GQA-Midterm Phase Coverage

GQ-GUIDE QUESTION
MIDTERM PHASE COVERAGE

PART 2
LESSON 1- NEGOTIATION
1. Question: What constitutes negotiation?
Answer: An instrument is negotiated when it is transferred from one person to
another in such manner as to constitute the transferee the holder therefor. If
payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated
by the indorsement of the holder completed by delivery.
(DE LEON, HECTOR S. The Law on Negotiable Instruments: with
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 30,
Page 103)
2. Question: Supposing a negotiable instrument payable to the order of B, was

delivered by B to C who paid such transfer, is there negotiation?
Answer: No, where the instrument is payable to order, there are two steps
required for its negotiation: first, an indorsement by the payee or present holder,
and secondly, its delivery to the next holder. An instrument payable to order is
payable to the payee named therein or to the indorsee or the person ordered or
authorized by the payee to collect. This order or authority is made by means of
indorsement, followed by delivery of the instrument to the indorsee.
documents of title. 2009 ed. Manila: REX Book Store, 2009. Page 104)
3. Question: In what manner therefore, shall the instrument be transferred to make

the transferee a holder?
Answer: A transfer of a negotiable instrument is effected otherwise than by
negotiation when an order instrument is delivered without indorsement. In this
case, the transfer operates as an ordinary assignment and the assignee is merely
placed in the position of the assignor, the former acquiring the instrument subject
to all defenses, real and personal, available against the latter.
LESSON 2- ENDORSEMENT
4. Question: How is an endorsement made?
Answer: The endorsement must be written on the instrument itself or upon a
paper attached thereto. The signature of the endorser, without additional words,
is a sufficient indorsement.
Page 108)
5. Question: How do you call the paper attached to the instrument on which an
endorsement is written?
Answer: The paper attached to the instrument on which an endorsement is written
or where the instrument is on a slip of paper physically attached o the instrument
so as to become part of it known as allonge.
Page 110)
6. Question: What requisites must be observed to make an endorsement valid?

Answer: The general rule is that the “indorsement must be of the entire
instrument.” The reason is that the instrument must be delivered to the indorsee
and there cannot be partial delivery of one instrument.
The object of the provision is to avoid multiplicity of suits or actions in court. A bill
or note divided into different parts divides a single cause of action, i.e., ground for
the complaint.
documents of title. 2009 ed. Manila: REX Book Store, 2009. Page 110-
111)
7. Question: Name the kinds of endorsement?

Answer: An endorsement may be either special or in blank: and it may also be
either restrictive or qualified or conditional.
Classification of indorsement
(1) As to the methods of negotiation:
(a) Special; or
(b) Blank.
(2) As to the kind of title transferred:
(a) Restrictive; or
(b) Non- restrictive.
(3) As to the liability of indorser:
(a) Qualified; or
(b) Unqualified or general.
(4) As to presence or absence of limitations:
(a) Conditional; or
(b) Unconditional.
(5) The other kinds of indorsements:
(a) Joint
(b) Successive
(c) Irregular or anomalous; and
(d) Facultative.
Page 112-113)
8. Question: What is a special indorsement?

Answer: A special indorsement is one where the name of the payee is specified. It
is also known as “specific indorsement” or “indorsement in full.” Special and blank
indorsements are “unqualified” indorsements.
A special endorsement specifies the person to whom, or to whose order, the
instrument is to be payable, and the endorsement of such endorsee is necessary
to the further negotiation of the instrument. An endorsement in blank specifies no
endorsee, and an instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 34-1st
sentence, Page 113)
9. Question: What is endorsement in blank?

Answer: A blank endorsement is one which specifies no particular endorse. Such
an endorsement ordinarily consist only of the signature of the payee or endorser.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 34-
2nd sentence, Page 113-114)
10. Question: How is a blank endorsement converted into a special endorsement?

Answer: The holder may convert a blank endorsement into special endorsement
by writing over the signature of the endorser in blank any contract consistent with
the character of the endorsement.
Page 115)
11. Question: What is the limitation upon the rule of converting a blank endorsement
into a special endorsement?
Answer: The limitation of converting a blank endorsement to special endorsement
is when a contract inconsistent with the legal meaning of the endorsement or the
intention of the parties may not be inserted blank endorsement.
(SUAREZ, CARLOS B. The Law on Negotiable Instruments for Business
Students. 2006 ed. Manila: GIC Enterprises 2006. Page 71)
12. Question: When an endorsement is considered restrictive?

