NEGOTIABLE INSTRUMENTS MIDTERMS REVIEWER

Dr. Angela Ylagan

Give the requirements in order for an instrument to be negotiable under Sec. 1 of the NIL 5pts

1. It must be in writing and signed by the maker or drawer;

2. Must contain an unconditional promise or order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
4. Must be payable to order or bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonably
certainty.

Give the requisites of a Promissory Note under Sec. 184 of the NIL 5pts
6. Unconditional Promise made by one person to another
7. In writing, signed by the maker
8. Engaging to pay on demand or at a fixed or determinable future time
9. To pay a sum certain in money
10. To order or to bearer

Where a the note is drawn to the maker’s order, it is not complete until indorsed by him.

Who are the original parties to the promissory note? 2pts

11. Maker
12. Payee

Give the 5 requisites of the Bill of Exchange under Sec. 126 of the NIL? 5pts
13. Unconditional order
14. In writing addressed by one person to another, signed by the person giving it
15. Requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time
16. A sum certain in money
17. Payable to order or to bearer

When is an unqualified order or promise or unconditional as provided for in Sec. 3 of the NIL? 3pts

According to Sec. 3 of the NIL – an unqualified order is an unqualified promise

18. Particular fund where reimbursement be made
19. An indication of a particular account where to be debited
20. Indicate a transaction where the instrument arises but not a particular fund out

What constitutes a “sum certain” under Sec. 2 of the NIL? 5pts

A sum certain is the sum payable although coupled with:
21. Interest
22. By stated installments
23. By stated installments, with a provision that in case of default of any of the installment the whole shall become due
24. In an exchange, under a fixed or current rate
25. Cost of collection or attorney’s fees in case it is not paid at maturity

When is an instrument payable on demand under Sec. 7 of the NIL? 3pts

26. When it is expressed to be payable on demand, at sight or at presentation

27. No time of payment is expressed
28. When indorsed, accepted or issued overdue, it is as regards the person indorsing, accepting, or issuing it to be
payable on demand

CLARNOTES
When is an instrument payable to order under Sec. 8 of the NIL? 7pts
29. It is payable to order drawn payable to the order of a specified person therein or to him or his order
30. A payee, not the maker, drawer or drawee
31. Drawer or maker
32. Drawee
33. Two or more payees jointly
34. One or some of several payees
35. Holder of an office for the time being

When is an instrument payable to bearer under Sec. 9 of the NIL? 5pts

36. Expressed to be so payable

37. A person named or bearer
38. Payable to order of a fictitious person, such fact is known to the person making it so payable
39. Name of payee does not purport to be the name of any person
40. The only or last indorsement is an indorsement in blank

What constitutes “negotiation” under Sec. 30 of the NIL? 3pts

41. Negotiated when it is transferred from one person to another in such manner as to constitute the transferee be the
holder thereof
42. If payable to bearer, negotiated by delivery
43. If payable to order, negotiated by indorsement and completed by delivery

When is an indorsement restrictive under Sec. 36 of the NIL? 3pts

44. Prohibits further indorsement
45. The transferee becomes the agent of the indorser
46. The transferee vests title or in trust

What constitutes a holder in due course under Sec. 52 of the NIL? 4pts
47. Accepted complete and regular upon its face
48. Accepted before it was overdue and no notice of dishonor
49. A holder in good faith and for value
50. no notice of defect or infirminity is such is the fact at the time negotiated to him

What are the rights of a holder in due course under Sec. 57 of the NIL? 3pts
51. Free from any defect of title of prior parties
52. Free from defenses available to prior parties
53. May enforce payment of the instrument for the full amount thereof against all parties available

When is an instrument subject to original defenses under Sec. 58 of the NIL? 2pts

54. In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses
as if it were non-negotiable;
55. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or
illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

What constitutes a holder for value under Sec. 26 of the NIL? 1pt
56. Where value has at any time been given for the instrument, the holder is deemed holder for value in respect total
parties is deemed a holder for value in respect to all parties who become such prior to that time.

