All about Nego

Question 1

REQUISITES OF NEGOTIABILITY

Answer 1

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 to bearer; and
e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Question 2

HOW TO DETERMINE THE NEGOTIABILITY OF AN INSTRUMENT

Answer 2

consider the instrument in its entirety and only what appears on its face. It must comply with the requirements under Section 1 of the NIL (Caltex Phils. v.CA, 212 SCRA 448).

Question 3

WHAT CONSTITUTES CERTAINTY AS TO SUM?

Answer 3

A sum is certain within the contemplation of Section 1(b) of the NIL if the amount that is to be unconditionally paid by the maker or drawee can be determined on the face of the instrument even if it requires mathematical computation.

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

a) with interest; or
b) by stated installments; or
c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or
d) with exchange, whether at a fixed rate or at the current rate; or
e) with costs of collection for an attorney’s fee, in case payment shall not be made at maturity.

Question 4

Rule in Stated installments

Answer 4

The dates of each installment must be fixed or at least determinable and the amount to be paid for each installment must be stated. Example: The instrument is not negotiable if “payable in five (5) installments in the amount of ₱ l, 000.00 per installment” without stating the dates of each time of installment.

Question 5

Effect of acceleration clause.

Answer 5

The negotiability of the instrument is not affected even if it is to be paid by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due (Sec. 2, NIL).

Question 6

WHEN IS PROMISE / ORDER UNCONDITIONAL

Answer 6

o The promise or order should be absolute. If it is subject to a condition, the instrument is not negotiable and the happening of the condition does not cure the defect.
o The word “promise” or “order” need not appear in the instrument to satisfy the requirements of Section 1(b) of the NIL. Examples: (1) An acknowledgment may become a promise by the addition of words by which a promise of payment is naturally implied, such as, ‘payable/ ‘payable on a given day/ ‘payable on demand.
o Mere acknowledgment of a debt without a promise is not enough.
o Mere authorization to pay such as “I authorize you to pay…” is not considered an order to pay because it gives the drawee the discretion to pay or not to pay.
o Mere request such as “Please let the bearer have ₱1,000.00…” is not enough and will render the instrument non-negotiable.

Question 7

WHEN IS IT PAYABLE ON DEMAND?

Answer 7

Sec. 7. When payable on demand. - An instrument is payable on demand:

a) When it is so expressed to be payable on demand, or at sight, or on presentation; or
b) In which no time for payment is expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

Question 8

WHAT CONSTITUTES FIXED OR DETERMINABLE FUTURE TIME?

Answer 8

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable:

a) At a fixed period after date or sight; or
b) On or before a fixed or determinable future time specified therein; or
c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

Question 9

WHEN IS IT PAYABLE TO ORDER?

Answer 9

Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of:

a) A payee who is not maker, drawer, or drawee; or
b) The drawer or maker; or
c) The drawee; or
d) Two or more payees jointly; or
e) One or some of several payees; or
f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

Question 10

WHEN IS IT PAYABLE TO BEARER?

Answer 10

Sec. 9. When payable to bearer. - The instrument is payable to bearer:

a) When it is expressed to be so payable; or
b) When it is payable to a person named therein or bearer; or
c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or
d) When the name of the payee does not purport to be the name of any person; or
e) When the only or last indorsement is an indorsement in blank.

Question 11

ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY

Answer 11

Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:

a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
b) authorizes a confession of judgment if the instrument be not paid at maturity; or
c) waives the benefit of any law intended for the advantage or protection of the obligor; or
d) gives the holder an election to require something to be done in lieu of payment of money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.

Question 12

OMISSIONS THAT DO NOT AFFECT NEGOTIABILITY

Answer 12

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that:

a) it is not dated; or
b) does not specify the value given, or that any value had been given therefor; or
c) does not specify the place where it is drawn or the place where it is payable; or
d) bears a seal; or
e) designates a particular kind of current money in which payment is to be made.

Question 13

PRESUMPTION AS TO DATE

Answer 13

Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be.

Question 14

Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, what should be followed?

Answer 14

the sum denoted by the words is the sum payable.