Answer: An endorsement is restrictive which either:
a.) Prohibits the further negotiation of the instrument; or
b.) Constitutes the indorsee the agent of the indorser; or
c.) Vests the title in the indorsee in trust for or to the use of some other person
But the mere absence of words implying power to negotiate does not make an
indorsement restrictive.
Page 117)
13. Question: Suppose the words of negotiability have been omitted in the
endorsement restrictive
Answer: The mere absence of words implying power to negotiate does not make
an endorsement restrictive. Thus, “Pay to is the same as Pay to order of a” or
“Pay to A or order.”In other words, the instrument, originally negotiable, continues
to be negotiable in spite of the absence of such words in an endorsement. But if
in their place a restrictive word such as “only” is employed so as to prevent
further negotiation, the instrument is not only restrictively indorsed by it also
ceases to be negotiable.
2nd sentence, Page 117)
14. Question: What are the rights of the endorsee under a restrictive endorsement?
Answer: A restrictive indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument;

(b) to bring any action thereon that the indorser could bring;

(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.
Page 119)
15. Question: If the restrictive endorsement is that which prohibits negotiation, can the
endorsee transfer his rights as such endorsee?
Answer: No, if the restrictive endorsement is that which prohibits negotiation, the
endorsee can’t negotiate the instrument and so he can’t transfer his rights as such
endorsee.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Page 119)
16. Question: Under what forms or restrictive endorsement can an endorsee transfer
his rights as such endorsee?
Answer: Forms or restrictive endorsement can an endorsee transfer his rights as
such endorsee can transfer his rights as such endorsee, where the form of the
endorsement authorizes him to do so.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 37(c),
Page 119)
17. Question: In the event the instrument is further negotiated after a restrictive
endorsement, what rights does the subsequent endorsement acquire?
Answer: But all rights of the endorsees acquire only the title of the first endorsee
under the restrictive endorsement.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 37-2nd
sentence, Page 119)
18. Question: Define a qualified endorsement.

Answer: a qualified endorsement constitutes the endorser a mere assignor of the
title to the instrument. It may be made by writing to the indorser’s signature the
words “without recourse “or any words similar import. Such an indorsement does
not impair the negotiable character of the instrument.
Page 120)
19. -----
20. Question: How is a qualified endorsement made?
Answer: An endorsement may be qualified by adding to the endorser’s signature
the words “without recourse” or words of similar meaning like “sans recourse’s,”
at endorsee’s own risk,” or “endorser not holder” to either a black or a special
endorsement.
It may be made by adding to the endorser’s signature the words “without
recourse” or any words of similar import.
2nd sentence, Page 120)
21. Question: Does a qualified endorsement impair negotiability of the instrument

Answer: Such an endorsement does not impair the negotiable character of the
instrument.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section 38-3rd
sentence, Page 120)
22. Question: Does it mean that a qualified endorser is totally free from liability
Answer: It does not mean, however, that the qualified indorser incurs no liability at
all. The effect of the endorsement is merely to limit his liability. He is secondarily
liable for breach of his warranties as an endorser under Sec.65. warranty liable is
still present even if the endorsement is qualified, unless such endorsement
specifically excludes warranties. But the qualified endorser is not liable to the
endorsee if the instrument is dishonoured for some other reason like the
insolvency of the person primarily person.
23. Question: What are the warranties of a qualified endorser?

Answer: Liabilities/warrants of qualified indorser
a. That the instrument is genuine
b. That he had good title to it
c. That all prior parties had capacity to contract
d. That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
(Pointers in Business Law, 2006 edition by Carlos and Alexander
Suarez, Page 570)
24. Question: Suppose the instrument is not paid by the marker for reason of
insolvency of the marker, is the qualified endorser liable?
Answer: NO, a qualified indorser therefore does not warrants the financial
responsibility of the maker. He warrants other facts which will render the
instrument valueless but not the solvency of the maker.
Suarez, Page 524)
25. Question: Under what circumstance therefore, shall a qualified endorser be held
liable?
Answer: He is secondarily liable for breach of his warranties as an endorser
warranty liability is still present even if the endorsement is qualified, unless such
endorsement specially excludes warranties.
Page 124)
26. Question: Does a conditional endorsement destroy the negotiable character of the
instrument?
Answer: A conditional endorsement does not prohibit or destroy the further
negotiation of the instrument, regardless, of whether the condition has been
fulfilled or not. It should be remembered that while a condition in the endorsement
does not destroy negotiability, a condition appearing on the face of the instrument
renders it non-negotiable.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Page 122-123)
27. Question: What is the condition appears on the instrument?

Answer: The effect of a condition appearing on the face of the instrument renders
the instrument non-negotiable.
28. Question: In case the instrument is already due but the condition in the
endorsement has not yet happened, may the instrument be paid despite the non-
fulfilment of the condition?
Answer: Where an indorsement is conditional, the party required to pay the
instrument may disregard the condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled or not. But any person to whom
an instrument so indorsed is negotiated will hold the same, or the proceeds
thereof, subject to the rights of the person indorsing conditionally.
Page 122)
29. Question: If an instrument is payable to bearer has been especially endorsed,

