Professional Documents
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Daerylle G. Joseco
BSA V-3
Negotiable Instruments Law Assignment Chapters 1-5
CHAPTER I Form and Interpretation
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 ones
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 drawers order and dishonoring the
instrument means non-compliance of the drawees obligation to the drawer.
CHAPTER II Consideration
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 Xs 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 Xs 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.
Terms
Title
Liability
NEGOTIATION
Effected by delivery or
indorsement followed by
delivery.
Negotiation refers only to
negotiable instruments.
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.
Indorser is not liable unless
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.
Maker
Issues a promissory note
Primarily liable
Cannot limit his liability
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
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
drawers 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 Ws 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