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1 | Negotiable Instruments Law Magne

1. What is Negotiable Instrument?

2. What are the requisites of negotiability?
3. What does negotiation mean?
4. How is the negotiability of an instrument be determined?
5. When does negotiability ends?
6. What are the functions of a negotiable instrument?
7. What are the two important features of a negotiable instrument?
8. What is a promissory note?
9. When can a bill of exchange be treated as a promissory note?
10. Differentiate the following:
a. Negotiable Promissory Note vs. Negotiable Bill of exchange.
b. Ordinary Bill of Exchange vs. Check
c. Negotiability vs. Assignability
d. Distinguish Real Defenses from Personal Defenses
11. Juan Cruz borrowed P1000.00 from Pedro Santos as evidenced by a promissory note executed by
X as maker. All other requisites of negotiability are present in the note except that Juan Cruz did
not affix his usual signature thereon. As Juan was ailing at that time, he was only able to put “X”
in the space meant for the signature of the maker. Is the requisite that the instrument must be
signed by the maker complied with?
12. Is a promissory note wherein the maker promises to pay “as soon as his means permit him to do
so” negotiable?
13. A treasury warrant was issued by Mr. BA in his capacity as disbursing officer of the Food
Administration, a government instrumentality. The warrant states that it is “payable for additional
cash advances for the Food Program in La Union” and the amount stated therein is “payable from
the appropriation for Food Administration.” The warrant is now in the hands of Mr. BA who claims
to be a holder in due course. Can BA be considered a holder in due course?
14. A bookstore received five postal money orders totalling P1, 000.00 as part of sales receipts, and
deposited the same with a bank. A day after, the bank tried to clear them with the Bureau of
Posts. It turned out, however, that the postal money orders were irregularly issued, thereby
prompting the Bureau of Posts to serve notice upon all banks not to pay orders if presented for
payment. The Bureau of Posts further informed the bank that the amount of P1,000.00 had been
deducted from the bank’s clearing account for the same amount. A complaint was filed by the
bookstore against the Bureau of Posts and the bank for the recovery of the sum of P1,000.00
which however, was dismissed by the trial court. The bookstore appealed contending that postal
money orders are negotiable instruments and that their nature could not have been affected by
the notice send by the Bureau of Posts to the Banks. How would you resolve the controversy?
15. What is payable to order or bearer?
16. What are order instruments?
17. Determine if the following instrument is negotiable: “FOR VALUE RECEIVED, I/we jointly and
severally promise to pay to the ITM Corporation, the sum of ONE MILLION NINETY THREE
THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine
Currency, the said principal sum, to be payable in 24 monthly instalments starting July 15, 1978
and every 15th of the month thereafter until fully paid..
18. ATL drew a check in Nov. 16, 2000 upon C Bank for the sum of P4,000.00 payable to the order of
cash. He delivered the check to Mr. LHH on the same day in exchange for money. LHH gave the
money to ATL because the latter represented that he badly needed the amount but could not
withdraw from this bank because the bank was already closed. ATL’s check was later dishonoured
because the account on which it was drawn did not have sufficient funds. When ATL was later
prosecuted for estafa under Article 315(d)(2) of the RPC, he alledged that he is not liable arguing
that the check should not have been presented for payment because he did not indorse the same.
Is the argument of ATL tenable?
19. When date may be inserted by holder?
20. Can a bill of exchange or a promissory note qualify as a negotiable instrument if: (a) it is not dated;
(b) or the day and the month, but not the year of its maturity is given (c) or it is payable to “cash”;
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(d) or it names two alternative drawees; (e)or it does not state the place where it is made or
21. The manager and treasurer of MORB Company executed and delivered to PNB a promissory note
whereby the company promises to pay to the order of PNB the amount of P61,000.00. The note
contains the following stipulations: “Without defalcation, value received; and do hereby authorize
any attorney in the Philippines, in case this note be not paid at maturity, to appear in the name
and confess judgement for the above sum with interest, cost of suit and attorney’s fees of ten
percent(10%) for collection, a release of all errors and waiver of all rights to inquisition and appeal,
and to the benefit of all laws exempting property, real or personal, from levy or sale.” MORB
claims that the instrument is not negotiable because the above stipulations are invalid. Is MORB
22. Richard Clinton makes a promissory note payable to bearer and delivers the same to Aurora Page.
Aurora Page, however, indorses it to X in this manner: “Payable to X. Signed: Aurora Page” Later,
without indorsing the promissory note, X transfers and delivers the same to Napoleon. Richard
Clinton subsequently dishonors the note. May Napoleon proceed against Richard Clinton for the
23. Where indorsement should be placed?
24. Who is a holder in due course?
25. A is indebted to B in the amount of P100,000.00. In order to raise funds to pay for his obligation,
A sold his old car to C for P100,000.00 on Jan 20, 2001. A agreed to deliver the car to C on Jan. 25,
2001. However, A convinced C to immediately issue a check and to make the check payable to B.
A informed C that the check will be issued to B because of A’s outstanding obligation. Hence, C
issued a check to B to pay for the loan of A payable on Jan. 25, 2001. The check was delivered to
B through A. B and C were not aware at that time that the car was sold, it was already destroyed
by fire. A fraudulently hid such fact in order to convince C to issue the check and to convince B to
accept the check. Can B, the payee of the check be considered holder in due course?
