GROUP ASSIGNMENT # 1

(follow groupings as previously assigned during the first day of class)

(Answers to be submitted online through private message [YM]
to my FB account Bernie Caswang Mendoza not later than 7:00 pm of Feb. 25, 2017)
(Label group file following this format: YearSection Group Number Assign1; ex. 2D Group 1 Assign1)

BEGIN HERE!

PROBLEM 1:
Maria wrote of a check containing the amount of P100,000.00 which is made payable to the order of
Perla. Maria issued this check to Perla with the understanding that Perla will deliver 20 boxes of selected
premium used clothes to Maria. Perla indorsed the check to Inday who is a holder in due course (HIDC).
However, the drawee bank PNB did not pay the check upon presentment by Inday.

QUESTIONS: (assume that in Q1 and Q2 no boxes of clothes were delivered)

1) Can Inday require Maria to pay P100,000.00?

ANSWER:
- YES. A holder in due course is one who has acquired the instruments under the conditions
laid down in Sec. 52 of the NIL. IN this case, Inday is a holder in due course because the
check she acquired is complete and regular upon its face; she became the holder of it before
it was overdue; she took it in good faith and for value; and at the time it was negotiated to her,
she had not notice of any infirmity in the instrument.
- Inday being a holder in due course, according to Sec. 57 of the NIL, holds 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.

2) Suppose Inday is not a HIDC, is Maria liable to pay?

ANSWER:
- YES. Sec. 58 of the NIL states that, 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.
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.

3-a) Suppose only 6 boxes of selected premium used clothes equivalent to P30K were delivered
by Perla to Maria, can Inday who is not a HIDC require Maria to pay P100,000.00?

ANSWER:
- NO. Inday cannot require Maria to pay P100, 000.00. Inday who is not a holder in due course,
according to Sec. 58 of the NIL, is subject to personal defenses. There was failure of
consideration because only 6 boxes were delivered by Perla. Under Sec. 28 of the NIL,
Failure of consideration is a matter of defense as against any person not a holder in due
course.

3-b) How much could Maria be made liable in 3-a, if any?

ANSWER:
- Maria could be made liable to pay P30, 000.00. According to Sec. 28 of the NIL, Failure of
consideration is a matter of defense as against any person not a holder in due course; and
partial failure of consideration is a defense pro tanto, whether the failure is an ascertained
and liquidated amount or otherwise.
 PROBLEM 2: ON PARTIES AND CONSIDERATION
To start-up his business, Borromeo (B) borrowed from Manny (M) P1million pesos payable in stated
installments with 12% interest. The contract of loan contained an acceleration clause. As payment, B
issued 10 post-dated BPI checks in favor M. M, the brave and creative businessman that he is, had the
checks discounted with Indio. M, upon conversion of the checks to cash, used the proceeds to lend it to
other borrowers also for an interest.

a. Where the post-dated checks issued for value? Explain.

ANSWER:
- Yes, the post-dated checks were issued for value. Section 24 of NIL states the presumption
that every NI deemed prima facie to have been issued for value. The value being a
consideration sufficient to support a simple contract. Here, B loaned from M Php1M to start
up his business. B then issued the ten post-dated checks in favor of M for his payment of said
loan.

b. Is Indio a holder for value? Why?

ANSWER:
- Yes, Indio is a holder for value within the scope of sec 26 of NIL. A holder is presumed to be a
holder for value unless the contrary is proven. Pursuant to section 25, it's not necessary that
a consideration should be adequate. Thus, the purchase of an instrument at a discount
doesn't necessarily prevent one from being a bona fide holder for value. Indeed, Indio's act of
discounting the check of M does not remove him from the meaning of sec 26 since there is
still a valuable consideration only that it was disconnected as oppose to absence of value.

c. Based on the checks issued by B, when may B be held liable thereon? (sources of liability)

ANSWER:
- B is liable from the issuance of the check. By issuing a check, the drawer impliedly represents
that funds or credit are available for its payment in the drawee bank. Sec 61 provides that the
drawer, by drawing the instrument, admits the existence of the payee and his then capacity to
indorse; and engages that on due presentment the instrument will be accepted or paid
according to its tenor, that in case the same is dishonored the necessary proceedings on
dishonor will be duly taken.

