ORQUIA, ANNDHREA S.

BSA-22
Negotiable Instruments Law Assignment Chapters
PAGE 92-95
Study Guide:
I. Definitions
1. Negotiable promissory note – Sec. 184 defines a negotiable promissory note as an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on
demand or at a fixed r determinable future time, a sum certain in money to order or to bearer.
2. Negotiable bill of exchange – Sec. 126 defines a negotiable bill of exchange as an 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 determinable future time a sum
certain in money to order to bearer.
3. Legal tender – it refers to coins and bank notes that must be accepted when issued in payment of
debt.
4. Procuration – an act of giving power to another to act as an agent or a proxy on one’s 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 in Section 1 of the Law
on Negotiable Instruments.
6. Fictitious person – people who are not existing but are used falsely in documents or in any other
similar form.
7. Immediate parties – these are people, firms or entities who have close relationships that are
involved through contracts or agreements or joint signatories thereof.
8. Remote parties – these are the persons who are not familiar with the circumstances related with the
negotiation of an instrument.

II. Discussions
1. Enumerate the requirements as to form and content of an instrument in order that it will be
negotiable under the law.
- Under Sec. 1, the requisites are:
o it must be in writing and signed by the maker
o must contain an unconditional promise or order to pay a sum certain in money
o must be payable on demand, or at a fixed determinable future time
o must be payable to order or bearer; and
o Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

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.
3. Is ante-dating or post-dating an instrument illegal? Explain and illustrate.
- Sect ion 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 purpose. The
title is acquired as of the date the instrument is delivered.
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 illegally to cover the
charging of unreasonable high rate of interest.

4. What is the effect of the insertion of a wrong date in an undated instrument by the holder: (a) as to
him? (b) With respect to a holder in due course?
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 the
instrument are liable except:
o when they sign in a trade or assumed name
o when a duly authorized agent signs in behalf of a principal who is liable to the payee
o a forger is liable in case of forgery
o when an acceptor accepted a bill on a separate paper known as an allonge
o Or when a person who makes a written promise to accept a bill before it was drawn according
to Section 135.

6. In case of forged instruments, who are not allowed by law to set up the defense of forgery, and are,
therefore made liable to the holder?
- 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 the
genuineness of the signatures in question.

7. When is a promise or order to pay unconditional? Give two examples of terms appearing in an
instrument which will not make the promise or order conditional.
- According to Section 3, a promise is unconditional when it contains an unconditional promise or
order to pay a sum certain in money.
- Example: “Reimburse yourself from the rentals of my car”, “Received goods purchased in
exchange”

8. Suppose an instrument contains a promise or order to do an act in addition to the payment of

money. Will it render the instrument non-negotiable? Explain.
- Yes because according to Section 5 an instrument containing a promise or order to do any act in
addition to the payment of money is not negotiable unless it gives the holder an election to
require something to be done in lieu of payment of money.

9. When is an instrument payable to bearer? Give the reason why an instrument payable to a
fictitious person is treated as a bearer instrument.
 -Section 9 states that the instrument is payable to bearer:
o When it is expressed to be so payable
o When it is payable to a person named therein or bearer
o When it is payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
o When the name of the payee does not purport to be the name of any person; or
o When the only or last indorsement is an indorsement in blank.
- An instrument payable to a fictitious person is treated as a bearer instrument because a fictitious
person is incapable of indorsing and has no right to the instrument because the person never
existed and the maker or drawer has knowledge thereof.

10. Who are the original parties to a :

(a) Promissory note – maker and payee
(b) Bill of exchange – drawer, drawee and payee.

11. Is the sum payable certain although the instrument is to be paid with costs incurred in collecting
the same plus attorney’s fees? Why?
- 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.
-Yes because according to Section 5 an instrument containing a promise or order to do any act in
addition to the payment of money is not negotiable unless it gives the holder an election to
require something to be done in lieu of payment of money.

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:
o A payee who is not maker, drawer, or drawee; or
o The drawer or maker; or
o The drawee; or
o Two or more payees jointly; or
o One or some of several payees; or
o The holder of an office for the time being.

14. Will the failure to name the payee affect the negotiability of an instrument? Explain.
- It depends because according to Section 8, when an instrument is payable to order, the 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 payee may not be
written as long as the instrument is expressed to be so payable to bearer.

15. Give the requisites in order that an agent who signs a negotiable instrument on behalf of a
principal may not be held personally liable to the payee or holder.
- 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 thathe 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
Explain or state briefly the rule or reason for your answers.

1. A bill of exchange signed by W addressed to X states: “Please pay Y or order P10,000.” Is the
bill negotiable?
- 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 the note
negotiable?
- No, the promise is conditional on an event which is not certain in contrast with what is stated
in Section 4 (c). Hence, it is not a negotiable instrument.

3. An instrument signed by W payable to X was indorsed by blank by X by simply writing his name
on the back thereof. The instrument was given by X to Y in payment for goods sold by Y. Is the
note negotiable in the hands of Y?
- 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 to Z. Has Z have
the right to enforce against W? X? 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 he is
acting for Y, His principal. May X hold W personally liable?
- 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.

