1. Define what is NI, provide examples.

Negotiable instrument is one used in commercial transactions and which complies

with all the elements of negotiability provided for under Section 1 of the Negotiable
Instruments Law.

Examples:

 Promissory Note
 Check
 Bill of Exchange

2. Recite Section 1 of NIL.

Section 1. Form of Negotiable Instruments - An instrument to be negotiable must

conform to the following requirements:

a. It must be in writing and signed by the maker or drawer;

b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand or at a fixed or determinable future time;
d. Must be payable to order or bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

3. What are the instruments with limited negotiability?

1. Letter of Credit
2. Trust receipt
3. Treasury warrant
4. Postal money order
5. Bill of lading
6. Certificate of stock
7. Warehouse receipt
8. Pawn ticket
4. Discuss/Define PN and enumerate the parties.

Promissory note is an unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. (see Sec. 184.)

A promissory note, briefly stated, is a written promise to pay a sum of money. It is

commonly referred to as a note. (see ibid.) It may be a demand instrument (see Sec. 7.)
but is normally a time instrument. (see Sec.4.)

This class of negotiable instruments is a promise paper, or two-party paper.

There are two (2) parties in a promissory note. The one who makes the promise and
signs the instrument is called the maker and the party to whom the promise is made or
the instrument is payable is called the payee.

5. Discuss/Define BOI and enumerate the parties.

1. Bill of exchange is an unconditional order in writing addressed by one person to

another, signed by the person giving it, and requiring the person to whom it is
addressed to pay upon demand or at a fixed or determinable future time a sum certain
in money to order or to bearer. (Sec. 126)

This class of negotiable instruments is known as order paper, or three-(3) party

paper.

A bill of exchange requires in its inception at least three (3) parties- the drawer, the
drawee, and the payee- to fill the legal roles involved.

Drawer- the person who issues and draws the order bill.

Drawee- the party upon whom the bill is drawn.

Payee- the party in whose favor the bill is originally is sued or is payable.

6. What is Consideration recite the section.

Consideration - (or cause) is the immediate, direct, or essential reason which induces
a party to enter into a contract. Thus, in a contract of sale, the consideration for the
seller is the price and for the buyer, the subject sold.
Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration, and every person whose
signature appears thereon to have become a party thereto for value.

7. What is forgery recite the section.

Forgery - is meant the counterfiet-making or fraudulent alteration of any writing, and

may consist in the signing of another’s name of the alteration of an instrument in the
name, amount, description of the person and the like, with intent thereby to defraud.
(Ogden, op. Cit., p.318.)

Sec. 23. Forged signature; effect. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature
unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.

8. Recite Section 18

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable
on the instrument whose signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade or assumed name will be
liable to the same extent as if he had signed in his own name.

9. Recite Section 19

Sec. 19. Signature by agent; authority; how shown. - The signature of any party
may be made by a duly authorized agent. No particular form of appointment is
necessary for this purpose and the authority of the agent may be established as in
other cases of agency.

10. Recite Section 20

Sec. 20. Liability of a person signing as agent, etc. - Where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf of a
principal, or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent, or as as
filling a representative character, without disclosing his principal, does not exempt him
from personal liability.
11. What are the Functions of Negotiable Instruments

l It is a substitute for money.

 It is a medium of exchange.
 It is a credit instrument.
 It is a means of making immediate payment.
 It is an evidence or proof of transactions.

12. What is Value? Recite Section 25 what is valuable consideration?

Sec. 25. Value; what constitutes. - Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.

A valuable consideration need not be adequate. It is sufficient if it is a valuable one.

13. What is Forgery? Recite Section 23 and enumerate the effects of

forgery.

Forgery - is meant the counterfiet-making or fraudulent alteration of any writing, and

may consist in the signing of another’s name of the alteration of an instrument in the
name, amount, description of the person and the like, with intent thereby to defraud.
(Ogden, op. Cit., p.318.)

Sec. 23. Forged signature; effect. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature
unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.