PROBLEM 3: ABSENCE OR FAILURE OF CONSIDERATION AND DEFENSE PRO-TANTO

3-A Malou makes a promissory note amounting to P10,000 in favor of Pete in payment for an
invention which does not exist. Pete indorses the note to Amanda, a holder in due course. May the
PARTIES recover on the promissory note? Explain.

ANSWER:
- As between Malou and Pete, there can be no recovery on the promissory note as there is
absence of consideration. But when Pete indorses the note to Amanda who is a holder in due
course, Amanda can recover from Malou because absence of consideration is only a
personal defense not available against a holder in due course as provided for by Section 28
of the Negotiable Instruments Law.
3-B Same facts as in 3-A, but assume that there is really an invention owned by Pete which was sold,
but Pete failed to deliver it to Malou because the next day, Pete sold it again and simultaneously delivered
it to Xander who in good faith took the invention. May the PARTIES recover on the promissory note?
Explain.

ANSWER:
- There is an absence of consideration so Pete cannot recover from Malou even though the
invention was already sold and simultaneously delivered to Xander who in good faith took the
same.

3-C Same arrangement as in 3-A only that it was in payment for a truckload of vegetables and only
3/5 was delivered. May the PARTIES recover on the promissory note? Explain.

ANSWER:
- If only 3/5 portion of the truckload of vegetables was delivered, there would be a partial failure
of consideration which would bar recovery only pro tanto. Therefore, Pete could recover only
3/5 of the promissory note as Malou is not liable to the extent of 2/5 which is the price of the
undelivered portion.

PROBLEM 4 LIEN
Mandy drew a check for PI0,000.00 to the order of Paul who pledges it to Alfred to secure the payment of
Paul's debt of P7,000.00. The check is payable on demand. Pauls debt to Alfred is payable a year later.
The check is indorsed and delivered by Paul to Alfred.

a. Is Alfred a holder for value. If yes, to what extent? If no, why?

ANSWER:
- YES. Alfred is a holder for value to the extent of P7, 000.00 which is the extent of his lien.
According to Sec. 27 of the NIL, Where the holder has a lien on the instrument arising either
from a contract or by implication of law, he is deemed a holder for value to the extent of his
lien.

b. May Alfred enforce the check although Pauls debt is not yet due? If yes, upon whom and
for how much? If no, then when can he enforce it and against whom?

ANSWER:
- YES. Alfred may enforce the check upon Mandy for the whole amount of P10,000.00, but he
must deliver the surplus to Paul, the pledgor.

c. Supposing that the amount of the check is only P5,000, to what extent is Alfreds lien
thereon?

ANSWER:
- Alfreds lien is P5, 000.00. If the amount of the instrument is less than or the same as the
debt secured by such instrument, the pledgee is a holder for value for the full amount and
may, therefore, recover all.
 d. Supposing that the amount of the check is P15,000, to what extent is Alfreds lien thereon?

ANSWER:
- Alfreds lien is P7, 000.00. According to Sec. 27 of the NIL, Where the holder has a lien on
the instrument arising either from a contract or by implication of law, he is deemed a holder
for value to the extent of his lien.

e. Supposing that the signature of Mandy was forged, how may Alfred recover on the check?

ANSWER:
- Alfred cannot collect anything from Mandy because Mandys signature is inoperative. As
against Mandy, Alfred acquired no right to enforce payment of the note. Forgery is a real
defense.

PROBLEM 5 TRUE or FALSE

1. A holder of a negotiable instrument (NI) is presumed to be a holder for value until the contrary is
shown by any party who claims otherwise. -TRUE

2. One who has taken a NI as collateral security for a debt has lien on the instrument. -TRUE

3. A drawee who accepts the bill cannot allege want of consideration against the drawer. -TRUE
4. If NI is payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder and completed by delivery. -TRUE

5. There is no negotiation if the transfer does not make the transferee the holder of the instrument.

6. BONUS: Love and affection, gratitude and moral obligation based on honor and dignity
are not considered valuable consideration. Accordingly, want of consideration may be
raised for any of them as a defense against a holder not in due course.- TRUE
Comment: Upon reflection, I may have said that this was the majority view. I SHOULD HAVE
SAID that this was the MINORITY VIEW and which is not accepted by many. Please be
corrected!