6. W, maker of a promissory note, payable to order of X who indorses it to Y whose signature is

forged by Z, who, in turn, indorses it to A. State the right of A assuming he acted in good faith.
- 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.
 8. W, maker of a promissory note payable to order of X, a minor, was indorsed by X to Y. Is X
liable to Y if W cannot pay?
- No, because as a 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 the
promissory note negotiable?
- 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 over it
and indorses it to Y, then Y to Z, then Z to A. Can the instrument be enforced by 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
indorses it to Y, then Y to Z, from Z to A who as unaware of the theft. May A recover 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 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?
- No, because the payment is made to depend upon a contingent act.

15. W signs an instrument as follows. “I promise to pay X or order P10,000.” The instrument is
addressed to Y. Is the instrument a promissory note or a bill of exchange?
- According to Section 17 (e) where the instrument is so ambigupus that there is doubt whether
it is a bill or note, the holder may treat it as either at his election

PAGE 106-107
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
consideration given by him.
 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.
4. Failure of consideration – it is the non-compliance of a party by failing or refusing to the
consideration agreed upon.

II. Discussions
1. State the liability of an accommodation party on an instrument.
- 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 holder of the
instrument knew him to be only an accommodation party.

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.
3. State the liability of a maker of a promissory note when there is:
(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 because
absence of consideration is not a personal defense against the latter.

(b) Failure of consideration for the note – the maker is liable only to the extent of
consideration delivered to him known as partial failure of consideration otherwise the
payee could not recover if the consideration is not complied with.

III. Problems
Explain or state briefly the rule or reasons for your answer.
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.

2. A promissory note was issued by W without consideration to X who indorsed it to Y, from Y to Z

for value. Give the rights to Z.
- 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.
- X may enforce payment from W if W has an antecedent or pre-existing debt. The payment of
debt is sufficient to be a valuable consideration and the debt may be that of a third party.
PAGE 142-144
Study Guide:
I. Definitions
1. Negotiation – the act of transferring a negotiable instrument from one person to another to make
the transferee the holder thereof.
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 genuineness of the
instrument and all subsequent holders.
3. Assignment – transfer of the title to an instrument including all the defenses available against the
assignor without the need of an indorsement.
4. Issue – it is the first delivery of a complete instrument to a person who take it as a holder.
5. Restrictive indorsement – an indorsement that destroys the negotiability of the 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
1. Give at least four (4) distinctions between negotiation and assignment.
NEGOTIATION
Mode of Transfer Effected by delivery or
indorsement followed by
delivery.
Terms Negotiation refers only to
negotiable instruments.
Title The transferee becomes a
holder in due course that
takes the instrument free
from defect in the title of the
transferor and subject only to
real defenses.
Liability Indorser is not liable unless
there be presentment and
notice of dishonor.
ASSIGNMENT
Done by writing signed by
the transferor
Assignment refers generally
to ordinary contracts
The assignee acquires all the
rights and all the defenses
available against the
assignor.
Assignor is always liable
even if in the absence of
notice of dishonor.

2. What are the rights of a restrictive indorsee?

- Under Section 37, the rights of a restrictive indorsee is:
o to receive payment of the instrument;
o to bring any action thereon that the indorser could bring;
o to transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so.

3. Can there be a negotiation to a payee? Explain.

- 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 delivered back to the
payee by the last holder.

4. Is indorsement necessary in the transfer of an instrument? Explain.

 - Generally, an indorsement is necessary in the execution of a negotiation of an order instrument
but it is not necessary if it is only an assignment of an instrument or if the instrument is a
bearer instrument. Indorsement is also necessary for a transferee of an instrument payable to
his order be considered as a holder in due course.

5. How and for what purpose or reason is a qualified indorsement made?

- According to Section 38, a qualified indorsement constitutes the indorser a mere 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 limits the indorser’s liability
to the instrument.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. X indorsed an instrument by W for P12,000 to Y, to wit: “Pay to Y or order P10,000.” Is there a
valid negotiation?
- 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 the note by
mere delivery?
- 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: “or order” or “to the
order of”?
- 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.

4. A promissory note by W payable to X or his order is indorsed by X to Y payment of which is

subject to fulfillment by Y of a condition. W paid Y knowing that Y has not 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 woud 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.

5. Same problem as above. The note is indorsed successively by X to Z, then Z to A, A to B, B to C,

and C to X. On maturity, X claims payment from C. Has C have the right to refuse payment from
X?
- No because under Section 50, an instrument negotiated back to a prior party, he is not entitle
to enforce payment thereof against all intervening party to whom he was personally liable.
PAGE 168-169
Study Guide:
I. Definitions
1. Personal defenses – these are defenses available between original parties or immediate parties but
not against a holder in due course.
2. Real defenses – these are defenses available against all parties including holders in due course,
immediate and remote parties.
3. Fraud in factum – it is a type of fraud where there is misrepresentation to deceive one 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.
4. Notice of infirmity or defect – Under section 56, to constitute notice of defect or 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.

