Nego Inst Law Final

8/9/2019 Nego Inst Law Final

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NEGIOTABLE INSTRUMENT:DEFINITION ANDCHARACTERISTCS (2005)

What is a negotiable instrument?

Give the characteristics. (2%)

SUGGESTED ANSWER:

Negotiable Instrument is a written

contract for the payment of money

by its form an! on its face which is

inten!e! as a substitute for money

an! one person to another as money

in such a manner as to give a hol!er

in !ue course the right to hol! the

instrument free from !efenses

available to prior parties. "uch

instrument must comply with "ec. #

of the Negotiable Instrument $aw to

be consi!ere! negotiable.

he characteristics of a negotiable

instrument are&

#) Negotiai!it" ' hat uality or

attribute whereby a bill note or chec

passes or may pass from han! to

han! similar to money so as to give

the hol!er in !ue course the right to

hol! the instrument an! collect the

sum payable for himself free from

!efenses.

2) A##$%$!atio& o' Se#o&a"

Co&ta#t* as they are transferre!

from one person to another.

Instruments are negotiable when

they conform to all the reuirements

prescribe! by the NI$ ( Act 2031, 03

February 1911).

*lthough consi!ere! as me!ium for

payment of obligations negotiable

instruments are not legal ten!er

(Sec. 60, New Central Bank Act, R.A.

7653.

Q: +an the !elivery of a negotiableinstrument !ischarge an obligation?

A: "ettle! is the rule that payment

must be ma!e in legal ten!er. *

chec is not legal ten!er an!

therefore cannot constitute a vali!

ten!er of payment. "ince a

negotiable instrument is only a

substitute for money an! not money

the !elivery of such an instrument!oes not by itself operate as

payment. ,ere !elivery of checs

!oes not !ischarge the obligation

un!er a -u!gment. he obligation is

not etinguishe! an! remains

suspen!e! until the payment by

commercial !ocument is actually

reali/e!. (B!" #$. R%yeca, 200&,

Nac'ura

Notes

(#) Negotiable instruments shall

pro!uce the effect of payment

only when they have been

encashe! or when through the

fault of the cre!itor they have

been impaire!. (Art. 12)9, C*#*l

C%+e

(2) 01 a +3+4 which has been

cleare+ an! cre+*te+ to the account

of the cre!itor shall be euivalent

to a !elivery to the cre!itor of cash.

IDENTIFICATION OF A

NEGOTIABLE INSTRUMENT

(2005)

"tate an! eplain whether the

following are negotiable

NEGOTIABLE INSTRUMENTS LAW by JEREMIAH V. TRINIDAD

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instruments un!er the Negotiable

Instruments $aw5 (6%)

#) 7ostal ,oney 8r!er&

2) * certificate of time !epositwhich states 9his is to certify that

bearer has !eposite! in this ban

the sum of :81; 81"*N<

73"8" (7=>>>.>>) only

repayable to the !epositor 2>>

!ays after !ate.

@) $etters of cre!it&

=) Warehouse receipts&

6) reasury warrants payable froma specific fun!.

SUGGESTED ANSWER:

#) 7ostal ,oney 8r!er A Non'

Negotiable as it is governe! by

postal rules an! regulation which

may be inconsistent with the NI$

an! it can only be negotiate!once.

2) * certificate of time !eposit

which states 9his is to certify that

bearer has !eposite! in this ban

the sum of :81; 81"*N<

73"8" (7=>>>.>>) only

repayable to the !epositor 2>>

!ays after !ate. A

Non'Negotiable as it !oes notcomply with the reuisites of "ec.

# of NI$.

@) $etters of cre!it ' Non'

Negotiable

=) Warehouse receipts ' Non'

Negotiable for the same as 0ill of

$a!ing it merely represents goo!

not money.

6) reasury warrants payable froma specific fun! '

Non'Negotiable being payable out

of a particular fun!.

NEGOTIABLE DOCUMENT +*.

NEGOTIABLE INSTRUMENT(2005)


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2) ,ust contain an uncon!itional

promise or or!er to pay a sum

certain in money&

@) ,ust be payable on !eman! or

at a fie! or !eterminablefuture time&

=) ,ust be payable to or!er or to

bearer& an!

