QUITAYEN, IANNA CARMEL Y.

JD – II LAW 202 Negotiable Instruments Law

March 15, 2021

Exercise # 3 – Quiz:

PART 1:

1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE

PART 2:

6. a) Yes, C is a holder in due course. As provided in Section 59 of the Negotiable

Instruments Law, every holder is deemed prima facie a holder in due course.
Hence, C, being a holder, is deemed prima facie a holder in due course.

b) Yes, C may sue on the instrument. As provided under Section 51 of the

Negotiable Instruments Law, the holder of a negotiable instrument may sue
thereon in his own name. Therefore, C, being the holder, may sue on the
instrument.

c) Y has all the rights available to C. Under Section 58 of the Negotiable

Instruments Law, 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. Thus, Y has all the defenses available against D and F, who
are the parties prior to Y.

7. a) No, D may not be considered a holder in due course.

In Section 59 of the Negotiable Instruments Law it is provided that,

every holder is deemed prima facie to be a holder in due course. However,
the law provides of an exception, that when it is shown that the title of any
person who has negotiated the instrument is defective, the burden of proof
shall be on the holder who claims that he is a holder in due course or that he
has acquired it from a holder in due course.

In the case at bar, M has proved that P acquired the instrument through
fraud. Hence, it is upon D to prove that he is a holder in due course or that C, from
whom he acquired title thereto, is a holder in due course.

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QUITAYEN, IANNA CARMEL Y.
JD – II LAW 202 Negotiable Instruments Law
March 15, 2021

b) Yes, D may be considered a holder in due course.

As provided in Section 59 of the Negotiable Instruments Law, every

holder is deemed prima facie a holder in due course, and when the title of
the person who has negotiated the instrument is proven defective, the rule
that the holder has burden of proving that he or some person under whom
he claims he acquired title as a holder in due course, does not apply in favor
of a party who became bound on the instrument prior to the acquisition of
such defective title.

In the instant case, D will continue to be presumed a holder in due course

as M became bound on the instrument even before acquisition of the defective title
by A.

8. Fraud in factum exists in cases where a person, without being negligent, has
signed an instrument which was, in fact, a negotiable instrument, but was deceived
as to the character of such instrument and without knowledge of it.

While fraud in inducement is that which relates to the quality, quantity, value, or
character of the consideration of the instrument, where the one who signed knew
what he was signing but he was induced to sign it by reason of fraud.

The former is real defense, there being no contract, while the latter is only a
personal defense as it does not prevent a contract.

9. Real defenses are those that are assertable against all parties, both immediate
and remote, including holders in due course or holders through the latter. Whereas,
personal defenses are those available to prior parties among themselves, but
which are not good against a holder in due course, or holders with all the rights of
a holder in due course. They can be asserted only against ordinary holders.

The former questions the legal validity of the instrument itself, while the latter
affects only the validity of the agreement for which the instrument was issued.

10. The “Shelter Rule” is a doctrine where transferee takes shelter in the status of her
transferor, and thereby steps into the shoes of the transferor. An example of which
is a holder who derives his title from a holder in due course, in which case such
holder can enjoy the rights of the holder in due course even though he himself is
a mere transferee. However, the Shelter Rule is limited in that the transferee must
not be a party to any fraud or illegality affecting the instrument.

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