II. Discussions
1. What are the right of a holder in due course?
- Section 57 states the rights of holder in due course:
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.

2. Enumerate the conditions to qualify one a holder in due course.

- Under Section 52, a holder qualifies as a holder in due course if he has taken the instrument
under the following conditions:
o That it is complete and regular upon its face;
o That he became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact;
o That he took it in good faith and for value;
o That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

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 the
instrument or any signature thereto by:
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
 4. When is the date of maternity of an instrument?
- The date of maturity of an instrument is the time fixed therein.
- If payable on demand, it is determined by the date of presentment.
- 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 makes and delivers a promissory note to J and J indorses to P, and P to B.
- 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.

III. Problems
Explain or state briefly the rule or reasons for your answer.
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, and from Z to A who
had also notice of the defect.
Decide the rights of Z with respect to W, X, and Y, and the rights of A with respect to all
prior parties.
- 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.

2. X secured without consideration in breach of faith the promissory note of W, and indorsed it to Y,
from Y to Z, from Z to A, the present holder.
(a) Is A required to show that he is a holder in due course?
- 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
bound on the instrument before the acquisition of the defective title by Y.
3. M, maker of promissory note for P10,000 in favor of X who indorsed it to Y. State the right of Y if
he received notice of defect in the title of X:
(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 extent of the amount
paid by him.
(c) Y nevertheless paid X P10,000 under (a) – he would not be holder in due course of the P
10,00 because he paid it still even if he received notice.
(d) Y nevertheless paid X P9, 000 under (b). – Y is a holder in due course to the extent of P
9,000.
PAGE 190-191
Study Guide:
I. Definitions
1. Irregular or anomalous indorser - a person who is not really party to the instrument but affixes his
signature on the instrument before its delivery.
2. Party primarily liable – the person absolutely required to pay by the terms of the instrument
3. Indorser – Undr section 63, an indorser is a person placing his signature upon an instrument other
than a maker, drawer or acceptor unless he clearly indicates by appropriate words his intention to
be bound in some other capacity.
4. Acceptor – an acceptor is the one who accepts an instrument and will be liable for payment thereof
according to the tenor of his acceptance.
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

2. Give the distinctions between a general indorser and an irregular indorser.

General Indorser
Makes either blank or special indorsement
Indorses the instrument after its delivery to
the payee
Liable only to the parties subsequent to him
Irregular Indorser
Always makes a blank indorsement
Indorses before its delivery to the payee
Liable to the payee and subsequent parties
unless he signs for the accommodation of
the payee which makes him liable only to all
parties subsequent to the payee.

3. Give the principal distinction between a primarily liable party and a secondarily liable party.
primarily liable party secondarily liable party
Absolutely and unconditionally required Conditionally bound to pay the
to pay by the terms of the instrument instrument upon maturity
upon maturity

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 and 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 be compelled to pay it.

III. Problems
Explain or state briefly the rule or reasons for your answer.
 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 the necessary proceedings of dishonor are taken,
indorsers 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. Afer 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 genuiness
of the indorsers’ signature because he only admits to the existence and genuiness 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 os not
liableand 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 be bound in other capacity,
he may deny liability otherwise he is deemed an indorser under Section 63.

4. Suppose in the first problem, the instrument is a promisory 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 liability 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.

PAGE 210-211
Study Guide:
I. Definitions
1. presentment for payment - By presentment for payment is meant the presentment of an instrument
(i.e., promissory note or accepted bill) to the person primarily liable for the purpose of demanding
and receiving payment.
2. payment in due course - Payment in due course is payment in the usual course of business. To
effect a discharge of an instrument, payment should be in money since in a negotiable instrument,
the promise or order is to pay a sum certain in money.
3. "right of recourse to all parties secondarily liable."- means the right of the holder to enforce the
liabilities of said parties as defined in Sections 61, 65 and 66. This right is "immediate" because
the holder may immediately bring suit against the secondary parties and the latter cannot
interpose the defense that the suit should have been brought first against the maker or acceptor.
II. Discussions
1. What constitutes sufficient presentment for payment?
Presentment for payment, to be sufficient, must be made —
(a) By the holder, or by some person authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any
person found at the place where the presentment is made.
2. When is an instrument required to be presented for payment?
-Under Section 74, the instrument must be exhibited when presented for payment to the person
from whom payment is demanded. The party paying may thus judge the genuineness of the
indorsements and of the right of the holder to receive payment.
3. When is presentment not required to charge:
(a) the drawer?
- Under the Section 79. When presentment not required to charge the drawer. —
Presentment for payment is not required in order to charge the drawer where he has no
right to expect or require that the drawee or acceptor will pay the instrument.
(b) the indorser?
- Under the Section 80. When presentment not required to charge the indorser. —
Presentment for payment is not required in order to charge an indorser where the
instrument was made or accepted for his accommodation and he has no reason to
expect that the instrument will be paid if presented.
4. When is an instrument considered dishonored by non-payment?
The instrument is dishonored by non-payment when —
(a) It is duly presented for payment and payment is refused or cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, maker, X, payee, Y, 1st indorsee, and Z, 2nd indorsee, and present holder. A demand by Z for
payment of the promissory note presented to W was refused by W. May Z immediately sue X and
Y to recover the amount of the note? Decide.
- No, because there are necessary steps to charge persons secondarily liable in bills of
exchange.
2. Same problem as (1). The note which is payable on a fixed date at a bank requires presentment to
charge W. Z made no presentment on maturity after which the bank became insolvent. Is W
released from liability?
- In this case, the ability and willingness on the part of W to pay there at maturity are
equivalent to a tender or offer of payment on his part so that if the instrument is not
paid and is overdue, he cannot be considered in delay and, therefore, not being at fault,
he is not liable for costs and interests subsequently accruing although W is not
relieved from making payment of the amount due.
3. Same problem as (1). The note is payable to order of X who indorsed it in blank to Y but was
stolen by Z who presented it to W for payment. Will payment by W produce the effect of
discharging the note?
 - If W, had no notice of the incident, payment by him discharges the note. This would
not be so if the payment were made before maturity or W had notice of the incident
when he made the payment.
4. W, drawer of a check payable on demand. X, drawee bank, Y, payee, and Z, indorsee and present
holder. The check was dishonored by X when presented at 2 p.m for lack of funds. W made a
deposit of enough funds only before close of banking hours at 3 p.m. when Z had already left the
bank. Has Z the right to consider that the check has been dishonored?
- Yes, because the one who make payment or Z has until the close of banking hours of
the bank where the instrument is made payable in which to pay it. If before the close
of such hours he deposits funds to the banks there enough to pay the instrument, a
demand earlier in the day is premature. Hence, the instrument is not considered
dishonored though payment has been refused earlier in the day.