how shall the instrument be further negotiated
Answer: Where an instrument, payable to bearer, is indorsed specially, it may
nevertheless be further negotiated by delivery; but the person indorsing specially
is liable as indorser to only such holder as make title through his endorsement.
Page 124)
30. Question: If an instrument is payable to the order of two or more payees jointly, or
endorsed to two or more joint endorsees, hoe shall the instrument be further
negotiated
Answer: Where an instrument is payable to the order of two or more payees or
endorsees who are not partners, all must endorse unless the one endorsing has
authority to endorse for the others.
Page 126)
31. Question: If an instrument is payable to the order of two or more payees jointly or
endorsees, how shall the instrument be further negotiated?
Answer: Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others.
Page 126)
32. Question: When shall endorsement of one of two joint payees or endorsees be
sufficient endorsement?
Answer: If the instrument is payable to the order of two or more payees or
endorsees, all must endorse in order for the transaction to operate as a
negotiation. If only one endorsee, his endorsee would have no right of action for
said endorsement would be contrary to the provision of Section 32.
Page 126)
33. Question: What is the effect of an instrument drawn of indorsed to person as

“cashier” or other fiscal officer of a bank or corporation
Answer: Where an instrument is drawn or endorsed to a person as “cashier” or
other fiscal officer of a bank or corporation, it is deemed prima facie to be
payable to the bank or corporation of which he is such officer, and may be
negotiated by endorsement of the bank or corporation or the endorsement of the
officer.
Page 127)
34. Question: When may such instrument be indorsed by the officer named there in
personally?
Answer: The cashier or other fiscal officer of a bank or corporation is duly
authorized by the by-laws of the bank or corporation.
35. Question: How many a payee endorse if his name as payee or endorse is wrongly
designated or misspelled
Answer: Where the name of a payee or endorsee in wrongly designated or
misspelled. He may indorsed the instrument as therein described adding if he
thinks fit, his proper signature.
Page 128)
36. Question: How shall a person who is under obligation to endorse in a

representative capacity endorse so as to negative personal liability
Answer: Where any person is under obligation to endorse in a representative
capacity he may indorse in such terms as to negative personal liability.
Page 128)
37. Question: What is the presumption as to the time of endorsement

Answer: Except where an endorsement bears date after the maturity of the
instrument, every negotiation is deemed prima facie to have been affected before
the instrument was overdue.
Page 129)
38. Question: What is the presumption as to the place of endorsement

Answer: Except where the contrary appears, every indorsement, is presumed
prima facie to have been made at the place where the instrument is dated.
Page 129)
39. Question: Under what circumstances is an instrument originally negotiable

rendered non-negotiable?
Answer: An instrument negotiable in its origin continues to be negotiable until it
has been restrictively indorsed or discharged by payment or otherwise.
Page 130)
40. Question: Which restrictive endorsement puts an end to negotiability?

Answer: It should be remembered that not every restrictive endorsement prohibits
further negotiation of the instrument (Sec. 36) and
Therefore, the words “restrictively endorsed” in Section 47 should be construed to
refer only to such restrictive endorsement as prohibits further negotiation of the
instrument.
Payment is not the only way of discharging an instrument. This is the reason why
the law includes the word “otherwise”. A negotiable instrument ceases to be
negotiable when it is discharged by any of the different ways enumerated in
Section 119.
131)
41. Question: Can a holder strike out any time an endorsement or endorsement on an
instrument?
Answer: The holder may at any time strike out any indorsement which is not
necessary to his title. The indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved from liability on the instrument.
Page 131)
42. Question: What is the test to apply to find out whether an endorsement or
endorsements are not necessary for the holder’s title?
Answer: An instrument payable to bearer on its face (Sec. 9) may be negotiated
by mere delivery without endorsement (Sec. 30). In case it is endorsed, it remains
a bearer instrument and may be further negotiated by mere delivery (Section 40).
By virtue of Section 48, the holder may strike out all intervening endorsement or
any of them is necessary to his title.
An instrument originally payable to order (Sec. 8) may be negotiated only by the
endorsement of the payee completed by delivery (Sec.30).when the endorsement
is special, the endorsement of the special indorsee is necessary to the further
negotiation of the instrument. When the endorsement is blank, the instrument
becomes payable to bearer and may be negotiated by mere delivery (Sec.34)
132)
43. Question: What is the effect upon the liability of the endorsers whose
endorsement are struck out?
Answer: The effect upon the liability of the endorser whose endorsement is struck
out, and all endorsers subsequently to him, are thereby relieved from liability on
the instrument.
sentence, Page 131)
44. Question: If an instrument payable to order has been transferred by the holder
without his endorsement, what rights does the transferee acquire
Answer: Where the holder of an instrument payable too his order transfer it for
value without endorsing it, the transfer vest in the transferee such title as the
transfer or had therein, and the transferee acquires, in addition the right to have
the endorsement of the transferor. But for the purpose of determining whether
the transferee is a holder in due course, the negotiation takes effect as the time
when the endorsement is actually made.
Page 133)
45. Question: When shall such transferee become a holder in due course?
Answer: Such transferee becomes a holder in due course, the negotiation takes
effect as of the time when the endorsement is actually made.
sentence, Page 135)
46. Question: What are the rights of a prior party to whom an instrument is negotiated
back?
Answer: Where an instrument is negotiated back to a prior party such party may,
subjects to the provisions of this act, reissue and further negotiate the sane. But
he is entitled to enforce payment thereof against any intervening party to whom
he was personally liable.
Page 135)
LESSON 3- LIABILITIES OF ENDORSERS

