2015

I
[Your answer for questions a, b, c and d must not exceed 1 ¼ pages]

a. What are the rights of an accommodation party? [5 points]

To get reimbursement from the accommodated party upon payment to the holder.

b. Is a negotiable instrument that has been restrictively indorsed negotiable? Explain [5 points]
Yes, in so far as the restrictive indorsement constitutes the indorsee the agent of the indorser or such
indorsement vests the title in the indorsee in trust for or to the use of some other person as provided for in
Sec 36 of the NIL.

What is being contemplated by Sec. 47 as regards cessation of the negotiable character of the instrument
only refers to Sec. 36 (a) which actually prohibits the further negotiation of the instrument.

c. What is the effect of transfer of an order instrument without indorsement? [5 points]

Sec. 49 provides that the transfer vests in the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes effect as of the time
when the indorsement is actually made.

d. What is the presumption provided by law on the place of indorsement of a negotiable instrument? [5 points]
Sec. 46 provides that except where the contrary appears, every indorsement is presumed prima facie to
have been made at that place where the instrument is dated.

II
[Your answer for questions a, b, c and d must not exceed 2 pages]

A issued to B the following promissory note:

Php 500,000

I promise to pay B or bearer the sum of Php 500,000.00

(Sgd.) A

B failed to give A any consideration for the promissory note. The note was then negotiated by B to C, by C to D, by D
to E and then by E to F, holder. Appearing on the dorsal (back) portion of the note are the following:
 (Sgd.) B

Pay to D
(Sgd.) C

Pay to E, provided G wins the 2016 Presidential elections

(Sgd.) D

Pay to F
(Sgd.) E

All parties to the promissory note, except F, were aware that B failed to give consideration to A. On October 7, 2015, F
presented the instrument to A for payment.

a. Should A refuse to pay on the ground of lack of consideration, who has the burden of proof in the event of litigation? Is
A required to establish any defense or is F obliged to establish his claim or rights as a holder. Explain. [10 points]
F has the burden of proof. Yes. The presumption of holder in due course provided for by Sec. 59 of the NIL
is not available. The same section provides that when it is shown that the tittle 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. Thus, F has to prove that he or his
indorser acquired the instrument under the following conditions: that it is complete and regular upon its
face; that the became the holder of it before it was overdue, and without notice that it has been previously
dishonoured, if such was the fact; that he took it in good faith and for value; 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. May A refuse to pay F on the ground that the 2016 Presidential elections have yet to occur and thus G has yet to be
elected as President? Explain. [10 points]
Yes. Sec. 39 provides that if the 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. Conversely, A or the party primary liable may refuse to pay F until the election of G to the
presidency.

c. Should A not pay, does F have any recourse against B and C? Explain. [10 points]
Yes. Sec. 66 of the NIL provides that an indorser engages that, on due presentment, the instrument shall
be accepted or paid, or both, as the case may be, according to its tenor. B and C became secondarily liable
to the instrument as indorsers. Thus, they are liable to F.

d. Instead of presenting it for payment to A, F negotiated the instrument to D. Enumerate the rights of D under this
instrument? [10 points]
Based on Sec. 50, D as holder and prior indorser may reissue and further negotiate the same instrument.

Moreover, as the current holder, D, again, has the right to sue on the instrument in his own name.

Lastly, though D is not a holder in due course, he nevertheless has the rights of F, a holder in due course,
because of shelter principle provided for by Sec. 58. D is entitled to this benefit because he is the indorsee
of a holder in due course and he himself was not a prty to any fraud or illegality affecting the instrument.
Thus, D, based on Sec. 57, may hold the instrument free from any defect of title of prior parties, and free
from defenses available to prior parties among themselves, and may enforce payment of the instrument for
the full amount thereof against all parties liable thereon

III
[Your answer for questions a and b must not exceed 1 ¼ pages.]
 Tim drew a check payable to Kalin in the amount of Php 350,000 drawn against Quick Bank. Before Tim could deliver
the check to Kalin, Chris stole the check and forged the signature of Kalin to make it appear that Kalin negotiated the
check to Chris. Chris then deposited the check with Slow Bank, which then presented the check to Quick Bank for
payment. Quick Bank paid and thereafter Chris was able to withdraw the proceeds of the check from Slow Bank.

a. Does Kalin have a cause of action against Tim? Explain. [10 points]
As regards the instrument, no. Sec. 16 of the NIL provides that every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. In this
case, the instrument never went to the hands of Kalin. Thus, Kalin has obtained no right or cause of action
to enforce the instrument against maker, Tim.

However, Kalin has a cause of action based on contract. According to Sec. 24, every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration. We can, therefore, assume that
there is a subsisting valid contract wherein the instrument is the promise to pay.

b. Does Kalin have a cause of action against Slow Bank and Quick bank? Explain [10 points]
Yes. According to jurisprudence, a payee may apply the desirable shortcut even if he did not actually
receive the instrument. Notwithstanding Sec. 16 which provides that the payee must be a holder first before
he can enforce his rights, he may nevertheless have a cause of action from the two banks. This is to prevent
the multiplicity of suits. If this won’t be allowed, Kalin would have to go after Tim; Tim to Quick Bank, Quick
Bank to Slow Bank, Slow Bank to Chris.