Effects of forgery:

Effect of forged signature. - In both cases, the signature is wholly inoperative and so no
right can be acquired through the forged signature. Forgery is, therefor, a real defense
even against a holder in due course. (see Sec. 58.)
14. What is Indorsement? Enumerate the 10 kinds of Indorsement.

Indorsement - is the writing of the name of the payee on the instrument with the intent
either to transfer the title to the same, or to strengthen the security of the holder by
assuming a contingent liability for its future payment, or both. (see Norton, op. Cit., 4 th
Ed., p. 148.

Classification of Indorsement:

1. As to the methods of negotiation:

(a) special (Sec. 34.); or

(b) blank. (ibid.)

2. As to the kind of title transferred:

(a) restrictive; or
(b) non-restrictive. (Sec. 36.)

3. As to scope of liability of indorser:

(a) qualified; or
(b) unqualified or general. (Sec. 38,66.)

4. As to presence or absence of limitations:

(a) conditional; or
(b) unconditional. (Sec. 39.)

5. The other kinds of indorsements:

(a) Joint (Sec. 41.);

(b) Successive (see Secs. 50,68.);
(c) Irregular or anomalous (Sec. 64.); and
(d) Facultative. (see Sec. 111.)
15. What are the classes of holders explain each

1. Holders simply (Sec. 51.) -

2. Holders for value (see Sec.26.) - is one who has given a valuable consideration for
the instrument issued or negotiated to him.

[Link] in due course. (Secs. 52, 57.) - is a holder who took the instrument under
the conditions enumerated in Section 52. He take the instrument free of most defenses
or adverse claims to it by other parties.

16. Classify the Kinds of Liability and who are those parties primarily?

Liability refers to the obligation of a party to ma negotiable instrument to pay the same
according to its terms.

The parties to a negotiable instrument may be classified according to their

liability as follows:

(1) Primarily liable:

(a) The maker of a promissory

note; (b) The acceptor of a bill
of exchange; and (c) The
certifier of a check.

(2) Secondarily (conditionally) liable:

(a) The drawer of a

bill; and (b) The
indorser of a note or a
bill.

(3) Not liable:

(a) The drawee until he accepts the instrument in which case he becomes an acceptor.

A person becomes a party to a instrument by signing his name thereon. The general
rule is that no person is liable on an instrument unless his signature appears thereon.
(see SEcs. 18-21.)
17. What is a Holder in Due Course? Enumerate the section and
requisites

A holder in due course is a holder who took the instrument under the conditions
enumerated in Section 52. He take the instrument free of most defenses or adverse
claims to it by other parties.

Sec. 52. What constitutes a holder in due course. - 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 had
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.

18. What is Negotiation? Recite Section 30

Negotiation is the transfer of a negotiable instrument from one person to another made
in such a manner as to constitute the transferee the holder thereof. (Sec. 30.) There is
no negotiation if the transfer does not make the transferee the holder of the instrument.

Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is

transferred from one person to another in such manner as to constitute the transferee
the holder thereof. 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.

19. What are the characteristics or Features of NI and discuss each

Negotiable instruments have two important features, namely: negotiability and

accumulation of secondary contracts as they pass from one person to another.

1. Negotiability is that quality or attribute of a bill or note whereby it may pass from one
person to another similar to money, so as to give the holder in due course the right to
collect on the instrument the sum payable for himself free from any defect in the title of
any of the prior parties or defenses available to them among themselves. (see Secs.
52.57.)

(a) A negotiable instrument is analogous to money, for one who honestly takes coin or
currency from a thief or finder without knowledge of the loss or theft, giving value for it,
can hold it against the world, including the true owner. It must freely transfer the right to
payment to encourage acceptability. When transferability is limited or restricted, the
paper may be said to be nonnegotiable. (see Secs. 36,37.)

2. The most important feature of negotiable instrument is the accumulation of

secondary contracts as they are tramnsferred from one person to another. Once an
instrument is issued (see Sec. 191.), additional parties can become involved.

20. What is Promissory Note? Enumerate the parties

Promissory note is an unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. (see Sec. 184.)

