Negotiation

Question 1

When is an instrument negotiated?

Answer 1

An instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof.

Question 2

What are the “stages in life of negotiable instruments”?

Answer 2

1. Preparation with all requirements of Section 1 of NIL
2. Issuance
3. Transfer

Question 3

What is “Issuance”?

Answer 3

First delivery by the maker or drawer to the payee (or bearer in a bearer instrument)

Question 4

What is Transfer?

Answer 4

Instrument is transferred to another to make the transferee the owner of the instrument. Done through: assignment or negotiation

Question 5

What are the “kinds of transfer”?

Answer 5

• Negotiation
• Assignment
• Operation of Law (ie. Succession)

Question 6

True or False

Negotiation is a transfer of right.

Answer 6

True.

Example: Right to collect a sum certain in money is transferred from one person to another

Question 7

True or False

If the negotiable instrument is merely assigned, the transferee does not become a holder and he merely steps into the shoes of the transferor.

Answer 7

True.

It is only in negotiation that the transferee becomes the holder.

Question 8

True or False

If an instrument is not negotiable, it can still be transferred.

Answer 8

True

It can still be transferred but only through assignment.

• Transferee is alwasy an assignee who merely steps into the shoes of the transferor
• Transferee cannot be a holder in due course
• Transferee is subject to defenses of prior parties

Question 9

How is negotiation made if the instrument is payable to bearer?

Answer 9

Just by mere delivery of the instrument to the transferee

Note: It can also be negotiated by indorsement coupled with delivery. While mere delivery is sufficient, indorsement is not prohibited and has effects provided in Sec. 40.

Question 10

How is negotiation made if the instrument is payable to order?

Answer 10

Indorsement coupled with delivery.

Note: Both must be done and without doing one, negotiation is incomplete

Question 11

Negotiation VS Assignment

As to applicable law

Answer 11

Negotiation: Negotiable Instruments Law

Assignment: Civil Code of the Philippines

Question 12

Negotiation VS Assignment

As to type of transaction/instrument

Answer 12

Negotiation: Negotiable instruments only

Assignment: Contracts in general or assignable rights

Question 13

Negotiation VS Assignment

As to the nature of transferee

Answer 13

Negotiation: Transferee is a holder who may be a holder in due course

Assignment: Transferee is a mere assignee

Question 14

Negotiation VS Assignment

As to possibility of becoming a holder in due course

Answer 14

Negotiation: Transferee can be a holder in due course in proper cases

Assignment: Transferee can never bceome a holder in due course

Question 15

Negotiation VS Assignment

As to the rights acquired

Answer 15

Negotiation: Transferee-holder may acquire more rights than the transferor if he is a holder in due course

Assignment: Transferee cannot acquire more rights than the transferor because he merely steps into the shoes of the transferor

Question 16

Negotiation VS Assignment

As to availability of personal defenses

Answer 16

Negotiation: Transferee-holder may be free from personal defenses if he is a holder in due course

Assignment: Transferee is always subject to personal defenses