Professional Documents
Culture Documents
Reviewer Midterm Examination
Reviewer Midterm Examination
Study Guide:
I. Definitions
unconditional promise in writing made by one person to another, signed by the maker,
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
3. Legal tender - it refers to coins and bank notes that must be accepted when issued in
payment of debt.
behalf
5. Non-negotiable instrument - these are commercial papers that does not have the
characteristics and does not conform to the requisites of a negotiable instrument as stated
6. Fictitious person - people who are not existing but are used falsely in documents or in any
7. Immediate parties - these are people, firms or entities who have close relationships that
8. Remote parties - these are the persons who are not familiar with the circumstances related
II. Discussions
1. Enumerate the requirements as to form and content of an instrument in order that it will be
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2. The drawee of a bill of exchange: dishonors or refuses to pay it. Will he be liable (a) to payee; (b) to the
drawer? Explain.
a. Yes, he is liable to the payee because he is primarily liable to the holder upon
acceptance of the instrument but if he did not accept the instrument, he would not be
liable.
b. It depends, he is liable to the drawer if he has funds of the drawer in his hands or there
is an agreement obligating the drawee to honor the drawer's order and dishonoring the instrument means
non-compliance of the drawee's obligation to the drawer.
- Section 12 of NIL generally states that ante-dating and post-dating is valid as long as it is
not negotiated after its maturity except when it is done for an illegal or fraudulent
Example: Post-dated instruments contain a date later than the date of the issuance and
used illegally if intended to cover insufficient funds without informing the payee while
Ante-dated instruments contain a date earlier than the date of the issuance and used
4. What is the effect of the insertion of a wrong date in an undated instrument by the holder:
a. The effect to him is void because the one who made possible the commission of the
wrong bears the loss therefore the holder inserting the wrong date will avoid the
instrument as to him.
b. With respect to a holder in due course, he may enforce it because the date written is to
be regarded as the true date with respect to him who acquired it in good faith.
5. May a person be held liable on an instrument although his signature does not appear
thereon? Explain.
- According to Section 18, the general rule is that only persons whose signatures appear on
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6. In case of forged instruments, who are not allowed by law to set up the defense of forgery,
- Those who are estopped by their acts, silence and negligence from setting up the defense
of forgery
-And indorsers, acceptors and persons negotiating by delivery who warrants or admit to
7. When is a promise or order to pay unconditional? Give two examples of terms appearing
- Example: "Reimburse yourself from the rentals of my car", "Received goods purchased
in exchange"
any act in addition to the payment of money is not negotiable unless it gives the holder
9. When is an instrument payable to bearer? Give the reason why an instrument payable to a
fictitious person is incapable of indorsing and has no right to the instrument because
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the person never existed and the maker or drawer has knowledge thereof.
11. Is the sum payable certain although the instrument is to be paid with costs incurred in
- Yes. Section 2 states that a sum payable is a sum certain even if paid with costs of
collection or an attorney's fee because it does not affect the certainty of the amount
payable at maturity.
12. Will the doing of an act in addition to the payment of money, make and instrument non-
negotiable? Explain.
act in addition to the payment of money is not negotiable unless it gives the holder an
13. When is an instrument payable to order? To whose order may an instrument be made
payable?
- Section 8 states that an instrument is payable to order when it is drawn payable to the
order of a specified person or to him or his order and the payee must be named or
otherwise indicated therein with reasonable certainty. It may be drawn payable to the
order of:
14. Will the failure to name the payee affect the negotiability of an instrument? Explain.
name of the payee must be stated or described with reasonable certainty otherwise the
instrument is deemed non-negotiable but when it is payable to bearer, the name of the
bearer.
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15. Give the requisites in order that an agent who signs a negotiable instrument on behalf of a
- According to section 20 the requisites for an agent to not be held personally liable are:
o He is duly authorized
o He adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity and
o He discloses or indicates the name of his principal.
III. Problems
Yes, because it complies with the requisites of a bill of exchange stated in Section 1
(b) of NIL
2. "I promise to pay X P10,000 within 10 days before I retire from government service." Is
No, the promise is conditional on an event which is not certain in contrast with what is
his name on the back thereof. The instrument was given by X to Y in payment for goods
- No, because the instrument is not negotiable because W wrote it as payable to X not including his order
therefore it cannot be indorsed after X.
