RIVERA, ANDREI NICOLE M.

May 19, 2020

NEGOLAW – BA 44 Atty. Jose Yayen

I. Focus Questions
1. A. Real and Personal Defenses

Real is also called absolute or legal defenses, these defenses are attached to the
instrument itself and can be set up against the whole world, including the holder in due
course. It is a defense against everybody because the right to be enforced has never
existed or ceased to exist. The instrument cannot be enforced against a person to whom
the legal defenses are available.

Personal sometime called equitable defenses are personal to the person or

subsequent holder against whom the instrument is being enforced. These defenses grow
out of the agreement or conduct of a particular person which renders it inequitable for
him to enforce it against the party sought to be made liable, but not available against the
holder in due course.

B. Party Primarily Liable

The maker of a negotiable instrument by making it engages that he will pay it

according to its tenor and admits the existence of the payee and his then capacity to
indorse. There are classifications of parties according to liability, but I will focus on the
primarily liable. The primary liable are the maker and the acceptor of a bill of exchange.

C. Payment in due course

Payment in due course to the holder of an instrument discharges the instrument.

And under Section 88 payment in due course is payment made ‘at or after maturity of the
instrument, to the holder thereof, in good faith and without notice that his title is
defective.
 2. Discussions:
A. Give and explain the qualifications of holder in due course.

A holder who has taken the instrument under the following conditions: If he
took the instrument complete and regular upon its face, he becomes the holder before
it was due, and without notice that it had been previously dishonored, if such was the
fact, he took it in good faith and for value and lastly, 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
persons negotiating it.

B. Illustrate situation where in relation to an instrument, there are immediate,

remote and prior parties.

When D makes and delivers a promissory note to J and J indorses to P, and P

to B. Also, when 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.

C. Give the distinctions between general and irregular indorsers.

General Indorser Irregular Indorser

Makes either blank or special indorsement Always makes a blank indorsement

Indorses the instrument after its delivery to Indorses before its delivery to the payee
the payee

Liable only to the parties subsequent to him 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.

D. When is an instrument required to be presented for payment?

The instrument must be paid or accepted when presented for payment or

acceptance with the following conditions: a) the bill is presented to the drawee for
acceptance or for payment; b) the drawee dishonors; c) the proceedings on dishonor
have been duly taken.
 3. Problems:
A. No, Z cannot immediately sue X and Y without giving a due notice of
dishonor to them. Proceedings should be done accordingly before the right of
recourse against the secondary parties will be taken effect. If such will be
taken into action, Z, the present holder may immediately sue X and Y and
they cannot intervene the defense that the suit should have been done first
against the maker or acceptor.

B. 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.

C. 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 has no right to enforce payment against W since A did not acquire his
title from a holder in due course. Thus, he cannot acquire the rights of such
holder and W can raise a real defense which is material alteration.
Nevertheless, he has the right to enforce payment against X, Y, and Z the
whole altered amount because of the warranties as an indorser.

II. Exercises/Learning Activities

A. (a) 1 No, the bank has no right to refuse payment to Gomez on the ground that Reyes
had not indorsed the check. Santos, indorsed it to Reyes in blank, hence, Reyes could
negotiate it further by delivery.

2 Yes, Gomez can successfully sue the bank if he can prove that Flores had enough
funds, because a drawee bank is liable to a holder unless the drawer issued a stop
payment order.
 (b) No, Veraz & Co is not liable to Gomez, the Company made a qualified
indorsement and therefore does not answer for the failure to pay of the primarily
liable.

(c) Yes, Gomez can recover from Flores, even if the canned goods were not received
by Flores. There is a failure of consideration, but this defense is not available against
a holder in due course like Gomez.

(d) Yes, Gomez may recover from Santos because he is secondarily liable by virtue of
his indorsement. Yes, Gomez can recover from Reyes because Gomez is an
immediate transferee of Reyes. The recovery by Gomez from Reyes is an immediate
transferee of Reyes.

B. Case Analysis: P.N.B. v. Picornell, 46 Phil 716

Facts
Picornell followed the instructions of Hyndman, Tavera and Ventura by buying
bales of tobacco. He was able to obtain in National Bank a sum of money together
with his commission. He drafted a bill of exchange against the firm and in favor of
the bank. It was received by National Bank and was accepted thereafter by the firm.
However, on alleged conditions of the tobacco, the bill of exchange was not paid.

Decisions Made
Lower Court
The Court of First Instance of Manila sentenced the defendants to pay
solidarily to the plaintiff bank of the sum of P28,790.72 with interest at the rate of 9
per centum per annum from May 3, 1921, and costs; and the defendant Bartolome
Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9 per centum per
annum, all as aforesaid, deducting the sum of P6,708.82 from such amounts to be
paid be the defendants.
 Joaquin Pardo de Tavera alleged that the bill in question was without
consideration and that judgment should not have been rendered against him. The
appellant Picornell contended that it should have been taken into account that he
merely acted as an agent of Hyndman, Tavera & Ventura in all these transactions;
that the tobacco was not of inferior quality, as alleged by the said company; that the
condition "D/P" attached to the transaction was not modified; that he had the right to
complain because the bank consented to the said company taking possession of the
tobacco before the payment of the bill; that the bank held the tobacco as a deposit;
that the bank was not authorized to sell the tobacco, said sale not being allowed either
by law or by the circumstances; that he should not have been ordered to pay the value
of the bill without proof that he was notified of its dishonor, as required by section 89
of the Negotiable Instruments Law.

The drawee, the Hyndman, Tavera & Ventura company, or its successors,
J. Pardo de Tavera, accepted the bill and is primarily liable for the value of the
negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable. (3
R. C. L., pp. 1144, 1145.) However, no question has been raised about this aspect of
the responsibility of the defendants. We are of the opinion that the appellants are
liable to the National Bank for the value of the bill of exchange Exhibit A, deducting
therefrom P6,708.82 the proceeds of the sale of the tobacco. But the bank, not having
appealed from the judgment of the lower court, we cannot alter it in favor of said
party, which, by its omission to appeal, has shown full conformity with the judgment
rendered.

Personal Evaluation
In my evaluation, the action for recovery is for the value of the bill of
exchange. The firm did not pay at maturity even though they accepted the bill
unconditionally. The question whether or not the tobacco was worth the value of the
bill doesn’t concern the bank. The bank was a holder in due course and was such for
value full and complete.
III. Assignments

Yes, a bank is allowed to prove by parol evidence the assurances of refund made by
the holder of a check payable to cash. It has been held that any prior or contemporaneous
conversation in connection with a note or its indorsement may be proved by parole evidence.
An extrinsic agreement between indorser and indorsee which cannot be embodied in the
instrument without impairing its credit is provable by parole. If, therefore, the supposed
assurances that the drawer had funds and that the Seeto would refund the amount of the
check if the drawer had no funds, were the considerations or reasons that induced the branch
agency of PNB to go out of its ordinary practice of not cashing out of town checks and accept
the check and to pay its face value, the same would be provable by parole, provided, of
course, that the assurances or inducements offered would not vary, alter, or destroy the
obligations attached by law to the indorsement.

However, in this case, there was no express obligation assumed by Seeto that the
drawer would always have funds, or that he would refund the amount of the check even if
there was delay in its presentation. Therefore, though the supposed assurances given were
part of Seeto’s obligation as an indorser, such assurances were discharged by the
unreasonable delay in the presentation of the check for payment.