Question 15

b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, when shall interest begin?

Answer 15

The interest runs from the date of the instrument.

Question 16

When shall interest begin if instrument is undated?

Answer 16

if the instrument is undated, from the issue thereof.

Question 17

What if the words in the instrument, in determining sum, are ambiguous or uncertain?

Answer 17

Reference may be had to the figures to fix the amount.

Question 18

What if the instrument is undated? When shall it be considered dated?

Answer 18

it will be considered to be dated as of the time it was issued.

Question 19

What if there is a conflict between the written and printed provisions of the instrument?

Answer 19

The written provisions prevail.

Question 20

What if the instrument is so ambiguous that there is doubt whether it is a bill or note?

Answer 20

The holder may treat it as either at his election.

Question 21

What if a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign?

Answer 21

He is to be deemed an indorser.

Question 22

What if an instrument containing the word “I promise to pay” is signed by two or more persons?

Answer 22

They are deemed to be jointly and severally liable thereon; meaning, solidarily liable.

Question 23

Liability of person signing in trade or assumed name

Answer 23

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.

Question 24

How is authority of an agent in signing a negotiable instrument shown?

Answer 24

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.

Question 25

Liability of person signing as agent, and so forth

Answer 25

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 filling a representative character, without disclosing his principal, does not exempt him from personal liability.

Question 26

Effect of signature by procuration.

Answer 26

A signature by “procuration” operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.

Question 27

TRUE or FALSE:

A person who takes a crossed check without making further inquiries is a holder in due course.

Answer 27

FALSE. The act of crossing a check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. (Bataan Cigar & Cigarette Factory v.
CA, 230 SCRA 643 [1994]).

Question 28

Define value.

Answer 28

Value — a consideration sufficient to support a simple contract. These include antecedent debts and a lien on the instrument.

Question 29

Who is an accomodation party?

Answer 29

An accommodation party is
one who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person.

Question 30

Liability of an accommodation party.

Answer 30

Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument,
knew him to be only an accommodation party.

Question 31

Effect of want of consideration

Answer 31

Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as 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.

Question 32

Effect of instrument drawn or indorsed to a person as

cashier

Answer 32

Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed 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 either the indorsement of the bank or corporation or the indorsement of the officer.

Question 33

Indorsement where name is misspelled, and so forth

Answer 33

Where the
name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his
proper signature.

Question 34

Presumption as to the time of indorsement

Answer 34

Sec. 45. Time of indorsement; presumption. - Except where an indorsement
bears date after the maturity of the instrument, every negotiation is
deemed prima facie to have been effected before the instrument was
overdue.

Question 35

Presumption as to the place of indorsement

Answer 35

Sec. 46. Place of indorsement; presumption. - Except where the contrary
appears, every indorsement is presumed prima facie to have been made at
the place where the instrument is dated.

Question 36

Effect of striking out indorsement

Answer 36

The indorser whose
indorsement is struck out, and all indorsers subsequent to him, are thereby
relieved from liability on the instrument.

Question 37

Who can strike out indorsement?

Answer 37

The HOLDER may at any time strike out any indorsement which is not necessary to his title.

Question 38

Where an instrument

is negotiated back to a prior party, can such party reissue and further negotiate the same?

Answer 38

Yes, but he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

Question 39

Modes of transfer

Answer 39

Negotiation
Assignment
By law

Question 40

Can an order instrument converted to bearer instrument and converted back to order instrument, be negotiated thru delivery?

Answer 40

No. Only thru special indorsement.

Question 41

Can a bearer instrument specially indorsed, be negotiated thru delivery?

Answer 41

Yes. An instrument originally a bearer instrument is always a bearer instrument.

Question 42

PROBLEM:
A is indebted to B in the amount of P100,000.00. In
order to raise funds to pay for his obligation, A sold
his old car to C for P100,000.00 on Jan. 20, 2001. A agreed to deliver the car to C on Jan. 25, 2001. However, A convinced C to immediately issue a check and to make the check payable to B. A informed C that the check will be issued to B because of A’s outstanding obligation. Hence, C issued a check to B to pay for the loan of A payable on January 25, 2001. The check was delivered to B through A. B and C were not aware at that time that the car was sold, it was already destroyed by fire. A fraudulently hid such fact in order to convince C to issue the check and to convince B to accept the check. Can B, the payee of
the check be considered a holder in due course?