A promissory note, briefly stated, is a written promise to pay a sum of money. It is

commonly referred to as a note. (see ibid.) It may be a demand instrument (see Sec. 7.)
but is normally a time instrument. (see Sec.4.)

This class of negotiable instruments is a promise paper, or two-party paper.

There are two (2) parties in a promissory note. The one who makes the promise and
signs the instrument is called the maker and the party to whom the promise is made or
the instrument is payable is called the payee.

21. What is Bill of exchange? Enumerate the parties

1. Bill of exchange is an unconditional order in writing addressed by one person to

another, signed by the person giving it, and requiring the person to whom it is
addressed to pay upon demand or at a fixed or determinable future time a sum certain
in money to order or to bearer. (Sec. 126)

If drawn on a bank and payable on demand, the order bill is, by definition, called
check. (Sec. 185). The check is the most common form of order paper. (infra.)

This class of negotiable instruments is known as order paper, or three-(3) party

paper.

A bill of exchange requires in its inception at least three (3) parties- the drawer, the
drawee, and the payee- to fill the legal roles involved.

Drawer- the person who issues and draws the order bill.

Drawee- the party upon whom the bill is drawn.

Payee- the party in whose favor the bill is originally is sued or is payable.

22. Define what is a check

Check is a special form of bill of exchange. It is drawn on a bank and payable on

demand (Sec. 185.) The check is the most common form of order paper. (infra.)

23. What are the Rights of a Holder? Under section 51?

In general, the following are the rights of a holder:

(1) He may sue on the instrument in his name; and

(2) He may receive payment and if the payment is in due course (see Sec. 88.), the
instrument is discharged. (Sec. 119.)

Under Section 51, a holder even though he be a holder only for collection may sue in
his name. Similarly, the pledgee of a note may sue as he is deemed ‘’holder’’ within this
section.

24. What are the Rights of a Holder in due course

The following are the rights of a holder in due course:

(1) He may sue on the instrument in his own name (Sec. 51.);
(2) He may receive payment and if the payment is in due course, the instrument is
discharged

(ibid.);

(3) He holds the instrument free from any defect of title of prior parties;
(4) He holds the instrument free from defenses available to prior parties among
themselves; and
(5) He may enforce payment of the instrument for the full amount thereof against all
parties liable thereon.

25. What are the Warranties? Recite Section 65

Sec. 65. Warranty; where negotiation by delivery, etc. – Every person negotiating an
instrument by delivery or by a qualified indorsement warrants:
 (a) That the instrument is genuine and in all respects 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 that 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.

26. Define Defenses? Enumerate the 2 kinds of defenses and explain

each.

Defenses are grounds or reasons pleaded or offered by the defendant in a case,

showing why the plaintiff, as a matter of law or fact, should not be given the relief he
seeks 2 kinds of defenses:

(1) Real defenses are those that are assertable against all parties, both immediate
and remote, including holders in due course or holders through the latter. In
other words, there are cases when a holder in due course is not legally entitled
to payment from the primary party.
(2) Personal Defenses are those available prior parties among themselves but
which are not good against a holder in due course. (see Sec. 57.) They include
every defense available in actions under ordinary contract law. They can be
asserted only against holders, but not against holders in due course or holders
with all the rights of a holder in due course.

27. Enumerate at least 5 Personal Defenses. Discuss what are

personal defenses.

Personal Defenses are those available prior parties among themselves but which are
not good against a holder in due course. (see Sec. 57.) They include every defense
available in actions under ordinary contract law. They can be asserted only against
holders, but not against holders in due course or holders with all the rights of a holder in
due course.

Example of Personal Defenses:

• filling of wrong date (Sec. 13.);

• want of delivery of complete instrument (Sec. 16.);
• absence or failure or consideration (Sec. 28.);
• simple fraud or fraud in inducement (Sec. 55.);
• acquisition of instrument (not signature) by duress, or force and fear (ibid.)

28. Enumerate at least 5 Real Defenses . Discuss what are real

defenses

Real defenses are those that are assertable against all parties, both immediate and
remote, including holders in due course or holders through the latter. In other words,
there are cases when a holder in due course is not legally entitled to payment from the
primary party.