26. Rolando, intending to buy a car, saw an old friend, Roger, who is an agent to sell the car belonging
to Delgado Clinic. After negotiation, Rolando decided to buy said car. He drew upon request of
Roger, a crossed check for P600.00, payable to Delgado Clinic as evidence of his good faith, but
which was merely meant to be shown to Delgado Clinic by Roger who received said check. The
check would then be returned when Roger brings the car and its registration certificate for
Rolando’s inspection. For failure of Roger to bring the car and its certificate of registration, and to
return the check, Rolando issued a “stop payment order” to the drawee bank. In the meantime,
Roger paid the check to the Delgado Clinic for the hospital bill of his wife and was given P158.25
as change. May Delgado Clinic be considered a holder in due course, hence entitled to recover?
Decide with reasons.
27. Po press issued in favour of Jose a postdated crossed check, in payment of newsprint which Jose
promised to deliver. Jose sold and negotiated the check to Excel Inc. at a discount. Excel did not
ask Jose the purpose of crossing the check. Since Jose failed to deliver the newsprint, Po ordered
the drawee bank to stop payment on the check. Efforts of Excel to collect from Po failed. Excel
wants to know from you as counsel: 1) Is Excel a holder in due course? 2) Can Po Press raise
absence or failure of consideration as a defense?
28. What are the rights of a holder in due course?
29. Larry issued a negotiable promissory note to Evelyn and authorized the latter to fill up the amount
in blank with his loan account in the sum of P1,000.00. However, Evelyn inserted P5,000.00 in
violation of the instruction. She negotiated the note to Julie who had knowledge of the infirmity.
Julie in turn negotiated said note to Devi for value and who had no knowledge of the infirmity.
Supposing Devi endorses the note to Baby for value but who has knowledge of the infirmity, can
the latter enforce the note against Larry?
30. What are the effects of Forgery?
31. M, maker, prepared a promissory note payable to the order of A, but he did not sign the same
and left it inside his drawer, but he did not sign the same and left it inside his drawer. X, a thief,
stole the instrument, forged M’s signature and delivered the same to A. A indorsed the instrument
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to B, B in turn indorsed it to C, then C to D, the present holder. (a) Against whom can D enforce
payment? (b) Will your answer be the same if the instruments is a bearer instrument?
32. Juan de la Cruz signs a promissory note payable to Pedro Lim or bearer, and delivers it personally
to Pedro Lim. The latter somehow misplaces the said note and Carlos Ros finds the note lying
around the corridor of the building. Carlos Ros endorses the promissory note to Juana Bond, for
value, by forging the signature of Pedro Lim. May Juana Bond hold Juan de la Cruz liable on the
33. Fernando forged the name of Daniel, manager of a Trading Company, as the drawer of the check.
The Bank of the Philippine Islands, the drawee bank, did not detect the forgery and paid the
amount. May the bank charge the amount paid against the account of the alledged drawer?
34. Hernan issued a check payable to the order of Fernando in the sum of P12,000.00, and drawn on
X bank. The check was delivered to Matilde by Adriano for encashment. At that time, the check
had the indorsements of Fernando and Rosa. When Matilde encashed it with X Bank, she affixed
her signature on the check. Upon Matilde’s receipt of the cash proceeds of the check she turned
the amount to Adriano. X bank was informed that the alledged indorsement of the payee
Fernando was a forgery, since the latter had died 2 years ago. X bank having refunded the amount
to Hernan. Sued Matilde, who refused to return the money. A) Was X bank correct in paying
Hernan? B) Does X bank have a cause of action against Matilde?
35. A delivers a bearer instrument to B. B then specially indorses it to C and C later indorses it in blank
to D. E steals the instrument to D and, forging the signature of D, succeeds in “negotiating” it to F
who acquired the instrument in good faith and for value. If for any reason, the drawee bank
refuses to honor the check, can F enforce the instrument against the drawer? In case of the
dishonour of the check by both the drawee and the drawer, can F hold any of B, C, and D liable
secondarily on the instrument?
36. Give the effect of each of the following:
a. Incomplete but delivered instrument
b. Complete but undelivered instrument
c. Incomplete undelivered instrument
37. Jose Reyes signed a blank check, and in his haste to attend a party, left the check at the top of his
executive desk in his office. Later, Nazareno forced open the door to Reyes’ office, and stole the
blank check. Nazareno immediately filled in the amount of P50,000.00 and a fictitious name as
payee on the said check. Nazareno then endorsed the check in the payee’s name and passed it to
Roldan. Thereafter, Roldan endorsed the check to Dantes.
a. Can Dantes enforce the check Jose Reyes? Explain.
b. If Dantes is a holder in due course will your answer to question (a) be the same? Explain.