Answer 42

Yes, he can be considered a holder in due course. Nothing in the problem indicates that he is not a holder in due course, hence, the presumption that he is a holder in due course stands. All the requirements of Section 52 of the NIL are present in the case because it appears that B is a holder of the instrument who
has taken the instrument complete and regular on its
face, he took it before it was overdue and it was not
previously, dishonored; he took it in good faith and
for value and he had no notice of any infirmity in the instrument or a defect of the title of a prior party.

Question 43

PROBLEM:
Rolando, intending to buy a car saw an old friend, Roger, who is an agent to sell the car belonging to Delgado Clinic. After negotiation, Rolando decided to buy, said car. He drew upon request of Roger, a crossed check for P600.00, payable to Delgado Clinic as evidence of his good faith, but which was which was merely meant to be shown to Delgado Clinic by Roger who received said check. The check would then be returned when Roger brings the car and its registration certificate for Rolando’s inspection. For failure of Roger to bring the car and its certificate of registration, and to return the check, Rolando issued a “stop payment order” to the drawee bank. In the meantime, Roger paid the check to the Delgado Clinic for the hospital bill of his wife and was given P158.25 as change. May Delgado Clinic be considered a holder in due course, hence entitled to recover? Decide with reasons.

Answer 43

Delgado Clinic may not be considered a holder in due course, hence not entitled to recover. Although Delgado Clinic was not in fact aware of the circumstances with respect to the delivery of the check
to Roger, there are circumstances that should have
put him on inquiry. Thus, it should have noted that Rolando had no relation with it; that the amount of the
check did not correspond exactly with the obligation
of Roger to the clinic; and that the check is a crossed
check, which means that the check could only be
deposited but may not be converted into cash, should
have put the clinic to inquiry as to the possession of the check by Roger, and why he used it to pay his accounts (1977 and 1962 Bar).

Question 44

Po Press issued in favor of Jose a postdated crossed check, in payment of newsprint which Jose promised to deliver. Jose sold and negotiated the check to Excel Inc. at a discount. Excel did not ask Jose the purpose of crossing the check. Since Jose failed to deliver the newsprint, Po ordered the drawee bank to stop payment on the check. Efforts of Excel to collect from Po failed. Excel wants to know from you as counsel:

1) Is Excel a holder in due course?
2) Can Po Press raise absence or failure of consideration as a defense?

Answer 44

1) Excel is not a holder in due course. The instrument involved is a crossed check and was supposed to be deposited only. Excel is therefore obligated to inquire regarding the circumstances involving the issuance of the check. Failure on his part, as in this case, will prevent him from
becoming a holder in due course; such failure or
refusal constituted bad faith.

2) Yes. Since Excel is not a holder in due course, Excel is subject to the personal defense which Po Press can set up against Jose. There was failure of consideration in the problem because Jose failed to deliver the newsprint to Po Press (1994
Bar).

Question 45

Is a holder in due course free from real defenses?

Answer 45

No.

Question 46

TRUE OR FALSE:
A holder not in due course is subject to personal
and real defenses

Answer 46

TRUE.
Exception: A holder who is not a holder in due course but he derived his title from a holder in due course (Sec. 58, NIL).

Question 47

May one who fails to inquire as to an infirmity in a negotiable instrument and defect in the holder’s title, be a holder in due course?

Answer 47

YES, because the law does not impose on a holder the obligation to inquire into the infirmity in the instrument or defect of the title of the
prison negotiating it to him. However, failure to make inquiry, when the circumstances indicate defect, renders the holder not a holder in due course. Gross negligence may amount to legal absence of good faith (De Ocampo v. Gatchalian, 3 SCRA 596)

Question 48

PROBLEM:
Harry issued a negotiable promissory note to Evelyn and authorized the latter to fill up the amount in blank with his loan account in the sum of PI,000.00. However, Evelyn inserted P5,000.00 in violation of the instruction. She negotiated the note to Julie who had knowledge of the infirmity. Julie in turn
negotiated said note to Devi for value and who had no knowledge of the infirmity. Supposing Devi endorses the note to Baby for value but who has knowledge of the infirmity, can the latter enforce the note against Larry?