What is the effect of notice of infirmity or notice of defect of title before full amount is paid under Sec. 54 of the NIL? 1pt

CLARNOTES
 57. When the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiationg
the same before he has paid the full amount agreed to paid therefor, He will be deemed a holder in due course only to
the extent of the amount therefor paid by him

Under what circumstances is title defective under Sec. 55 of the NIL? 7pts
The title is defective when signature or instrument is obtained by
58. Fraud
59. Force and Fear
60. Duress
61. Illegal consideration
62. Unlawful means
63. Breach of faith
64. Under such circumstance that would amount to fraud

What constitute Notice of Defect under Sec. 56 of the NIL? 3pts

65. To constitute notice of an infirmity of instrument or defect in the title of the person negotiating the same:
66. The person to whom it is negotiated must have had actual knowledge of the infirmity or defect
67. Knowledge of such facts that his action in taking the instrument amounted to bad faith

Who is an accommodation party and what is the liability of the accommodation party under Sec. 29 of the NIL? 4pts
68. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser,
69. Without receiving any value therefor
70. For the purpose of lending his name to some other person.
71. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time if taking the
instrument, knew him to be only an accommodation party.

What is the effect of alteration of a negotiable instrument under Sec. 124 of the NIL? 2pts
72. Instrument is materially altered without the assent of all the parties liable thereon, it is avoided, except as against a
party who has himself made, authorized, or assented to the alteration and subsequent indorsers
73. Materially altered and in the hands of a holder in due course and not a party in the alteration, he can enforce payment
thereof according to its original tenor

When is a person deemed not a holder in due course under Sec. 53 of the NIL? 1pt
74. Instrument payable on demand is negotiated on an unreasonable amount of time after its issue, the holder is not
deemed a holder in due course.

Who is deemed holder in due course under Sec. 59 of the NIL? 3pts

75. Every holder is deemed prima facie to be a holder in due course

76. But when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on
the holder to prove that or some other person under whom he claims acquired the title as a holder in due course.
77. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the
acquisition of such defective title

What is the rule on ante-dated or post dated instrument under Sec. 12 of the NIL? 2pts
78. The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not done for an
illegal or fraudulent purpose.
79. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.

Who is deemed holder in due course under Sec. 49 of the NIL? 3pts

80. The transfer vests in the transferee title as the transferor had therein
81. The transferee acquires, in addition, the right to have the indorsement of the transferor.
82. 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.

CLARNOTES
What are the obligations which a member of the Bar undertakes in the Attorney’s Oath (Rules of Court, Appendix: Legal
and Judicial Forms, Form 28, Attorney’s Oath? 7pts (83 to 88)

I do solemnly swear that I will maintain my allegiance to the Republic of the Philippines, support the Constitution and obey
the laws as well as the orders of the duly constituted authorities therein. I will do no falsehood, nor consent to the doing of
any in court; I will not wittingly nor willingly promote or sue any groundless, false, or unlawful suit; or give aid nor consent to
the same; I will delay no man for money or malice, and will conduct myself as a lawyer according to the best of my knowledge
and discretion, with all good fidelity as well to the courts as to my client; and I impose upon myself these voluntary
obligations without any mental reservation or purpose of evasion so help me God.

A makes an instrument payable to bearer and delivers it to B, B who in turn negotiates and delivers it to C. C Indorses it specially to D D
who in turn indorses it specially to E.
E however negotiate it to F by mere delivery

i. To which parties is B liable to? 2pts

C
- Section 65
ii. To which parties is C liable to? 2pts
D and E
- Section 40
iii. To which parties is D liable to? 1pt
E only
- Section 40
iv. To which parties is E liable to? 1pt
F
- 40, Sec. 65

• Negotiation by delivery makes the transferor liable to its immediate transferee only

M makes a note payable to the order of P.

P indorses it to A.
X obtains possession of the note fraudulently and indorses it to B, by forging A’s signature, B indorses to C.

i. May C enforce the instrument against M and P? 2pts

No because it cuts the line of liability upon A whose signature has been forged. Therefore all parties prior A cannot
be held liable (keep in mind also, that this is a payable to order instrument). – Sec. 23
ii. May C enforce the note against A? 2pts
No because it’s A’s signature that has been forged, it’s whole inoperative as to A. even if C is a holder in due course.
– Sec. 23
iii. May C go against B? 2pts
Yes
Sec. 65, 66: The indorsers who warrant among other matters that the instrument is genuine and in all respects what it
purports to be.
iv. May C go against X? 1pt
Yes, he can even hold X criminally liable - Sec. 65
v. May A go against M and P? 2pts
Yes - Sec. 65

M, maker
P, payee
X indorses the note to A by forging P’s signature.
A indorsed the note to B, B to C, C to D the present holder.

Who are the parties against whom D can enforce

the note? 2pts

• D, whether holder in due course or not, cannot claim from M and P because the forged indorsement cuts them off
from the claim of parties subsequent to the forgery since an indorsement is necessary for its negotitation
• D can enforce it against X, A, B, and C whose liable on their warranty as indorsers (can even hold X criminally liable)

CLARNOTES