ACT 2031: NEGOTIABLE INSTRUMENTS LAW (COMMERCIAL)

SECTION 1. Form of negotiable instruments - An instrument to be negotiable must conform to the following requirements:
a. must be in writing and signed by the maker or the drawer;
b. must contain an unconditional promise or order to pay a sum certain in money;
c. must be payable upon demand or at a fixed or determinable future time;
d. must be payable to order or bearer;
e. where the instrument is addressed to the drawee, he must be named or otherwise indicated therein with reasonable certainty.

SECTION 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 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 effectually 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 reasonable time.

SECTION 15. INCOMPLETE INSTRUMENT NOT DELIVERED - Where an incomplete instrument has not been delivered, it will not, if completed without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

SECTION 16. DELIVERY, WHEN EFFECTUAL, 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 in order to be effectual, must be made either 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.

SECTION 23. FORGED SIGNATURE; EFFECT THEREOF - 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 thereof, 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.

SECTION 29. LIABILITY OF ACCOMMODATION PARTY - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

SECTION 34. SPECIAL INDORSEMENT; INDORSEMENT IN BLANK - A special indorsement specifies the person to whom or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

SECTION 36. WHEN INDORSEMENT RESTRICTIVE - An indorsement is restrictive which either:
a. prohibits the further negotiation of the instrument;
b. constitutes the indorsee the agent of the indorser; or
c. vests the title in the indorsee in trust for or to the use of some other persons.

But the mere absence of words implying to negotiate does not make an indorsement restrictive.

SECTION 38. QUALIFIED INDORSEMENT - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

SECTION 39. CONDITIONAL INDORSEMENT - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

SECTION 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 has been previously dishonored, if such was the fact;
c. that he took it for value and in good faith;
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.

SECTION 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 acording to its original tenor.

SECTION 126. BILL OF EXCHANGE, DEFINED - A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certian in money to order or to bearer.

SECTION 184. PROMISSORY NOTE, DEFINED - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

SECTION 185. CHECK, DEFINED - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

FAR EAST BANK V. GOLD PALACE JEWELLERY (NEGO)

Act 2031, the Negotiable Instruments Law (NIL) explicitly provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays a bill without having previously accepted it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay. The payment of a check includes its acceptance.

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palace's account the payment it received. Following the plain language of the law, the drawee, by the said payment, recognized and complied with the obligation to pay in accordance with the tenor of his acceptance. The tenor of his acceptance is determined by the terms of the bill on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount.

Because of this engagement, LBP could no longer repudiate the payment it erroneously made to a holder in due course. We note at this point that Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course - it received the draft complete and regular on its face, before it became due, and without notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. Having relied on the drawee bank's clearance and payment of the draft and not being negligent, respondent is amply protected by the said Section 62. Commercial policy favors the protection of any one who, in due course, changes his position on the faith of the drawee bank's clearance and payment of a check or draft.

As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee bank when it debited respondent's account, because as already explained, the drawee bank had no right to recover what it paid.

Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the drawee bank.

Far East's remedy under the law is not against Gold Palace but against the drawee-bank or the person responsible for the alteration. That however, is another issue which we do not find necessary to discuss in this case.