IV
[Your answer must not exceed 1 page]

On October 1, 2015, A issued to B the following promissory note with the instruction that B may only use the note to
pay B’s tuition fees in AB College (ABC) in an amount not exceeding Php50,000:

Php _______

I promise to pay B or order the sum of Php _______ due 20 days after date.

(Sgd.) A

B negotiated the instrument to ABC on October 5, 2015, which at that time appears as follows:

Php 75,000.00 October 5, 2015

I promise to pay B or order the sum of Php 75,000.00 due 20 days after date.

(Sgd.) A

At the back of the instrument, B wrote his special indorsement of the instrument to ABC.
On October 7, 2009, ABC presented the promissory note to A for payment.
What are the rights of A, B and ABC under the instrument? Explain. [20 points]
 A – if ABC is not a holder in due course, A may refuse to pay ABC because A may raise the personal defense of
want of authority based on Sec. 14 of the NIL. In this case, the instrument was not completed strictly in accordance
with the authority given by A to B.

However, if ABC is a holder in due course, A has to pay ABC because the personal defense of want of authority is
not available against a holder in due course. As accommodation party, A has the right to collect from B the full
amount of Php 75,000.

B–

ABC -- if ABC is a holder in due course, A has to pay ABC because the personal defense of want of authority is not
available against a holder in due course.

If A does not pay, ABC may go after P because he is secondarily liable as indorser.

2013

I
On July 1, 2013, A issued to B a promissory note payable on demand to B or order with the
amount left blank. A told B that he may fill in any amount not exceeding Php 100,000. On July 2,
2013, B wrote the amount of Php 100,000 in the promissory note. On July 3, 2013, A changed
the amount of the promissory note to Php 400,000 and then negotiated the note to C on the same
day. On July 4, 2013, C presented the promissory note to A and demanded payment from A. Is A
liable to C? Explain. [10 points]

II
1. State two (2) exceptions to the rule that a holder is presumed a holder in due course. [5
points]

a. When it is shown that the title of a person who has negotiated the instrument was
defective. (Sec. 59)
b. Where an instrument payable on demand is negotiated on an unreasonable length of
time after its issue. (Sec. 53)

2. In the context of the NIL, what do “immediate parties” and “remote parties” mean? [5
points]

Immediate parties have knowledge of the infirmity

Remote parties are not privy and physically remote from

III
A issued the following promissory note:
 July 15, 2013

I promise to pay to B or bearer the sum of Php 100,000 on or before July 30, 2013.

(Sgd) A

B negotiated the promissory note to C. D then stole the promissory note from C and forged the
signature of C to make it appear that C negotiated the instrument to D. D then negotiated the
instrument to E, holder. The following appears at the dorsal portion of the instrument.

Pay to C
(Sgd.) B
Pay to D
(Sgd.) C
Pay to E.
(Sgd.) D

E then presented the instrument to A for payment. Is A liable to E? [10 points]

If E is a holder in due course, A will be liable to E. Although there is forgery of C’s signature
which makes his indorsement inoperative, such is nevertheless not needed for his title in a
bearer instrument. E may strike the forged indorsement in order for him to enforce payment
against A. Since, E is a holder in due course of a bearer instrument, he is not subject to A’s
personal defense of want of delivery; thus, E can rightly collect from A.

However, if E is not a holder in due course, A will not be liable to E. Since C did not deliver the
instrument D, A may raise the personal defense of want of delivery based on Sec. 16. (Forgery
is not a defense here because there is a forgery of indorsement in a bearer instrument.) Thus,
E cannot collect from A.

IV
On July 22, 2013, A issued to B a promissory note payable thirty (30) days after date in
consideration of A’s love and affection for B. On July 23, 2013, B negotiated the note to C who
was aware that the consideration for the issuance by A of the instrument was love and affection.
C then negotiated the note D; then D negotiated the note to E. Both D and E were not aware that
the consideration for A’s issuance of the instrument was love and affection. E then negotiated the
instrument to C. C then presented the note to A. Is A liable to C? Explain. (10 points)

Yes. C is protected under the shelter principle rule stated in Sec. 58 of the NIL. C falls under
the exception that renders a holder not in due course to have rights of a holder in due course.
 This is because C derived his title from E who is a holder in due course and C is not a party to
the illegality affecting the instrument. Thus, by having the rights of a holder in due course, A
cannot raise the defense of want of consideration.