PAGE 234-235
Study Guide:
I. Definition
-Notice of dishonor is a notice given by the holder of a bill of exchange or promissory note, to a
drawer or indorser showing that acceptance or payment has been refused.

II. Discussions
1. What is the objective of giving notice of dishonor?
-Its objective is to notify a party of his liability. Further, in case of a drawer, it helps to protect
himself in case of a dishonor occurring at the end of a drawee or acceptor.
2. How shall the notice of dishonor be given?
-A notice of dishonor can be oral or written. However, it must be formal and should be issued
within a reasonable amount of time. The notice is valued as long as it is issued and delivered
in a reasonable and professional manner. A notice of dishonor must be signed by a notary
public, but any person can deliver it. Any notice that is promptly delivered completely
discharges any obligation of the endorser of the instrument.
3. Enumerate the cases when notice of dishonor need not be given to the drawer.
-Sec.  114.  When notice need not be given to drawer.  -  Notice of dishonor is not required to be
given to the drawer in either of the following cases:  
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument;
(e) Where the drawer has countermanded payment.  
4. Given the rules in case the party to whom notice is to be given is dead.
-Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the party
giving notice, the notice must be given to a personal representative, if there be one, and if with
reasonable diligence, he can be found.  If there be no personal representative,
notice may be sent to the last residence or last place of business of the deceased.
5. When may waiver of notice of dishonor be made? Who are affected by a written waiver of the
right to notice?
-(1.) Before the time of giving notice, such as express waiver in the body of the instrument or
added to the signature of the party (2.) After omission to give due notice.
 -The persons affected by waiver depends upon whether the waiver is in the instrument itself or is
written above the signature of the indorser •If the waiver is embodied in the instrument itself,
it is binding upon all parties •If the waiver is written above the signature of an indorser, it
binds him only

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, maker of a promissory note payable to order of X. The bote was negotiated to Y, Z, A, B, C,
and D in whose hands the note was dishonored. Who can give notice of dishonor?
- In the hands of D. The notice may be given by the holder, another in behalf of the
holder, any party to the instrument who may be compelled to pay it to the holder and
another person in behalf of such party.
2. Same problem as (1). Give the effect of notice of dishonor given by D;
(a) to Y only.
- he may either himself give notice to the parties liable thereon or he may give notice to
his principal.
(b) to Z only.
- he may either himself give notice to the parties liable thereon or he may give notice to
his principal.
3. Same problem as (1). Show how X to whom notice of dishonor was not given by D may still be
liable to the latter.
- The party to whom this benefit inures can charge the party receiving notice of
dishonor, even if himself didn’t give the notice.
4. In the same problem, suppose the notice of dishonor was given by R who was not authorized by D,
while the notice to B was received by S who was not authorized by B. Give the effect of the two
(2) notices with respect to D and B, as the case may be.
- The notice of dishonor will not be applicable and will not have sense because it is not
authorized by the maker and the drawee.