Answer 48

Yes. The problem indicates that Baby is not a holder
in due course. When she took the instrument, she had knowledge of the breach of trust committed against Larry. However, she has all the rights of a holder in due course because she took the instrument from Devi, a holder in due course. Although Baby is not a holder in due course, she did not participate in the breach of trust committed by Evelyn. Hence, Larry cannot set up the defense that the instrument was completed in breach of trust against Baby because such defense is a personal defense. (1993 Bar).

Question 49

Jose Reyes signed a blank check, and in his haste to
attend a party, left the check at the top of his executive
deskin his office. Later, Nazareno forced open the door to Reyes’ office, and stole the blank check, Nazareno immediately filled in the amount of P50,000.00 and a fictitious name as payee on the said check. Nazareno then endorsed the check in the payee’s name and passed it to Roldan. Thereafter, Roldan endorsed the check to Dantes.
a) Can Dantes enforce the check against Jose Reyes? Explain.
b) If Dantes is a holder in due course will your answer to question (a) be the same? Explain.

Answer 49

a) Dantes cannot enforce the instrument against Jose Reyes. Jose Reyes can raise the defense that the incomplete instrument was not delivered
since the check was only stolen and filled up by
Nazareno.

b) My answer will be the same even if Dantes is a holder in due course. If an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority be a valid
contract against any holder, even a holder in due course (Sec. 15, NIL; 1985 Bar).

Question 50

A signed a blank check and kept it inside the drawer of his desk in his office. B, a janitor of the office opened the drawer, got the check and filled in the amount of P100,000.00 with B’s name as payee. Thereafter, B indorsed the check to C and C indorsed the check to D. Can D hold A liable?

Would your answer be the same if D was a holder in due course?

How about B and C, are they liable to D?

Answer 50

NO, D cannot hold A liable because the instrument is
incomplete and undelivered. Under Section 15, NIL,
an incomplete and undelivered instrument would not be a valid instrument in the hands of any holder as against any person whose signature was placed
before delivery.

YES, my answer will be the same even if D is a holder in due course because the law, Section 15, NIL says “any holder.”

YES, B and C are liable. B because he was the forger and besides, as an indorser, he warrants that the instrument is genuine and in all respects what it purports to be. So also with C.

Question 51

A negotiable promissory note payable at a fixed period after date was issued undated and without any amount and was delivered to the payee named therein. Will the filling up of the blanks with any date and for any amount avoid the note in the hands of the holder?

Answer 51

No. Under Section 13 of the NIL, the insertion of a wrong date will not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. And under Section 14, NIL, if an incomplete instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands and he may enforce it as if it had been filled up strictly in accordance with the authority given within reasonable time.

Question 52

Liabilities of a maker

Answer 52

Maker — primary liability: (1) engages to pay
according to the tenor of the instrument; and (2)
admits the existence of the payee and his capacity to indorse.

Question 53

Liabilities of an acceptor (and drawee who pays without accepting the instrument)

Answer 53

-primary liability:
(1) engages to pay according to the tenor of his acceptance;
(2)admits the existence of the drawer, the genuineness of his signature and his
capacity and authority to draw the instrument;
(3.) admits the existence of the payee and his
capacity to indorse

Question 54

Liabilities of a drawer

Answer 54

Drawer — secondary liability: (1) admits the existence of payee and his capacity to indorse;
(2) engages that the instrument will be accepted
or paid by the party primarily liable; and
(3) engages that if the instrument is dishonored and proper proceedings are brought, he will pay to the party entitled to be paid.

Question 55

Does the payee or holder of a check have a cause of action against the drawee bank if the latter dishonors the check?