47. Question: When is a person deemed to be an endorser?
Answer: A person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor is deemed to be an endorser, unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
Page 170)
48. Question: Who is an irregular endorser?
Answer: One who indorses the instrument in an unusual manner, or in a singular
or peculiar manner; it is irregular and an anomaly in the law. His name appears
where we would naturally except another name.
49. Question: To whom shall an irregular endorser be liable?

Answer: An irregular endorser shall be liable to the following:
a) If the instrument is payable to the order of a third person, he is liable to the
payee and to all subsequent parties.
b) If the instrument is payable to the order of the maker or drawer, or is payable
to bearer, he is liable to all parties subsequent to the maker or drawer.
c) If he signs for the accommodation of the payee. He is liable to all parties
subsequent to the payee.
Page 172)
50. When may an instrument be negotiated by delivery?

Answer: Negotiation ‘by delivery” under Section 65 means that indorsement is
not necessary because the instrument is payable to bearer. The words “by
delivery,” therefore, refer to a holder who negotiates the instrument in the same
condition in which he received it, making no indorsement at all. So a blank
indorser of an instrument does not negotiate it “by delivery” within this section, as
his liability would be governed by Section 66.
51. Question: What warranties does a person who negotiates by mere delivery and a
person who makes a qualified endorsement make?
Answer: Warranties of an irregular endorser:
Every person negotiating on instrument by delivery or qualified endorsement
warrants:
a) That the instrument is genuine and in all respect what it purports to be;
b) That he has a good title to it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and notes.
Page 175)
52. Question: To whom shall the warranties of a person negotiating by delivery

extend?
Answer: Person negotiating the delivery extends its warranties in favor of no
holder other than the immediate transferee.
53. Question: To whom shall the warranties of a qualified endorser extend?

Answer: The warranties qualified endorser extend to all parties who derive title
through his endorsement.
54. Question: What kind of liability has a qualified endorser?

Answer: The liabilities of a qualified endorser:
Be it noted that a qualified endorser and a person negotiating by delivery do not
stand good for the financial ability of the parties who have preceded them on the
instrument. They do not guarantee the financial responsibility of the parties on the
instrument.
Neither the insolvency nor the refusal of the party primarily liable shall render
them liable to the holder, unless they are guilty of violating any of their four
warranties as stated in Section 65.
Students. 2006 ed. Manila: GIC Enterprises 2006.)
55. Question: What are the warranties of a general endorser?

Answer: A general endorser warrants:
a) That the instrument is genuine and all respect what it purports to be.
b) That he has got a good title to it.
c) That all prior parties had capacity to contract.
d) That the instrument is, at the time of the endorsement, valid and subsisting.
e) That the instrument, on due presentment shall be accepted or paid, or both,
and if dishonored and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder, or to any subsequent endorser
who may compel to pay.
(SUAREZ, CARLOS B. The Law on Negotiable Instruments for
Business Students. 2006 ed. Manila: GIC Enterprises 2006. Page 143-
144)
56. Question: To whom does the warranties of a general endorser extend
Answer: A qualified endorser is liable to all parties who can trace their title
through his endorsement. In persons who derive their title from holders in due
course summary therefore, The warranty extends to the following:
a. Subsequent holders in due course
b. persons who derive their title from holders in due course
Be it noted that these warranties do not extend in favour of a drawee is not
considered a holder, nor the presentation of the instrument to him considered as
negotiation.
Students. 2006 ed. Manila: GIC Enterprises 2006. Page 144-145)
57. Question: What does the general endorser engage to do in addition to his
warranties
Answer: General endorser engaged that, on due presentment it would be
accepted or paid, or both, as the case may be, according to its tenor, and that if it
be dishonoured and the necessary proceeding on dishonour be duty taken, he
will pay the amount thereof to the holder, or to any subsequent endorser who
may be compelled to pay it.
Students. 2006 ed. Manila: GIC Enterprises 2006.Section 66-last
paragraph, Page 143)
58. Question: Distinguish the fourth warranty of the general endorser and the qualified
endorsers
Answer: A general endorser warrants that the instrument he is endorsing is valid
and subsisting regardless of whether he is ignorant of the fact or not, while a
qualified endorser or person negotiating by delivery warrant that he is ignorant of
any fact that will render the instrument valueless or impair its validity.
59. Question: Between a person negotiating by delivery and a person who makes a
qualified endorsement, who has a greater liability?
Answer: The qualified endorser has a greater liability because his warranties
extend to all parties who derive title through his endorsement.
60. Question: If a person places his endorsement on an instrument negotiate by