PAGE 248-249
Study Guide:
I. Definitions
1. Discharge of an instrument
-Discharge of an instrument means a release of all parties, whether primary or secondary, from the
obligations arising thereunder. It renders the instruments without force and effect and
consequently, it can no longer be negotiated.
2. Material alteration of an instrument
-Material alteration us defined to be any change in the instrument which affects or changes the
liability of the parties in any way, as specified in Sec. 125 or changes the contract of the
parties in any respect.
II. Discussion
3. Enumerate the five (5) methods for discharge of instruments under the law.
a) Payment by principal debtor
 b) Payment by accommodated party
c) Intentional cancellation of instrument by holder
d) Any act which discharges the contract
e) Reacquisition by principal debtor in his own right

4. What constitutes material alteration of an instrument?

a) The date
b) The sum payable, either for principal or interest
c) The time or place of payment
d) The number or relations of the parties
e) The medium or current in which payment is to be made
f) Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instruments in any respect, is a material
alteration.
5. When will cancellation of an instrument be inoperative or ineffective? State the presumption of
law and burden of proof when the matter of cancellation is the subject of controversy.
-If the cancellation is made: (1) unintentionally, or (2) by mistake or through fraud, or (3) without
authority, it is inoperative. Cancellation, however, is presumed to be intentional. Hence, the
burden is on the holder claiming its effectiveness to overcome the presumption by contrary
proof.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, drawer and X, drawee of a check payable to Y or order, accepted by X, and successively
negotiated to Z, A, and B. Give the effect if payment is made:
(a) by Z
- If Z pays the bill, it is not discharged, but discharges him to A and B whom he is
personally liable.
(b) by W
- If the bill is paid by W, he cannot further negotiate the bill.

2. In the same problem, give the effect of the renunciation by B of his right:
(a) against Z
- If W renounces his rights against Z, then Z is discharged
(b) against W
- After W made renunciation, the holder in due course can still enforce the instrument
because under the law “a renunciation does not affect the rights of holder in due
course without notice.”
3. In the same problem, the amount of check for P13,000 was altered to P18,000 by Z in connivance
with Y. Give the effect of alteration as to the liability of W, Y, Z and A to B, if:
(a) B is a holder in due course
 - If B is a holder in due course, he could enforce the instrument against X for P13,000,
its original tenor. Of course, B can recover from W, Y, Z, or A, the amount of P18,000
(b) B is not a holder in due course
- The note is discharged against X; hence B cannot enforce it as against X even for
original tenor. Z, however, would be liable to B for P18,000 as he the party himself
made the alteration although B is not a holder in due course.
- Y is also liable to B for P18,000 as he assented the alteration
- Likewise, Z and A would be liable to B for P18,000 as they are subsequent indorsers.

4. Supposed in the same problem, the instrument is a promissory note with W as the maker, and Y as
the payee. B releases W. Give the general rule and the exception with respect to the liability of
secondary parties.
- General rule is that he is not discharged by the holder’s release be principal debtor even if the
release be made with knowledge or true relation of the parties and, conversely, the release of
accommodation maker or acceptor doesn’t discharge the principal debtor though latter
occupies the position of a party secondarily liable on the instrument.

5. In the preceding problem, B aggress to extend the time of payment by W. Give the general rule
and the exceptions with respect to the liability of secondary parties.
- If the holder agrees to extend the time of payment, the indorsers are discharged. However,
where the extension of time is consented to by a party secondarily liable, he is not discharged.
Also, where the holder expressly reserves his right of recourse against the party secondarily
liable, the latter is not discharged.

PAGE 259-260
Study Guide:
I. Definitions
(a) Bill of exchange- A bill of exchange is 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 determinable future time a sum certain money to order or to bearer.
(b)Trade acceptance- Trade acceptance is a draft or bill of exchange drawn by the seller on the
purchaser of goods and accepted by the latter by signing it as drawee.
(c) Referee in case of need- Referee in case of need is a person whose name is added in a bill of
exchange by the drawer or any indorser as a person to whom the holder may depend in case of
need.

II. Discussion
1. When may a holder treat a bill as a promissory note?
- The holder may treat a bill as promissory note after a bill of exchange has been accepted by
the drawee. The acceptance is a promise to pay, and the position of the acceptor is that of
promisor, principal debtor, or maker, while the drawer is in the position of first indorser or
surety of the acceptor.
2. When is a promissory note like a bill of exchange? Explain.
- When a note is indorsed by the payee it becomes just like a bill. The maker corresponds to the
acceptor, the indorser, to the drawer, and the indorsee, to the payee in the bill. Both maker
 and the acceptor are primarily liable and both the indorsee in the note and the payee in the bill
are holders. The holder is the bearer of the instrument if the note is indorsed payable to bearer
or if the bill is originally payable to bearer.
3. Give at least four (4) distinction between a bill of exchange and a promissory note.
- A bill contains an UNCONDITIONAL ORDER ADRESSED by one person to another
requiring the latter to pay the instrument, while a note contains an UNCONDITIONAL
PROMISE made by one person to another to pay it.
- In bill there are three parties; the DRAWER, the DRAWEE and the PAYEE, while in note
there are only two parties; the MAKER and the PAYEEE.
- In a bill, then drawer, the one who issues the instrument, is only SECONDARILY LIABLE,
while in the note, the maker, the one who issues the instruments, PRIMARILY LIABLE.
- A bill MUST be presented for acceptance in certain cases and the drawee is not liable unless
and until he accepts the same, while in a note, there is NO NEED of presentment for
acceptance.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, drawer, X, drawee, Y, payee, and Z, indorsee and holder in due course. X refuses to accept. Is
X liable to Z? to W?
- Yes, X is liable to Z because Z is holder in due course.
- No, X is not liable to W because he made Y as the payee. The instrument is transferred to Y,
on whom the payment should be made. Therefore, X is liable to Y instead of W.
2. Same problem, Y inserted the name of R as a person to whom the holder may seek payment in
case of need. State the rights of R and Z.
- Referee R is not under obligation to pay the bill, but he may subject himself to liability to Y
depending. If R pays the bill, he may recover the amount from Z (or indorser who has named
him as referee in case of need.)
3. A bill of exchange drawn by W, is addressed in the alternative thus: “To X or Y.” Is this valid?
Why?
- Yes, it is valid because a bill may be addressed to two or more drawees jointly, whether they
are partners or not; but not two or more drawees in the alternative or in succession.