True or False. Do not explain if your answer is TRUE. A statement is TRUE only if it is correct
without any qualification. If FALSE, please explain in one sentence. [2 points each]

1. The sum payable is a sum certain although it is to be paid by stated installments, with a
provision that upon default in payment of the first installment or of interest the whole
shall become due. TRUE

2. The negotiable character of an instrument otherwise negotiable is not affected by a

provision which authorizes the sale of collateral securities in case the instrument be not paid.
TRUE

3. The validity and negotiable character of an instrument is not affected by the fact that it
does not specify the place where it is drawn. TRUE

4. A restrictive indorsement confers upon the indorsee the right to bring any action thereon
that a holder could bring. TRUE

5. Except where the contrary appears, every indorsement is presumed prima facie to have
been made at the place where the instrument is issued. TRUE

VI
On July 15, 2013, A and B (who are friends and officemates) were having lunch in a restaurant
when A, in the presence of B, started to prepare a check payable to B and drawn against PNB.
The check was intended to pay the amount of Php 25,000 that A borrowed from B. A have already
signed the check and already wrote B’s name as payee of the check. However, before A could
write the amount of Php 25,000, C (A’s supervisor) called and requested A and B to return to
work. On their way back to work, A advised B that she would give B the check before they leave
the office later that day. At around 4:30 pm of the same day, B went to A’s office to get the check.
A was not in her office at that time; instead, B saw on top of A’s desk the same check A was
preparing earlier in the restaurant. B got the check and left without informing A that he got the
check since A was still in a meeting with C. On July 16, 2013 B wrote on the same check the
amount of Php 125,000 and negotiated the check to D (please assume that bank regulations allow
the negotiation of checks). D deposited the check with BDO, who then forwarded the check to
PNB for clearing. PNB dishonored the check having received a stop payment order from A on
July 15, 2013. D then demanded payment from A. May D compel A to pay? Explain. (10 points)

No. This is a scenario contemplated by Sec. 15 of the NIL -- incomplete and undelivered
instrument. In this case, B, in effect, stole the check so there is no delivery; the check is also
incomplete because it is wanting as to amount. As such, it would not matter whether D is a
 holder in due course or not; D cannot compel A to pay because A can raise the real defense
by virtue of Sec. 15.

VII
[Your answers must not exceed 2 ½ pages]
In consideration for the sale of a parcel of land, A issued to B on June 25, 2013, the following
promissory note:

I promise to pay B or bearer the sum of Php 500,000 on or before January 15, 2014.

(Sgd.) A

1. B, a law student, noticed that A forgot to indicate the date of the instrument. B wrote May
25, 2013 and thereafter negotiated the instrument to C. On December 15, 2013 , C
demanded payment from A. Does A have a defense? Explain [5 points]

2. Instead of the facts stated in number 1 above, assume instead that the note was
negotiated by B to C, C to D, by D to E and then by E to F, holder. C did not give consideration to
B for the negotiation by B to C of the instrument. Appearing on the dorsal portion of the note are
the following:

Sgd B
Pay to D
Sgd. C
Pay to E, in trust for J
Sgd D
Pay to F
Sgd. E

F then presented the instrument to A for payment. A and B advised F that C never gave
consideration to B. A refused to pay F.

a. In a litigation between A and F, who has the burden of proof? Is A required to establish
any defense or is F obliged to establish his claim? Explain. [5 points]
b. Should F fail to collect from A, does F have any right of recourse against B, D and E?
Explain. 5 points
c. Instead of demanding payment from A, may F further negotiate the promissory note? If
yes, explain how F may negotiate the instrument? If no, explain why? 5 points
d. May Fred strike out any indorsement? Explain. 5 points

1. None. Personal defense of alteration of date is only available against holders not in due
course. In this case, F is presumed to be holder in due course since there is no fact
stating otherwise. Thus, A cannot raise the defense of alteration of date against F.
 2. A. A. Every holder is deemed prima facie holder in due course. F has no obligation to
prove that he is a holder in due course. A became bound on the instrument before F’s
acquisition of defective title. It is A who has to establish that there is want of consideration but
A is nevertheless liable to F because the personal defense of want of consideration does apply
to a holder in due course.

B. As regards B and D, yes. The restrictive indorsement to E still entitles F to receive

payment of the instrument from B and D because as indorsers they became secondarily
liable to pay the instrument. As regards E, no. E is merely as trustee for a beneficiary;
thus E won’t be liable.

C. Yes. F may negotiate the instrument regularly by signing his signature at the back of
the instrument. The restrictive indorsement does not make the instrument non-
negotiable; thus, it can further be negotiated.

D. Yes. F may strike out the special indorsements of C, D, and E, or the blank
indorsement of B. Since the instrument is originally payable to bearer, it could be
negotiated by mere delivery and so the indorsements are not necessary to the title of F
who can always say that the bill was delivered to him.

VIII
1. Distinguish fraud in factum and fraud in inducement.

Fraud in factum Fraud in inducement

Real defense Personal defense

There was no intention to make a There was intention to make a negotiable instrument.
negotiable instrument. There is just a vitiation of consent.

2. What are the requisites to become a holder for value to whom an accommodation party is
liable.

Where value has at any time been givern for the instrument. Sec. 26

3. What is the jurisprudential rule on “proximate cause” in relation to rights of parties under
section 23 of the NIL?

The one who failed to exercise due diligence in preventing the negotiation
and eventual encashment of the instrument is considered the proximate
cause. As a such, he should shoulder the cost of the instrument since it is
wholly inoperative.