Answer 55

NO. The payee has no cause of action against the bank. The bank is not liable to the holder unless and until it accepts or certifies the check. The remedy of the holder is against the drawer; provided, notice of dishonor is given to him on the basis of the transaction that gave rise to the issuance of the check. Once the bank certifies the check, the bank becomes liable thereon because certification is equivalent to acceptance and if procured by the holder, the drawer and all indorsers are discharged from liability (Secs. 188 and 189, NIL).

Note: However; exceptionally, a payee may sue the drawee based on Article 19 of the Civil Code if there was dishonor despite the instruction of the drawer to pay (HSBC v. Catalan, 440 SCRA 498, [2004])

Question 56

Can a corporation act as an accommodation party?

Answer 56

No. A corporation cannot act as an accommodation party. The issue or endorsement of negotiable instrument by a corporation without consideration and for the accommodation of another is ultra vires (Crisologo v. CA, 117 SCRA 594).

Question 57

PROBLEM:
On June 1,1990, A obtained a loan of P100,000.00 from B, payable not later than Dec. 21, 1990. B required A to issue him a check for that amount to be dated Dec. 20,
1990. Since he does not have any checking account, A, with the knowledge of B, requested his friend, C, president of X Banking Corporation, to accommodate
him. C agreed. He signed a check for the aforesaid
amount, dated Dec. 20, 1990, drawn by X Banking
Corporation with the ABC Commercial Banking
Corporation as drawee. The by-laws of X Banking
Corporation requires that checks issued by it must be signed by the President and the Treasurer or the Vice President. Since the Treasurer was absent, C requested the Vice President to co-sign the check, which the latter reluctantly did. The check was delivered to B. The check was dishonored upon presentation on due date for insufficiency of funds,

Is X Banking Corporation liable on the check as an accommodation party?

If it is not, who then, under the above facts, is/are liable?

Answer 57

NO. X Banking Corporation is not liable because the act of accommodating the check is an ultra vires act. It is outside the powers of a corporation to accommodate another not in line with its own business.

The-president and the vice president who signed for X Banking Corporation, are liable to the instrument in their personal capacities (Crisologo Jose v. CA, Sept 15, 1989) (1991)

Question 58

Santos purchased Vera’s car for P50,000:00. Not having enough cash at hand, Santos offered to pay in check. Vera refused to accept the check unless it is indorsed by Reyes, their mutual friend. Reyes indorsed Santos’ check and Vera, knowing that Reyes had not received any value for indorsing the check, accepted it. The next day, Vera presented the check to the drawee bank for payment. Payment was refused for lack of funds. Vera gave notice of dishonor to Reyes, but Reyes refused to pay, saying that he indorsed merely as a friend. In the event Reyes voluntarily pays Vera, does Reyes have a right to recover from Santos? Explain.

Answer 58

Yes, Reyes can recover from Santos. The relation between Santos and Reyes is ineffect that of principal and surety, the accommodation party. Reyes, being the surety of Santos, can recover from the latter whatever amount that he paid to Vera (PNB v. Maza and Macenas, 48 Phil. 107; Sec. 19, NIL).

Question 59

When does the maker become liable?

Answer 59

The maker is liable the moment he makes the

instrument. Section 60 of the NIL provides that the maker by making the promissory note “engages to pay the instrument according to its
tenor. “

Question 60

When does the drawee become liable?

Answer 60

A drawee becomes liable the moment he accepts
the instrument. Section 62 provides that the “acceptor, by accepting the instrument, engages that he will pay it according to fee tenor of his
acceptance.”

Question 61

Future Bills concept.

Answer 61

An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value. (Sec. 135, NIL).

Question 62

How may a negotiable instrument be discharged?

Answer 62

a) By payment in due course by or in behalf of the principal debtor;
b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation;
c) By the intentional cancellation thereof by the holder;
d) By any other act which will discharge a simple contract for the payment of money;
e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right (Sec. 119, NIL)

Question 63

What is payment in due course?

Answer 63

Payment in due course - payment made at or after the maturity of the instrument, to the holder
thereof in good faith and without notice that his title
is defective (Sec. 88, MIL),