PAGE 269-270
Study Guide:
I. Definition
1. acceptance of a bill; and
-The acceptance of a bill of exchange is a guarantee of payment extended by the drawee towards
the order of the drawer.
2. constructive acceptance
-The drawee is allowed 24hrs after presentment to decide whether or not he will accept the bill. If
the drawee will not accept, the drawee has to return the instrument to the drawer. Otherwise,
there is already constructive acceptance by the drawee

II. Discussions
1. Give the object of acceptance of a bill of exchange. What is the effect when a bill is accepted?
 -The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer.
The acceptance must be in writing and signed by the drawee. It must not express that the
drawee will perform his promise by any other means than the payment of money.
-Every contract on a bill, whether it is the drawer’s, the acceptor’s or an endorser’s, is incomplete
and revocable until delivery of the instrument in order to give effect thereto, but where an
acceptance is written on a bill and the drawee gives notice to, or according to the directions of,
the person entitled to the bill that he has accepted it, the acceptance then becomes complete
and irrevocable.
2. Give the cases of qualified acceptance
-Sec. 141. Qualified acceptance. - An acceptance is qualified which is:
(a) Conditional; that is to say, which makes payment by the acceptor dependent on the
fulfillment of a condition therein stated;
(b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is
drawn;
(c) Local; that is to say, an acceptance to pay only at a particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but not of all.

III. Problems
Explain or state simply the rule or reasons for your answer.
1. W, drawer, X, drawee, and Y payee, of a bill of exchange. X informed W by letter of acceptance.
W, in turn, sent a telegram to Y notifying him from the acceptance. X changed his mind. Is X
released from liability to Y?
- Yes, because without the acceptance of bill, the drawee of the bill is under no legal
liability to make the payment on any bill addressed to him.

2. Same problem. The bill which is payable for 30 days after data was negotiated by Y to Z, then by
Z to H. Upon the request of X, H consented to the payment of the bill by X “60 days after date,”
Notice of such acceptance was given by H to Y and Z. X dishonored the bill. Are Y and Z liable
to H?
- No, because according to qualified acceptance, it alters the original terms of a bill of
exchange and may be treated by the bill's holder as dishonor by non-acceptance. If a
holder takes a qualified acceptance without the bill drawer's or endorser's
authorization or subsequent assent, the drawer or endorser is released from his or her
liability.

PAGE 278
Study Guide
I. Definition
Define or give the meaning of presentment for acceptance
-Presentment for acceptance is the production or exhibition of a bill of exchange to die drawee for
his acceptance or payment. The words "presentment for acceptance “include presentment for
 payment also. While there is a conflict of authority, the cases maintaining this view represent
die overwhelming weight of authority. (Beutel's Brarman,op. dt.,p. 1250.

II. Discussions
1. Give the three (3) cases when presentment for acceptance of a bill of exchange is necessary?
(a) Bill payable after sight. —A bill payable 30 days after sight. Its date of maturity shall be
computed 30 days from the date of its presentment. The same is true with a bill payable so
many days after demand.
(b) Bill with express stipulation. —This is self-explanatory.
(c) Bill payable elsewhere. —A bill payable to P at P.N.B,
- Manila, drawn against W, residing and having his place of business in Quezon City.
2. When is a bill dishonored by non-acceptance?
(a) When it is duly presented for acceptance and such unacceptance as is prescribed by this Act is
refused or cannot be obtained; or
(b) When presentment for acceptance is excused, and the
bill is not accepted.

III. Problems
Explain briefly the rule or reason for your answer
1. W, drawer, X, drawee, Y, payee and indorser, and Z, indorsee and present holder of a bill of
exchange. The bill was dishonored by non-acceptance by X before maturity. Has Z the right to
proceed immediately again W and Y? Why?
- Yes, because Z is the present holder of a bill of exchange.

2. Same problem. The bill was presented for acceptance one (1) day late. Is this a sufficient ground to
discharge W and Y?
- Yes, may immediately proceed to drawer and drawee.

PAGE 293-294
Study Guide:
I. Definitions
Define or give the meaning of acceptance for honor.
- A situation in which a third party (such as a bank) makes payment on a bill of exchange that a
buyer did not pay, either because the buyer refused to accept delivery (usually for lack of
quality) or simply because he/she refused to pay. It is also called acceptance for honor.