delivery, what liabilities does he incur?
Answer: Where a person places his indorsement on an instrument negotiable by
delivery, he incurs all the liability of an indorser.
61. Question: As respect one another, in what order are endorsers liable?
Answer: - As respect one another, indorsers are liable prima facie in the order in
which they indorse; but evidence is admissible to show that, as between or
among themselves, they have agreed otherwise. Joint payees or joint indorsees
who indorse are deemed to indorse jointly and severally.
Students. 2006 ed. Manila: GIC Enterprises 2006. Section 68, Page 180)
62. Question: What is the nature of the liability of joint payees or joint endorsees who
endorse
Answer: Joint payers or joint indorsees are deemed to indorse jointly and
severally.
Students. 2006 ed. Manila: GIC Enterprises 2006. Section 68-last
sentence, Page 147)
LESSON 4- HOLDER/HOLDER IN DUE COURSE/HOLDER NOT IN DUE COURSE
63. Question: Who is considered a holder?
Answer: Holder means the payee or indorsee of a bill or note who is possession
of it, or the bearer thereof.
64. Question: Name the kinds of holders under the Negotiable Instruments Law.
Answer: The classes of holders are: holders simply, holders for value and
holders in due course.
65. Question: What are the rights of a holder?

Answer: The holder of a negotiable instrument may to sue thereon in his own
name; and payment to him in due course discharges the instrument.
Page 139)
66. Question: What constitutes a holder in due course

Answer: - A holder in due course is a holder who has taken the instrument under
the following conditions:
(a) That it is complete and regular upon its face;

(b) 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;

(c) That he took it in good faith and for value;

(d) 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.
Page 140-141)
67. Question: Must the above for conditions be present at all times the holder is in
possession of the instrument.
Answer: All the four conditions must concur in order to qualify a person as a
holder in due course. If any one of them is absent, the holder cannot be
considered a holder in due course. Every holder is generally deemed prime facie
a holder in due course. He claims otherwise has burden of proof.
68. Question: Who is deemed a holder in due course?

Answer: 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 burden is on the holder to prove that he or some person under
whom he claims acquired the title as holder in due course. But the last-
mentioned rule does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.
Page 132)
69. Question: If the instrument has been negotiated to a holder after it was
dishonored by non-acceptance, can the holder be still a holder in due course?
Answer: Dishonor by non-acceptance refers only to a bill of exchange. The bill
may occur even before the date of its maturity.
70. Question: If the instrument after it was dishonored by non-payment has been
negotiated, can the holder be still a holder in due course?
Answer: Dishonor by non-payment can only take place at the time of maturity.
71. Question: When is the holder not deemed a holder in due course?
Answer: Dishonor by non-payment can only take place at time of maturity.
72. Question: Can there be a holder in due course for part of the instrument?
Answer: Yes, if an amount has been paid, the instrument has been transferred to
him in consideration of his promise to make future payments to his transferor, he
under no legal obligation to pay the balance of the amount he has agreed to pay
on discovering the infirmity or defect. If he does, he can be considered a holder in
due course only to the extent of the amount theretofore paid by him.
73. Question: When may title of a person who negotiates the instrument be
considered defective?
Answer: The title of a person who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or any signature thereto, by
fraud, duress, or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.
documents of title. 2009 ed. Manila: REX Book Store, 2009. Section 55,
Page 149)
74. Question: Does it necessarily follow that if the title of the person negotiating is
defective, the holder shall also have a defective title?
Answer: A holder in due course can acquire a better title than his predecessors
because he takes the instrument free from defenses available to prior parties. A
holder not in due course, on the other hand, takes the instrument subject to all
defenses because he is treated as a transferee of a non-negotiable paper.
However, the fact that the holder is not in due course will in no way affect the
negotiability of the instrument. It only affect such holder’s rights, and does not
prevent subsequent holders from acquiring the status of a due course holders.
75. Question: What are the rights of a holder in due course?

Answer: A holder in due course holds the instrument free from any defect of title
of prior parties and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount
thereof against all parties liable thereon.
documents of title. 2009 ed. Manila: REX Book Store, 2009. Section 57,
Page 152)
76. Question: What kind of defense is a holder in due course free from?
Answer: Answer: The defences referred to in section 57 that cannot be set up
against a holder in due course are the so called personal defences or equities, as
distinguished from absolute or real defences. They are cut off by negotiation of
the instrument to a holder in due course. This rule which permits a holder in due
course to take an instrument free of all personal defences is a necessity if
commercial papers are to circulate freely and prospective purchasers are to
accept them routinely and willingly. Real defences, which attach to the
instruments itself, would be available against all persons even as against a
holder in due course.
77. Question: What is the status of a negotiable instrument in the hands of a holder
not in due course?
Answer: In the hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it were non-negotiable.
But a holder who derives his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the instrument, has all the rights
of such former holder in respect of all parties prior to the latter.