For 7 to 8: Relate the statements to the presented scenario: M issues a PN payable to the order of P for
P5k without valuable consideration. P indorses that note to A, A to B, and B to H who gives B P5k for the
note indorsed to him.

7. H is a holder for value not only with respect to B to whom he gave a valuable consideration but
also with respect to M, P and A. -TRUE

8. For M, P is not a holder for value. -TRUE

For 9 to 10: Relate the statements to the presented scenario: M issues a PN payable to the order of P
for P5k. P indorses that note to A, A to B, and B to C who is known to have given value to B for the note
indorsed to him. Later, C indorses the note to H as a gift.

9. For C, H is not a holder for value. -TRUE

 10. As regards M, P, A, and B, H is a holder for value because they (M, P, A, B) became parties to the
note prior to the time that value has been given to B. -TRUE

PROBLEM 6 on TRANSFER AND NEGOTIATION of NEGOTIABLE INSTRUMENTS

Topics Covered: Issuance and Delivery of NI, Negotiation Defined, Incomplete Negotiation of Order
Instruments

PART A MULTIPLE CHOICE

CHOICES for 1-3 are the following: (Write the CAPITAL LETTER of the BEST ANSWER.)
A. Assignment
B. Negotiation
C. Issuance
D. Indorsement
E. Delivery

1. It is the first delivery of the instrument complete in form to a person who takes it as a holder. -C
2. It is the transfer of a NI from one person to another made in such a manner as to constitute the
transferee the holder thereof. -B

3. It means the transfer of possession, actual or constructive, from one person to another. -E

4. The writing of the signature on a paper attached to the negotiable instrument. -A

A. Allonge
B. Procuration
C. Forgery
D. Alteration

5. Aldo purchased an overdue negotiable promissory note signed by Bobby. Therefore, Aldo is not a
holder in due course. Can Aldo still enforce the instrument against Bobby and hold the latter still liable for
the amount stipulated in the instrument? -C
A. No, because the promissory note is already overdue.
B. No, because Aldo is not a holder in due course.
C. Yes, because the Negotiable Instrument Law does not provide that a holder who is not a holder in
due course may not recover on the instrument in any case.
D. Yes, because Bobby cannot raise the defense that the promissory note is overdue.

PART B MODIFIED MATCHING TYPE

(Write the CAPITAL LETTER of the BEST ANSWER.)
Match the following doctrines with the related cases upon which they were emphasized and upheld by the
court.

For items 1 to 6, choices are:

A. Ang Tek Lian vs. the Court of Appeals, G.R. No. L-2516, September 25, 1950
B. Sesbreno vs. Court of Appeals, 222 SCRA 466, 1993
C. State Investment House, Inc. v. Court of Appeals, 217 SCRA 32
D. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust Company, G.R.
No. 97753, August 10, 1992
E. Yang vs. CA, 409 SCRA 159 (2003)
1. Where a check is made payable to the order of cash, the word cash does not purport to be the
name of any person, and hence the instrument is payable to bearer. The drawee bank need not
obtain any indorsement of the check, but may pay it to the person presenting it without any
indorsement. A

2. Every holder is presumed to be a HDC. Also, a holder is not obliged to show that there was valuable
consideration, since the same is presumed. He does not also have to show that he made the
aforementioned inquiry. Absence the showing of a circumstance that should have put the holder into
such an inquiry, the failure to inquire is not tantamount to bad faith. -E

3. A drawer who issued two checks as security for jewelry to be sold by the drawer is liable to an
endorsee to whom the payee negotiated the checks even if the drawer returned the pieces of jewelry
to the payee, since the payee is presumed to be a holder in due course and the drawer cannot invoke
want of consideration between the drawer and the payee as a defense. -C

4. If an assigned promissory note had already been extinguished because its maker is similarly indebted
to the assignor, then the defense of set-off or legal compensation could also be invoked against the
assignee of the note. The debtors consent is not needed to effectuate assignment of credit and
negotiation. -B

5. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument
may, obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the instrument. In this case, while the
promissory note was marked "non-negotiable," it was not at the same time stamped "non-
transferable" or "non-assignable." Hence, there is no stipulation which prohibited the promissory
notes assigning or transferring, in whole or in part. B

6. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder thereof, and a holder
may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In
case of a bearer instrument, mere delivery would suffice. -D