a!ment where no "lace of "a!ment is s"ecified; and >. an! other change or addition which alters the effect of the instrument in an! res"ect. • •
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Note: a material alteration is one that alters the effect of the instrument; one which changes the items reuired to be stated under 4ec. 1, %?. • •
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4"oliation alteration made b! a stranger. 3he general rule denies the drawee ban+9s right to charge against the drawer9s account the amount of an altered chec+. 7owever, the latter9s negligence, before or after the alteration, ma! esto" him from setting such alteration as against an innocent drawee ban+ who has "aid the chec+. %n cases of altered chec+s and chec+s with forged indorsements, the drawee ban+ must notif! and return them to the collecting ban+ before 8:@@ ".m. of the ne*t da! of clearing, but the drawee ban+ ma! still return them even after such time "rovided he does so within 8 hours from its discover! of the alteration or forged instruments so that recover! of the amount ma! be had. 5&3, in no event be!ond the "eriod fi*ed or "rovided b! law for filing of a legal action b! the returning ban+ against the ban+ sending the same.
Note: Alteration is onl! a "artial real defense because a holder in due course can still enforce it according to its original tenor.