4. A promissory note signed by W with the amount and payee in blank, was stolen by X
who put the amount of P10,000 and his name as payee, and indorsed the note to Y. then Y
- Z has no right to enforce it against W because according to section 15. an incomplete and undelivered
instrument if completed and negotiated without authority will not be a valid contract in the hands of
any holder as against any person whose signature was placed thereon before delivery
- Z has a right to enforce it against X and Y because they are parties whose signatures appear after the
delivery and are general indorsers that warrant the genuineness of the instrument.
5. W signs a promissory note payable to X, indicating that he signs "as agent." It is true that
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- It depends whether W disclosed his principal because Section 20 clearly states that mere addition of
words describing him as an agent without disclosing his principal does not exempt him from personal
liability.
- A cannot enforce the instrument against W and X because his rights was cut off by the forged
signature of Y and neither can he enforce the note against Y because Y's signature is wholly
inoperative under section 23. A has a right of recourse against Z.
7. In the same problem, suppose the note is payable to bearer, and A indorses the note to B
who, in turn, delivers without indorsement to C who acted in good faith. Give the rights
of C.
- C acting in good faith makes him a holder in due course and has the right to enforce it to W, the
maker, X and Y, parties prior to the forged signature and A and B who are parties after the forged
signature because the instrument is originally payable to bearer and can be negotiated by mere
delivery disregarding the forged indorsement
- No, because sa general rule, contracts entered by a minor are voidable. X may raise the defense of
minority to escape liablity.
9. "I promise to pay X P10,000 or if he wants a brand new six (6) cubic feet refrigerator. Is
- Yes, because under section 5, giving the holder an election to require something to be done in lieu of
payment of money does not affect the negotiability of an instrument.
10. X obtains W's signature for autograph purposes. Then X writes a negotiable instrument
against W?
- No, because under Section 15, the instrument is not a valid contract against any person whose
signature was placed thereon before delivery which was completed and delivered without his
authority.
11. W prepares a promissory note payable to order of X, his nephew, who steals the same and
from W?
- Yes, because under Section 16, there is a prima facie presumption that delivery has been made but is
subject to rebuttal by W.
12. W, a retiree, issued a promissory note, to wit: "I promise to pay X or order the sum of
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P50,000 out of the retirement pay which I will receive from the government". Actually,
W will get more than P200,000 as retirement benefits. Is the note negotiable?
- No, because the indication of the fund or account out of which the payment shall be made makes the
promise conditional.
13. "I promise to pay X or order P10,000 on or before September 20, 2012, following the
terms and conditions of the contract executed by W this date". Is the note negotiable?
- Yes, Section 3 (b) states that an unqualified order or promise to pay is unconditional even if coupled
with a statement of the transaction which gives rise to the instrument.
14. W, maker, of a promissory note which reads. "I promise to pay X or order P50,000 after I
sell my car". The following day, W was able to sell his car. Is the note a negotiable
instrument?
15. W signs an instrument as follows. "I promise to pay X or order P10,000." The instrument
- According to Section 17 (e) where the instrument is so ambiguous that there is doubt whether it is a
bill or note, the holder may treat it as either at his election.
CHAPTER II – CONSIDERATION
Study Guide:
I. Definitions
1. Consideration - it is the essential cause or reason why parties enter into a contract
2. Holder for value - the person whom the instrument is negotiated because of a valuable
3. Accommodation party - one who purposely lends his name to another without
receiving any value through the act of signing an instrument as the maker, drawer,
acceptor or indorser.
II. Discussions
- Under Section 29, an accommodation party is liable on the instrument even in the
absence of consideration between him and the accommodated party even though the
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2. Give the two (2) presumptions that under the law arise from the issue of a negotiable
Instrument
- Under section 24, every negotiable instrument is deemed (1) prima facie to have been issued for a
valuable consideration and (2) that every person whose signature appears thereon has become a
party thereto for value.
(a) Absence of consideration - The note would not be recovered between the maker
and the payee but the maker will be liable between him and a holder in due course
(b) Failure of consideration for the note - the maker is liable only to the extent of
the payee could not recover if the consideration is not complied with.
III. Problems
1. X indorses and delivers to Y as security (pledge) for X's debt in the amount of
P10,000, a promissory note for P12,000 issued by W in favor of X. How much can Y
collect from W.
- He can collect the P12,000 and apply it to X's debt and deliver the surplus to him under Section 27 as
Y is deemed a holder for value to the extent of his lien.
- If the note is subject to personal defenses, Y can only collect 10,000.
- If the note is subject to real defenses, Y cannot collect anything.