Example of Real Defenses:

• Incapacity as far as the incapacitated person is concerned (see Art. 1327, Civil Code);
• Want of delivery of incomplete instrument (Sec. 15.);
• Forgery (Sec.23.);
• Want of authority, apparent and real (ibid.);
• Fraud in factum or fraud in esse contractus (Sec. 14.)

29. Differentiate Ante-dated and Post dates. Recite Section 12

Sec. 12. Ante-dated and Post-dated. – The instrument is not invalid for the reason
only that it is ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.

Meaning of ante-dated and Post-dated:

(1) An instrument is ante-dated when it contains a date earlier that the true date of
its issuance. Thus, the instrument issued on July 30, 2016 but is dated July 15,
2016 is ante-dated.
(2) An instrument is post-dated when it contains a date later than the true date of
its issuance. It is just the reverse of an ante-dated instrument. In the example
given, if the instrument was issued on July 15, 2016, but bears a date of July
30,2016, it is post-dated.
30. What is an accomodation party? Recite Section 29

Sec. 29. Liability of accommodation party. – An accommodation party is one who

has signed the instrument as maker, drawer, acceptor or indorser, without receiving
value therefore, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, nit withstanding such holder at
the time of taking the instrument knew him to be only an accommodation party.

31. Distinction between an accommodation party and a regular party

The following are the differences:
(1) An accommodation party signs an instrument without receiving value therefore,
while a regular party signs the instrument for value (Sec. 24.);
(2) An accommodation party signs an instrument for the purpose of lending his
name to some other person (Sec. 29.), while a regular party does not sign for
that purpose;
(3) An accommodation party may always show by parol evidence that is only such,
while a regular party cannot disclaim or limit his personal liability as appearing
on the instrument by parol evidence;
(4) An accommodation party cannot avail of the defense of absence or failure of
consideration against a holder not in due course, while a regular party may avail
of said defense against a holder not in due course; and
(5) An accommodation party, after paying the holder, may sue for reimbursement
the accommodated party, although a subsequent party, while a regular party may
not sue any subsequent party for reimbursement.

32. Distinguished Absence or Want of consideration from failure of

consideration recite Section 28

Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a

matter of defense against any person not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.

Difference between absence and failure:

Absence of consideration means a total lack of any valid consideration for the
contract, in consequence of which the alleged contract must fail. (Klein v. Roteman, 6
Ohio App. 145.)

Failure of consideration means the failure or refusal of one of the parties to do,
perform or comply with the consideration agreed upon. In other words, something was
agreed upon as consideration but for some cause, such agreed consideration failed to
materialize.
33. Who is a Holder for Value? Recite Section 26

A holder for value is one who has given a valuable consideration for the instrument
issued or negotiated to him.

Sec. 26. What constitutes holder for value. – Where value has at any time been
given for the instrument, the holder is deemed a holder for value in respect to all parties
who become such prior to that time.

34. When is a Holder not in due course? Recite Section 53

Sec. 53. When a person not deemed holder in due course. – Where an instrument
payable on demand is negotiated an unreasonable length of time after its issue, the
holder is not deemed a holder in due course.

35. Discuss the liability of the maker recite Section 61 and liability of an agent or
broker section 69

Sec. 60. Liability of maker. – 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 indorser.

Sec. 61. Liability of drawer. – The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that on due
presentment the instrument will be accepted or paid, or both, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it. But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.

Sec. 69. Liability of agent or broker. – Where a broker or other agent negotiates an
instrument without indorsement, he incurs all the liabilities prescribed by section sisty-
five of this Act, unless he discloses the name of his principal and the fact that he is
acting only as agent.

36. Discuss the liability of an Indorser, acceptor recite the section 63 and 64

Sec. 63. When person deemed indorser. – A person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor is deemed to be an indorser,
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.
Sec. 64. Liability of irregular indorser. – Where a person, not otherwise a party to an
instrument, places thereon his signature in blank before delivery, he is liable as indorser
in accordance with the following rules:

(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.