38. A signed blank check and kept it inside the drawer of his desk in his office. B, a janitor in the office
opened the drawer, got the check and filled in the amount of P100,000.00 with B’s name as payee.
Thereafter, B indorsed the check to C and C indorsed the check to D. Should the drawee bank
dishonour the check? Can D hold A liable? Would your answer be the same if D was a holder in
due course? How about B and C, are they liable to D?
39. What is material Alteration? What are it’s effects?
40. Is the alteration of the serial number of a check a material alteration?
41. What is fraud?
42. A induced B by fraud to make a promissory note payable on demand to the order of A in the sum
of P5,000,000.00. A) can A file an action successfully against the maker B for the amount of the
note? Reasons. B) Going further, A transfer the note to C who pays P5,000,000.00 therefore and
acquires the note under the circumstances that make him. C) A holder in due course. Can C file an
action against B, the maker of the note, for the amount of the note? Explain.
43. NM issued 2 postdated checks to CV, as security for pieces of jewelry to be sold. Each check has a
face value of P50,000.00. Thereafter, CV negotiated the check to SIJ Inc. without the knowledge
of NM. NM returned the jewelries to CV and tried to retrieve the checks. Having failed to do so,
NM withdrew her funds from the drawee bank and the checks were consequently dishonoured
when presented for payment. SIH sued NM who interposed the defense that the checks do not
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have any consideration. However, NM did not present proof that SIH is not a holder in due course.
Will the defense of absence of consideration prosper against SIH?
44. A bill of exchange was issued because of the love and affection of the drawer for the payee. Can
the drawer be held secondarily liable(assuming non-acceptance by the drawee) on the
instrument: A) by the payee; B) by a holder in due course?
45. Pedro issued a negotiable note to Juan, a government employee, to facilitate the early release of
the government approval of the application that he filed. Juan negotiated the instrument to Pablo,
a holder in due course. When Pablo presented the instrument to Pedro for payment, Pedro claims
that he is not liable because the consideration was illicit. Is the refusal of Pedro justified?
46. Where the President of a corporation issues a company check and signs it in his capacity as
president(being an authorized signatory) in payment of a car which he purchased for his office
use, but without the approval of the board of directors, and the check is dishonoured by the
drawee bank, may the seller of the car recover from the drawee bank, the corporation, and the
president of the corporation?
47. Does the payee of holder of a check have a cause of action against the drawee bank if the latter
dishonors the check?
48. What are the warranties of: A) qualified endorser b) general endorser
49. Who is an accommodation party?
50. On June 1, 1990, A obtained a loan of P100,000.00 from B, payable not later than Dec 21, 1990. B
required A to issue him a check for that amount to be dated Dec 20, 1990. Since he does not have
any checking account, A, with the knowledge of B, requested his friend, C, president of X Banking
Corporation, to accommodate him. C agreed. He signed a check for the aforesaid amount, dated
Dec 20, 1990, drawn by Banking Corporation with the ABC Commercial Banking Corporation as
drawee. The by-laws of X Banking Corporation requires that checks issued by it must be signed by
the President and the Treasurer or the Vice-President. Since the Treasurer was absent, C
requested the vice-president to co-sign the check, which the latter reluctantly did. The check was
delivered to B. The check was dishonoured upon the presentation on due date for insufficiency of
funds. (a) Is X Banking Corporation liable on the check as an accommodation party? B) If it is not,
who then, under the above facts, is/are liable?
51. Santos purchased Vera’s car for P50,000.00. Not having enough cash at hand, Santos offered to
pay in check. Vera refused to accept check unless it is indorsed by Reyes, their mutual friend.
Reyes indorsed Santos’ check and Vera, knowing that Reyes had not received any value for
indorsing the check, accepted it. The next day, Vera presented the check to the drawee bank for
payment. Payment was refused for lack of funds. Vera gave notice of dishonour to Reyes, but
Reyes refused to pay, saying that he indorsed merely as a friend. In the event Reyes voluntarily
pays Vera, does Reyes have a right to recover from Santos? Explain.
52. Gemma drew a check on Sept. 13, 1990. The holder presented the check to the drawee only on
March 5, 1994. The bank dishonoured the check on the same date. After dishonoured by the
drawee bank, the holder gave a formal notice of dishonour to Gemma through a letter dated April
27, 1994. A) What is meant by “unreasonable time” as applied to presentment? B) Is Gemma
liable to the holder?
53. What are the obligations of transferors?
54. How may a negotiable instrument be discharged?
55. What is payment in due course?
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Note: 1-55 from Sundiang commercial law reviewer 2013