- Z is deemed a holder for value in respect to all parties who become such prior to that time because
there is value given for the instrument consistent with what is stated in Section 26. If Z is a holder in
due course, he may enforce the payment in full against W, X and Y. If Z is not a holder in due course,
W can set up the defense of absence of consideration.
3. W signs a bill of exchange in favor of X for P10,000. Give an instance when X may
enforce payment although W has not received any consideration from X for the bill.
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Study Guide:
I. Definitions
2. Indorsement - it is a new contract and obligation making the transferee the holder
thereof and it generates an additional contract between the indorser who warrants the
3. Assignment - transfer of the title to an instrument including all the defenses available
holder.
instrument because it either prohibits further negotiation, constitute that the indorsee is
an agent of the indorser or vests title to the indorsee for the benefit of a third party or
the indorser.
II. Discussions.
NEGOTIATION ASSIGNMENT
Mode of Transfer Effected by delivery or indorsement Done by writing signed by the
followed by delivery. transferor
Terms Negotiation refers only to Assignment refers generally to
negotiable instruments. ordinary contracts
Title The transferee becomes a holder in The assignee acquires all the rights
due course that takes the instrument and all the defects available against
free from defect in the title of the the assignor.
transferor and subject only to real
defenses.
Liability Indorser is not liable unless there be Assignor is always liable even if in
presentment and notice of dishonor. the absence of notice of dishonor.
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o to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.
- Yes, there is negotiation to a payee when the first delivery of the instrument is other
than the payee such as the agent of the maker or drawer or when the instrument is
assignor of the title to the instrument and it may be made by adding to the indorser's
signature the words "without recourse" or any words of similar import which in effect.
III. Problems
- It depends because generally an indorsement must be of the entire instrument under section 32 otherwise it
is not considered a valid negotiation unless the instrument is paid in part then it may be indorsed as to the
residue and be a valid negotiation.
2. X, payee of a note, indorses the same as follows: "Pay to Y or order." May Y negotiate
- If the note is payable to order originally, it may not be negotiated by mere delivery only unless it is an
indorsement in blank or an instrument originally payable to bearer wherein it may be negotiated by mere
delivery only.
3. W, issued a promissory note in favor of X who indorsed the note as follows: "Pay to
Y". May the note be negotiated by Y in the absence of words of negotiability, to wit:
- It depends. Yes because according to Sec. 36, the mere absence of words implying power to negotiate does
not make an indorsement restrictive unless there is a restrictive word following the statement such as "only"
which would prevent further negotiation and would cease the negotiability of the instrument.
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yet complied with the condition. Has X have the right to recover from W the amount
paid to Y?
- No but he has the right on the proceeds from Y who would not become the owner thereof until the
condition is fulfilled as stated in Section 39 wherein the party required to pay may disregard the condition
and make the payment to the indorsee or his transferee even if the condition is not fulfilled but any person
to whom an instrument so indorsed is negotiated will hold the proceeds thereof subject to the rights of the
person indorsing conditionally.
- No because under Section 50, an instrument negotiated back to a prior party, he is not entitled to enforce
payment thereof against all intervening party to whom he was personally liable.
Study Guide:
1. Definitions
1. Personal defenses - these are defenses available between original parties or immediate
2. Real defenses - these are defenses available against all parties including holders in
and causes him to enter without negligence into a transaction without accurately
realizing the true character of the instrument and the risk, duties and obligations
incurred by him.
infirmity, the transferee must have actual knowledge, either of the defect or infirmity.
or of such facts that his action in taking the instrument amounts to bad faith.
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II. Discussions
o holds the instrument free from any defect of title of prior parties
o free from defenses available to prior parties among themselves, and
o May enforce payment of the instrument for the full amount thereof against all parties liable thereon
- In Section 51, it is also stated that a holder in due course may sue in his own name and payment to him in
due course discharges the instrument.
- Under Section 52, a holder qualifies as a holder in due course if he has taken the
3. When is the title of one who negotiates an instrument defective under the law?
- Under Section 55, the title who negotiates an instrument is defective when he obtained
o fraud
o duress
o force and fear
o other unlawful means
o illegal consideration
o he negotiates in breach of faith; or
o other circumstances as to amount to a fraud
- If payable on occurrence of a specified event which is certain to happen, the date of maturity is the date when
the event actually happened.
5. Illustrate a situation where, in relation to an instrument, there are immediate, remote, and prior parties.
- D-J, J-P and P-B are immediate parties while D and B are remote parties and D, J and P are prior parties with
respect to B.