78. Question: Under what circumstances may a holder not in due course acquire the
rights of a holder in due course
Answer: Answer: Although as a rule, equitable defences can be set up or
interposed against a holder not in due course, this is subject to the exception of a
holder who derives his title through a holder in due course and who is not a party
to any fraud or illegality affecting the instrument
Requisites before this rule will apply
a. He derived his, title from a holder in due course.
b. He is not himself a party to any fraud or illegality affecting the instrument.
79. Question: If a holder not in due course has acquired the rights of a holder in due
course, is he already a holder in due course?
Answer: If the original payee is not a holder in due course, example for lack of
consideration repurchases the instrument after transferring it to a holder in due
course, the payee again becomes subject in the payee’s hand to the same
defences to which it would have been subject as if the paper had never passed
through the hands of the holder in due course.
LESSON 5- SPECIAL KINDS OF PROMISSORY NOTES

80. Question: What are the special types of promissory notes?
Answer: The special types of promissory notes are due bill, bank note, certificate
of deposit and bond.
81. Question: Define a certificate of deposit

Answer: Certificate of deposit is a written acknowledgement by a bank of a
receipt of money on deposit which the bank promises to pay to the depositor,
bearer, to some other person, to the order of the depositor, or to him or his order,
at a late date or on demand. It should not be confused with the deposit slip
issued by the bank when cash or checks are deposited in checking account. A
deposit slip is a mere receipt.
A certificate of deposit (commonly balled CD) is negotiable or non-negotiable,
depending upon its terms. It is negotiable only if drawn with all the essential
elements of a negotiable paper. Its negotiability allows it to be indorsed or sold to
pay debts or to serve as security (collateral) for a loan. It is not to be confused
with savings deposit. It is most commonly a time deposit of money with a bank.
82. Question: What is a bond?
Answer: Bond is an evidence of indebtedness issued by a public or private
corporation, promising to pay a sum of money on a day certain in the future.
83. Define a Bank note.

Answer: Bank note issued by a bank for circulation as money payable to bearer
on demand.
84. Question: What is a Due Bill?

Answer: Due Bill is appearing on its face the word “due” as an acknowledgement
by a person of his indebtedness.
LESSON 6- SPECIAL KINDS OF BILL OF EXCHANGE

85. Question: What are the special types of bills of exchange?
Answer: The special types of bills of exchange are draft, trade acceptance,
check, banker’s acceptance, treasury warrant, money order, clean and
documentary, sight bills, time bills, inland bills, foreign bill of exchange.
86. Question: Define a trade acceptance bill.

Answer: Trade acceptance bill is a draft or bill of exchange drawn by the seller on
the purchaser of goods and accepted by the latter.
87. Question: Define a banker’s acceptance bill.

Answer: Banker’s Acceptance bill is a draft or bill of exchange of which the
acceptor is a bank or banker engaged generally in the business of granting
banker’s acceptance credit.
88. Question: Is a treasury warrant negotiable?

Answer: No, there are certain documents of title with limited negotiability which
are also widely used in commercial transactions but have been held to be non-
negotiable because under they do not have the requisites that are essential under
the Negotiable Instrument Law. They are beyond the scope of the Negotiable
Instruments Law and are, therefore, governed by the other laws. Treasury warrant
is a governed warrant for the payment of money such as that issued i9n favor of
the public officer or employee covering payment or replenishment of cash
advances for official expenditures. It is payable out a specific fund or
appropriation.
DE LEON, HECTOR S. The Law on Negotiable Instruments: with
89. Question: Are postal money orders negotiable?

Answer: No, there are certain documents of title with limited negotiability which
are also widely used in commercial transactions but have been held to be non-
negotiable because under they do not have the requisites that are essential under
the Negotiable Instrument Law. They are beyond the scope of the Negotiable
Instruments Law and are, therefore, governed by the other laws. Postal money
order for the payment of money to the payee named therein drawn by one post
office upon another under authority of law. It is subject to restrictions and
limitations under postal laws and regulations inconsistent with the character of
negotiable instrument.
90. Question: Define a clean bill of exchange.

Answer: Clean bill of exchange is one which are not attached documents of title
to be delivered to the person against whom the bill is drawn when he either
accepts or pay the bill.
91. Question: What is a documentary bill?

Answer: Document Bill is a bill of exchange to which documents like shipping
documents or invoices are attached when presented for acceptance or payment
92. Question: Can a payee enforce payment on the bill against the drawee to whom
the bill is addressed, if the drawee does not accept the bill?
Answer: A payee can enforce payment on the bill against the drawee to which the
bill is addressed; if the drawee does not accept the bill because the payee
assumed that the drawee knows that he is liable.
documents of title. 2009 ed. Manila: REX Book Store, 2009.)
93. Question: May a bill of exchange be addressed to two or more drawees?