II. Discussion
1. Give at least 4 distinctions between acceptance for honor and ordinary acceptance
 In acceptance for honor, protest is not required while in ordinary acceptance there must be a
previous protest
 In acceptance for honor, the acceptor is the drawee while in ordinary acceptance, the acceptor
must be a stranger to the bill.
 In acceptance for honor, the consent of the holder is required while in ordinary acceptance,
such consent is not required
  In acceptance for honor acceptor is the drawee protest is not required while in ordinary
acceptance, acceptor is stranger and it doesn't require a consent
2. What conditions must be present before an acceptor for honor will be liable by his acceptance. The
holder gets an additional person i.e. an acceptor for honor, which also becomes liable on the bill.
 The holder must consent to acceptance for honor. The holder cannot be compelled to assent
to acceptance for honor.
 The bill must have been noted or protested for the non-acceptance or for better security.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, drawer X drawee and Y, payee of a bill of exchange successively indorsed to Z, A, B, and C,
dishonored in the hands of C, protested by C for non-payment, and with the consent of C, was
accepted by H for honor of A. Give the liability of H and his right, if he pays C in relation to
other parties.
- If H pays C because of the previous protest then the acceptance for honor become an ordinary
acceptance
2. Same problem. H accepted the bill for honor without specifying the person to whom it is made.
For whom is the acceptance for honor made? Why?
- Since H accepted the bill without specification of whom it is made therefore he will become
liable to the bill.

PAGE 300
Study Guide:
I. Definition
Define or give the meaning of payment for honor
- Payment for honor is payment made by a person, whether a party to the bill or not, after it has
been protested for nonpayment, for the benefit of any party liable thereon or for die benefit of
the person for whose account it was drawn. Another term for payment for honor is-payment
supra protest because prior protest for non-payment is required. It is not applicable to
promissory notes. Thus, a person who, not being a regular party to a note, pays it for the
honor or for the credit of the maker or endorsers does not acquire any right of recourse
against prior parties. (Smith v. Sawyer, 55 Me.139, 92 Am. Dec. 576.

II. Discussions
1. Give the at least four (4) differences between payment for honor and acceptance for honor
(a) In the former, the protest must be for non-payment (Sec. 171.), while in the latter, for non-
acceptance or for better security (Sec. 161.);
(b) In the former, the bill is overdue, while in the latter it must not be overdue (Sec. 161.);
 (c) In the former, the consent of the holder is not required nor can the holder refuse (Sec. 176.),
while in the latter, the consent of the holder is required (Sec. 161.);
(d) In the former, the acceptor is secondarily liable (Sec. 165.), while in the latter, the acceptor is
primarily liable (Sec. 62.)

2. Give the requisites in order to that payment for honor may be valid.
(a) The bill has been dishonored by non-payment (Sec. 83.);
(b) It has been protested for non-payment (Sec. 171.);
(c) Payment supra protest is made by any person, even a party thereto(ibid.)}
(d) The payment is attested by a notarial act of honor which must be appended to the protest or
form an extension of it (Sec. 172.); and
(e) The notarial act must be based on the declaration made by the payer for honor or his agent of
his intention to pay the bill for honor and for whose honor he pays. (Sec. 173.)

III. Problems
Explain briefly the rule or reason for your answer
1. W, drawer, X, drawee, Y, payee , and Z,A,B and C successive endorsers, and D, present holder of
a bill of exchange. D protested non-payment by X, but the bill was paid for honor by H.
(a) Give the effects if the payment by H is for the honor of A.
- H must declare the payment. The payment is attested by a notarial act of honor which
must be appended to the protest or form an extension of it.
2. Give the effects if the payment by H is for the honor of A.
(b) Give the effect if D refuses to receive payment.
- X will charge only D.
3. Same problem. P also offers to pay supra protest but for the honor of Y. Has Z the right to object if
D prefers A?
- No, Z may recover against all of diem.

PAGE 307
Study Guide:
I. Definition
Define or give the meaning of bill in set
-A bill in a set is one composed of several parts, each part being numbered and containing a
reference to the other parts, the whole of the parts constituting but one bill.

II. Discussions
1. What is the purpose behind a bill in set?
-Bills in set are usually availed of in cases where a bill had to be sent to a distant place through
some conveyance. If each part is sent by different means of conveyances, the chance that at
least one part of the set would reach its destination would be greater. The purpose then of
drawing a bill in set is to avoid the difficulties which would arise in case of loss or miscarriage
on the way of the bill
2. What is the effect of discharging a part of a bill in set?
-Any part of a bill drawn in a set may be negotiated. As far as the drawer, however, is concerned,
the entire bill is discharged when any one part is discharged by payments or otherwise (see
 Sec. 119.) because a bill in a set constitutes only one bill. The phrase "except as herein
otherwise provided" refers to the exceptions mentioned in Sections 180,181, and 182.