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III. Problems
1. W, a maker of a promissory note; X. payee, increased the amount and indorsed the
note to Y, a holder in due course, and from Y to Z who had notice of the fraud by X,
Decide the rights of Z with respect to W, X, and Y, and the rights of A with
- Z has all the rights of such holder in respect of W, X and Y having derived his title from Y who was a
holder in due course therefore he is a holder through a holder in due course and he was not a party to the
fraud.
- A cannot recover from W because he did not acquire his title from a holder in due course and is not free
from personal defenses.
- It depends because under Section 59, every holder is deemed prima facie to be a
holder in due course but when it is shown that the title of any person who has
negotiated the instrument was defective, the holder has the burden to prove that he is
actually a holder in due course or he acquired title from a holder in due course.
(b) What is the rule if the breach of faith was instead committed by Y against Z?
- The presumption that A is a holder in due course is not destroyed because X became
3. M, maker of promissory note for P10,000 in favor of X who indorsed it to Y. State the
(a) Before he has paid X - under section 54, he is relieved from the obligation to
make payment.
(b) After he has paid X P6,000 - under section 54, if he paid an amount before
discovering the infirmity, he can be considered a holder in due course only to the
(c) Y nevertheless paid X P10,000 under (a) - he would not be holder in due course
(d) Y nevertheless paid X P9, 000 under (b). - Y is a holder in due course to the
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extent of P 9,000.
Study Guide:
I. Definitions
1. Irregular or anomalous indorser - a person who is not really party to the instrument but
2. Party primarily liable - the person absolutely required to pay by the terms of the instrument
3. Indorser - Under section 63, an indorser is a person placing his signature upon an
4. Acceptor - an acceptor is the one who accepts an instrument and will be liable for
5. Maker - the one who makes a negotiable instrument and engages himself to pay it
according to his tenor and admits the existence of the payee and his then capacity to
indorse.
II. Discussions
1. Give the distinctions between a maker of a promissory note and the drawer of a bill of exchange.
Drawer Maker
Issues a bill of exchange Issues a promissory note
Secondarily liable Primarily liable
Can limit his liability Cannot limit his liability
3. Give the principal distinction between a primarily liable party and secondarily liable party.
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4. What conditions must be complied with to make a general indorser liable under an instrument?
- Under Section 66, a general indorser is liable when he engages on due presentment of the instrument that it shall be
accepted or paid or both according to its tenor an that if it be dishonored and necessary proceedings are duly taken,
he will pay the amount thereof to the holder or to any subsequent indorser who may compelled to pay it.
III. Problems
1. W, drawer, X, drawee of a bill of exchange payable to order of Y was indorsed successively to Z, A, and lastly, to
B, the present holder. X publicly made it known that he would not accept the bill. Learning this, B immediately tried
to recover from W. Decide.
- W is liable only to B and after necessary proceedings of dishonor are taken, indorser Y, Z and A would also be
liable to B and if A pays to B, A may recover from W, Y and Z. W, as drawer is permitted by law to limit his own
liability as inserted in the bill.
2. Same problem above. After accepting the bill, X discovered that the signature of Z was not genuine. X denies
liability. Decide.
- Under Section 62, an acceptor is primarily liable after he accepts it and cannot retract his acceptance against a
holder for value and an acceptor does not admit the genuineness of the drawer’s signature therefore in this case X
may not deny liability.
3. Same problem as (1). It was established that Z signed the instrument at the instance Y is not liable and for the
benefit of A for the purpose of identifying Y, the payee. For this reason, Z denies liability as an indorser. Decide.
- If Z indicated by using appropriate words his intention to e bound in other capacity, he may deny liablity otherwise
he is deemed an indorser under Section 63.
4. Suppose in the first problem, the instrument is promissory note payable to bearer and delivered to Y. It was
negotiated by delivery by Y to Z in whose hands the note was dishonored by W because of insolvency. Y denies
liablity to Z. Decide.
- Y is not liable because he does not warranty W’s solvency under Section 65.
5. Same problem. After dishonor, Z negotiated also by delivery, the note to A, a holder in due course, concealing the
lack of capacity of W to contract (not insolvency), being a minor. Are Y and Z liable to A?
- Y is not liable but Z is. Y is not because section 65 states that when negotiation by delivery only, the warrant
extends in favor of no holder other than the immediate transferee. Z is liable because he warrants that all prior
parties had capacity to contract when he delivered the instrument to A.
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