Answer: Yes, a bill of exchange can be addressed to more than one drawee; but
not to two or more drawees in the alternative or in succession.
documents of title. 2009 ed. Manila: REX Book Store, 2009.)
94. Question: Define an inland bill of exchange.

Answer: Inland Bills ia an inland bill of exchange that is onewhich is, or on its face
purports to be, both drawn and payable within the Philippines.
95. Question: Define a Foreign bill of Exchange.

Answer: Foreign Bill of Exchange is a bill which is, or on its face purports to be,
drawn or payable outside the Philippines.
96. Question: Under what circumstances may bill be considered a promissory note?
Answer: Where in a bill the drawer and drawee are the same person or where the
drawee is a fictitious person or a person not having capacity to contract, the
holder may treat the instrument at his option either as a bill of exchange or as a
promissory note.
97. Question: Who is a “Referee in case of Need”?

Answer: The drawer of a bill and any indorser may insert thereon the name of a
person to whom the holder may resort in case of need; that is to say, in case the
bill is dishonored by non-acceptance or non-payment. Such person is called a
referee in case of need. It is in the option of the holder to resort to the referee in
case of need or not as he may see fit.
Students. 2006 ed. Manila: GIC Enterprises 2006.Section 131, Page 208)
98. Question: Is the holder duty bound to resort to the referee in case of need?
Answer: It is at the option of the holder to resort to the referee in case of need.
This referee in case of need is placed in the instrument by the drawer or indorser
of bills of exchange. Should the holder refer the matter to the referee and the
latter pays the bill, his right is to recover the amount paid from the drawer or
indorser who has named him as referee in case of need.
LESSON 7- SPECIAL KINDS OF CHECK

99. Question: Name the special types of checks.
Answer: The special types of checks are memorandum checks. Cashier’s check,
certified check, manager’s check, certified check, stale check, crossed checks
and traveller’s check.
100. Question: Define a Cashier’s Check.

Answer: Cashier’s check is drawn by the cashier of the bank, in the name of the
bank against the bank itself, payable to third persons. This is a check accepted in
advance by the act of its issuance.
101. Question: Define a Manager’s Check?

Answer: Manager’s check is the same as a cashier’s check, drawn by the
manager of a bank, in the name of the bank against the bank itself, payable to
third persons.
102. Question: Can both cashier’s and manager’s checks be treated as promissory
notes?
Answer: No they are not the same, though both cashier’s check and manager’s
check be treated as promissory note but the manager’s check is not legal tender
while cashier’s check is a legal tender.
103. Question: Define a Memorandum check.

Answer: Memorandum Check is a check on which is written word “memo”,
signifying his intention to pay the check upon presentment.
104. Question: Define a crossed check.

Answer: Crossed check is a check which bears across its face two parallel lines
drawn diagonally, usually on the upper left side.
105. Question: What is the purpose of crossing a check?

Answer: The purpose of crossing a check is to make sure that its payment will be
made to the rightful owner by directing that payment of the same be made only to
or through same banker.
106. Question: Who crosses a check?

Answer: The check crossed generally is deposited with a bank by the holder
where he keeps an account and the bank takes charge of the collection. If the
check crossed specially, he deposits it with the bank indicated between the
parallel lines. A crossed check can only be deposited but may not ne concerted
into cash.
107. Question: In how many ways may a check be crossed?

Answer: A check may be crossed into two either specially or generally.
108. Question: When is a check said to be crossed specially?

Answer: Specially- when the check bears across its face an addition at the name
of a banker.
109. Question: When is a check said to be crossed generally?

Answer: Generally- when the words “and company” or any abbreviation there of
are written between two parallel transverse lines, or when two parallel transverse
lines simply are drawn across the face of the instrument.
Business Students. 2006 ed. Manila: GIC Enterprises 2006. Page
249)
110. Question: What is a traveller’s check?

Answer: Traveller’s check is a check used by travellers as a convenient method
to supply him with sufficient funds instead of carrying cash. This check is to be
signed at the time it is issued, and countersigned before it is paid.
Business Students. 2006 ed. Manila: GIC Enterprises 2006. Page 247)
111. Question: What is a certified check?

Answer: Certified check is a check whereby the word “certified” is written on its
face, the drawee bank agrees to pay upon presentment for payment.
112. Question: What is the effect of certification of a check?

Answer: Where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance.
Business Students. 2006 ed. Manila: GIC Enterprises 2006.Section
187, Page 251)
113. Question: Who may procure a check to be certified?