III. Problems
Explain briefly the rule or reason for your answer
1. W, drawee of a bill in set consisting of three (3) parts for 30,000 pesos addressed to X in favor of
Y. The three (3) sets were negotiated by Y to Z, then Y to A, and lastly, by Y to B.
(a) X paid B. Has Z the right to contest the payment since a part was first negotiated to him?
- Z has no right to contest the payment.
(b) Suppose Z, A, and B, at the same time, ask for payment from X. Whom should X pay and
how much?
- X should pay for Y for the amount of 90,000 pesos.
2. Same problem. The three (3) parts were accepted by X before they were negotiated by Y.
(a) Will X be liable for all the parts?
- X will be liable for all parts.
(b) Suppose Z, A and B endorsed their parts to C, D and E respectively. State the liability of X, Z,
A and B.
- The liability of X,Z, A and B is 180,000 pesos

PAGE 323-324
Study Guide:
I. Definitions
Define or give the meaning of the following.
1. Stale Check- Stale check is a check that is presented to be cashed or deposited at a bank six
months or more after the date it was written.
2. Certificate of Deposit- certificate of deposit is a time deposit, a financial product commonly sold
by banks, thrift institutions, and credit unions. CDs differ from savings accounts in that the CD
has a specific, fixed term and usually, a fixed interest rate.
3. Traveler's Check- A traveler's check is a once-popular but now largely outmoded medium of
exchange utilized as an alternative to hard currency. ... It offers a safe way to travel overseas
without cash. The issuing party, usually a bank, provides security against lost or stolen checks.
4. Bond- bond is a fixed income instrument that represents a loan made by an investor to a borrower
(typically corporate or governmental). ... Bonds are used by companies, municipalities, states, and
sovereign governments to finance projects and operations.

II. Discussion
1. Give at least 4 differences between a check and an ordinary bill of exchange
 A cheque is always drawn on a banker, while a bill of exchange may be drawn on any one,
including a banker.
 A cheque can only be drawn payable on demand; a bill of exchange may be drawn payable on
demand, or on the expiry of a certain period after date or sight.
 A cheque does not require acceptance and is intended for immediate payment while a bill of
exchange must be accepted before payment can be demanded.
  A grace of three days is allowed in the case of payment of a time bill of exchange, while no
grace is given in case of a cheque.

2. Give the effects of certification of check.

 Effect of certification of check at the request of the holder. Judgment was for the corporation.
When a check is certified at the request of the holder, all other parties are discharged from
liability, and the bank becomes absolutely liable to the holder. The bank cannot refuse to
make payment for any reason.
 Notification to bank. Whitney does not dispute that it was notified in a timely manner of the
forged checks that appeared on the May 16, 1995, statement, but it claims that the failure to
notify it of the prior forgeries precludes the recovery of these latest forgeries. There was,
however, timely notification to Whitney of the five forged checks that cleared the bank and
appeared on the May 16, 1995, statement. The bank is liable for these last five checks. [Marx
v Whitney Nat’l Bank, 703 So 2d 790.
 Payment after depositor’s death. Yes. The bank may continue to pay checks for ten days after
the death of the drawer, even though it has notice of the death. This is true unless the bank is
ordered to stop payment by a person claiming an interest in the account. This ten-day
payment period allows the holders of checks drawn shortly before the drawer’s death to cash
them without filing a claim with the court.

3. Give purpose of
(a) crossing a check;
- The purpose of the ordinary crossing is to instruct the paying banker NOT to pay the
cheque by CASH. ... The purpose of the “Account Payee” crossing is to instruct the
collecting/paying bank to ensure payment of the cheque by crediting the cheque
amount to the account of the payee of the cheque.
(b) certifying a check
- A certified check or certified cheque is a form of cheque for which the bank verifies
that sufficient funds exist in the account to cover the cheque, and so certifies, at the
time the cheque is written. Those funds are then set aside in the bank's internal
account until the cheque is cashed or returned by the payee.
4. What are 2 ways of Crossing a check
(a) General Crossing

(b) Special or Restrictive Crossing

 - A cheque can be crossed by drawing two transverse parallel lines across the cheque,
with or without the writing ‘Account payee’ or ‘Not Negotiable’.

III. Problems
Explain the rule or reasons for your answer
1. W, drawer of a check X, drawee bank, Y, payee, and Z, indorsee and Present holder. Z. Failed to
present check for payment within a reasonable time after issue. X became bankrupt. State the
liability of W and Y to Z
- In this case Z failed to present the payment in a specified time because W failed to
comply to Y. Therefore, Y did not pay to the present holder which is Z.
2. Same problem. 'At the request of Y, W was able to have the check certificated by X. Are W and Y
released from liability to Z.
- No, because the drawer must repay the bank the amount lent plus interest. But since
because they did not. The two of them are still liable to Z.
3. In case the first problem, X refused to pay Z. Give four cases when X would not be liable to W
and Z.
- A bank can also be liable for the wrongful dishonor or refusal to pay of a check that it
has certified, since by definition of certification it has agreed to become absolutely
liable to the payee or holder of the check. Since X refused to pay to Z then therefore
he is still liable to Z.