NIL: GUIDE QUESTIONS AND ANSWERS

November 13, 2021

1. What are the defenses that an acceptor is precluded from asserting?

The defenses that an acceptor is precluded from asserting are:

a. Drawer is fictitious or non-existent; or
b. Drawer’s signature is a forgery; or
c. Drawer has no capacity to contract or has no authority to draw a bill.

2. Difference between authority required for agent to:

a. Accept notices of dishonor
b. Give notices of dishonor

In terms of necessity of authority, for giving of notices of dishonor, agent need

not be authorized by the principal to give the notice. Any person can be an agent
of any party entitled to give notice while for accepting notices of dishonor, the
agent to whom notice is given must be authorized to receive notice for the drawer
or indorser concerned and not merely an agent for a specified purpose.

In terms of form, for giving of notices of dishonor, form of authority is not material
since authorization orally done may sufficed, while for accepting notices of
dishonor, it should be in writing throught the form of a special or general power of
attorney.

The reason for the difference is because the giving of notice benefits the principal
while the receipt of notice creates liability.

3. Enumerate:
a. Modes of discharging an instrument
b. How parties secondarily liable are discharged?

Modes of discharging an instrument are:

a. By payment in due course by or on behalf of the principal debtor;

b. By payment in due course by the party accommodated, where the instrument
is made or accepted for accommodation;
c. By the intentional cancellation thereof by the holder;
d. By any other act which will discharge simple contract for the payment of
money (modes of extinguishement of obligations)
1. By payment or performance;

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2. By the loss of the thing due (but inapplicable in NIL since money is a
generic thing);
3. By the condonation or remission of the debts;
4. By the confusion or merger of the rights of creditor and debtor;
5. By compensation; and
6. By novation.
e. When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.

Modes of discharging parties secondarily liable instrument on the

instrument are:

a. By any act which discharges the instrument;

b. By the intentional cancellation of his signature by the holder;
c. By the discharge of a prior party which must be intentional;
d. By a valid tender of payment made by a prior party;
e. By a release of the principal debtor, unless the holder’s right of recourse
against the party secondarily liable is expressly reserved; or
f. By any agreement binding upon the holder to extend the time of payment, or
to postpone the holder’s righ to enforce the instrument, unless made with the
assent of the party secondarily liable, or unless the right of recourse against
such party is expressly reserved.

November 18, 2021

1. Explain the rules on renunciation.

Renunciation is the act of surrendering a right or claim which must be made by a

written declaration to that effect.

A renunciation by the holder of his rights against any party to the instrument also
acts as a discharge with the following effects:

a. A renunciation in favour of a secondary party may be made by the holder

before, at, or after the maturity of the instrument which will discharge only
such secondary party and all parties subsequent to him but the instrument
itself remains in force; and
b. An absolute and unconditional renunciation of rights against the principal
debtor made at or after the maturity of the instrument discharges the
instrument.

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In either case, such renunciation does not affect the rights of a holder in due
course without notice. If the renunciation is made before maturity of the
instrument, it runs the risk of being negotiated later so as to gain a new life in the
hands of a holder in due course since renunciation is only a personal defense.

2. What is/are the effect/s if the holder agrees to an extension of time for payment?

If the holder agrees with the principal debtor to an extension of time for payment,
the parties secondarily liable on the instrument will be discharged, unless if the
extension of time is consented to by the parties secondarily liable and where the
holder expressly reserves his right of recourse against them.

3. Summarize the rules on forgery. Give at least one example.

Forgery is meant the counterfeit-making or fraudulent alteration of a writing, and

may consist in the signing of another’s name or alteration of an instrument in the
name, amount, description of the person, and the like, with the intent to defraud.

If the signature is forged, such signature is wholly inoperative and so no right can
be acquired through the forced signature. Payment made through or under such
forged signature is ineffectual and does not discharge the instrument. A person
whose signature was forged as maker, drawer, payee or indorsee of a note or
check was never a party or never gave his consent to the contract which gave
rise to the instrument. Since his signature does not appear in the instrument, he
cannot be held liable.

In dealing forgery, distinction of whether the instrument is an order or bearer

instrument should be made. There can be forgery of the maker/drawer’s
signature and forgery of an indorsement on the note or on the bill. But the extent
of the effect of forgery does not purport to declare the instrument totally void nor
the genuine signatures thereon inoperative. It is only the forged or unauthorized
signature that is declared to be inoperative. This means that rights may still exist
and be enfored by virtue of such instrument as to those whose signatures thereto
are found to be genuine.

A forged indorsement prevents any subsequent party from acquiring any right as
against any party whose name appears prior to the forgery. Although rights may
exist between and among parties subsequent to the forged indorsement, not one
of them can acquire rights against parties prior to the forgery. Such an
indorsement cuts off the rights of all subsequent parties as against parties prior
to the forgery.

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The rule on forgery likewise provide two classes who are precluded from setting
up the defense of forgery such as: (1) those who by their acts, silence, or
negligence, are estopped from setting up the defense of forgery; and (2) those
who warrant or admit the genuineness of the signatures in question – indorsers,
acceptors, and persons negotiating by delivery.

Finally, forgery is a real or absolute defense even against a holder in due course.

Example:

M makes a note payable to P or order. P indorsers the note to A. X finds it. X

indorses the note to B, forging A’s signature.

(a) A, whose indorsement is forged, is not liable to B, whether B is a holder in

due course or not. Being forged, the indorsement is wholly inoperative.

(b) M and P, parties prior to A, whose signature is forged, are also not liable to B.
The indorsement of the note by A together with the delivery of the same, is
the only means through which B could acquire any right against M and P
under the instrument. But since the indorsement is forged, it is inoperative.
Consequently, no rights can be enforced by virtue of such instrument.

(c) However, B has a remedy against X who forged the instrument.