Answer: The drawee bank agrees to pay upon presentment the payment. A check
on which the drawee bank has written an agreement whereby it undertakes to pay
the check at nay future time when presented for payment, such as, by stamping
on the check the word “certified” and underneath is written the signature of the
cashier.
Suarez, Page 648)
114. Question: What is the effect if the check is certified procured by the holder?
Answer: Where the holder of a check procures it to be accepted or certified, the
drawer and all indorsers are discharged from liability thereon.
documents of title. 2009 ed. Manila: REX Book Store, 2009.Section
188, Page 305)
115. Question: What is the effect of certification of the check procured by the drawer?
Answer: If procured by the drawer, the drawer is not discharge even if he has the
check certified at the request of the one to whom it is payable.
116. Question: When does a check operates an assignment of the funds of the drawer
with the drawee bank available for payment?
Answer: A check of itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank is not liable to the
holder unless and until it accepts or certifies the check.
189, Page 253)
117. Question: Within what time shall a check be presented for payment?
Answer: - A check must be presented for payment within a reasonable time after
its issue or the drawer will be discharged from liability thereon to the extent of the
loss caused by the delay.
186, Page 250)
118. Question: How do you call a check which is not presented for payment within a
reasonable time after its issue?
Answer: Stale check that is one which has not been presented for payment within
a reasonable time after its issue. It is valueless and therefore, should not be paid.
119. Question: When is drawer of a check discharged from liability in the event it has
become stale?
Answer: The drawer is not discharged by the mere delay in the presentation of the
check for payment if he does not suffer any loss from the delay.
There are three requisites in order that the drawer may be discharged from
liability.
a. The check is not presented within a reasonable time after its issue;
b. The drawer suffers loss; and
c. The loss suffered by the drawer is attributable to the delay.
120. Question: What is the effect upon the liability of the endorser in case the check is
not presented for payment within a reasonable time after its assuance?
Answer: Effect of delay against indorsers, irrespective of loss, an indorser is d
ischarged by lack of due presentment on a check.
Submitted to:
Atty. Gene B. Calonge
Associate Professor
Submitted by:
Ellen Prescett B. Ramos
BSA-2
TThS(2:35-4:00)

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GQ-GUIDE QUESTION

MIDTERM PHASE COVERAGE

2. Question: Supposing a negotiable instrument payable to the order of B, was

3. Question: In what manner therefore, shall the instrument be transferred to make

6. Question: What requisites must be observed to make an endorsement valid?

7. Question: Name the kinds of endorsement?

8. Question: What is a special indorsement?

9. Question: What is endorsement in blank?

10. Question: How is a blank endorsement converted into a special endorsement?

12. Question: When an endorsement is considered restrictive?

18. Question: Define a qualified endorsement.

21. Question: Does a qualified endorsement impair negotiability of the instrument

23. Question: What are the warranties of a qualified endorser?

27. Question: What is the condition appears on the instrument?

29. Question: If an instrument is payable to bearer has been especially endorsed,

33. Question: What is the effect of an instrument drawn of indorsed to person as

36. Question: How shall a person who is under obligation to endorse in a

37. Question: What is the presumption as to the time of endorsement

38. Question: What is the presumption as to the place of endorsement

39. Question: Under what circumstances is an instrument originally negotiable

40. Question: Which restrictive endorsement puts an end to negotiability?

LESSON 3- LIABILITIES OF ENDORSERS

49. Question: To whom shall an irregular endorser be liable?

50. When may an instrument be negotiated by delivery?

52. Question: To whom shall the warranties of a person negotiating by delivery

53. Question: To whom shall the warranties of a qualified endorser extend?

54. Question: What kind of liability has a qualified endorser?

55. Question: What are the warranties of a general endorser?

60. Question: If a person places his endorsement on an instrument negotiate by

65. Question: What are the rights of a holder?

66. Question: What constitutes a holder in due course

68. Question: Who is deemed a holder in due course?

75. Question: What are the rights of a holder in due course?

(SUAREZ, CARLOS B. The Law on Negotiable Instruments for Business

LESSON 5- SPECIAL KINDS OF PROMISSORY NOTES

81. Question: Define a certificate of deposit

83. Define a Bank note.

84. Question: What is a Due Bill?

LESSON 6- SPECIAL KINDS OF BILL OF EXCHANGE

86. Question: Define a trade acceptance bill.

87. Question: Define a banker’s acceptance bill.

88. Question: Is a treasury warrant negotiable?

89. Question: Are postal money orders negotiable?

90. Question: Define a clean bill of exchange.

91. Question: What is a documentary bill?

93. Question: May a bill of exchange be addressed to two or more drawees?

94. Question: Define an inland bill of exchange.

95. Question: Define a Foreign bill of Exchange.

97. Question: Who is a “Referee in case of Need”?

LESSON 7- SPECIAL KINDS OF CHECK

100. Question: Define a Cashier’s Check.

101. Question: Define a Manager’s Check?

103. Question: Define a Memorandum check.

104. Question: Define a crossed check.

105. Question: What is the purpose of crossing a check?

106. Question: Who crosses a check?

107. Question: In how many ways may a check be crossed?

108. Question: When is a check said to be crossed specially?

109. Question: When is a check said to be crossed generally?

110. Question: What is a traveller’s check?

111. Question: What is a certified check?

112. Question: What is the effect of certification of a check?

113. Question: Who may procure a check to be certified?

Atty. Gene B. Calonge