6) Where the instrument is

a!!resse! to a !rawee he

must be name! or otherwise

in!icate! therein with

reasonable certainty ("ec. #).

"ection #D= (!efining a promissory

note) an! "ection #2C (!efining a

bill of echange) contain the same

reuisites in "ection #.

IN WRITING AND SIGNED B. THE

MA/ER OR DRAWER

No person is liable on the instrument

whose $*nature !oes

not appear thereon.

8ne who signs in a tra!e or

assume! name will be liable to the

same etent as if he ha! signe! in

his own name (Sec. 1&.

"ignature of any party may be

ma!e by !uly authori/e! agent&

no particular form of appointmentnecessary (Sec. 19

EIn writingE ' inclu!es print& written

or type!. "ection #B# of the NI$

provi!es that the wor! 9FwrittenF

inclu!es printe! an! writingF

inclu!es print.

;eason5 "ince an instrument is a!ocument there must be

something in written form that can

be transferre! from person to

person. (*ba!)

"ignature is bin!ing an! may be in

oneFs han!writing printe!

engrave! lithographe! or

photographe! so long as it is

inten!e! or a!opte! as the signature

of the signer or ma!e with his

authority.

It may appear on any part of the

instrument. owever if the

signature is so place! upon the

instrument that it is not clear in

what capacity the person

inten!e! to sign he is !eeme! an

in!orser. (Sec. 17-/

CONTAINING AN

UNCONDITIONAL

,ROMISE TO ,A. OR

ORDER TO ,A.

*n unualifie! or!er or promise to pay


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Fund for Reimbursement

Indicating aParticular Fund (non-negotiable)

(1) he !rawee paysthe payee from hisown fun!s

afterwar!s.

(2) he !rawee pays

himself from theparticular fun! in!icate!.

7articular fun!

in!icate! is not the

!irect source of

payment.

here is only one actHthe !rawee pays!irectly from theparticular fun! in!icate!.

7articular fun!in!icate! is the !irectsource of payment.("un!iang an! *uino)


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is uncon!itional though couple! with5

(#) *n in!ication of a

particular fun! out of which

reimbursement is to be ma!e or

a particular account to be!ebite! with the amount& or

(2) * statement of the

transaction which gives rise to

the instrument.

0ut an or!er or promise to pay out

of a particular fun! is not

uncon!itional (Sec. 3.

Uo&itio&a!

he promise or or!er to pay to be

uncon!itional must be unual**e+.

,ust not be !epen!ent upon a

contingent event that is not certain

to happen. (*ba!)

:act that the con!ition appearingon the instrument has been fulfille!

will not convert it into a negotiable

one ($ee Sec. )

* negotiable instrument is

con!itional when reference to the

fun! clearly in!icates an intention

that such fun! alone shoul! be the

source of payment. (etr%%l*tanBank #$. CA, 1991

Oe o o%i*e to a" A$ t% r%*$$%ry n%te !r%*$e t% ay shoul! be epress on the face of the instrument

he wor! EpromiseE is not absolutelynecessary. *ny epressioneuivalent to a promise is sufficient.

,ere acnowle!gment of a !ebt is

insufficient

A$ t% b*ll % e4c'ane 8r!er Acomman! ma!e by the !rawer a!!resse! to the !rawee or!ering the

latter to pay the payee or the hol!er asum certain in money& the instrumentis by its nature +ean+*n a r*'t.

Wor!s which are euivalent to anor!er are sufficient.

* ere reue$t %r aut'%r*ty t% ay !oes not constitute an or!er. *lthough the mere use of politewor!s lie EpleaseE !oes not of itself

!eprive the instrument of itscharacteristics as an or!er itslanguage must clearly in!icate a!eman! upon the !rawee to pay.

S$% a"a!e %$*t e #etai&he sum payable is a sum certainalthough it is to be pai!5(1) with interest& or (2) by state! installments& or () by state! installments with a

provision that upon !efault inpayment of any installment or of interest the whole shall become!ue& or

(3) with echange whether at a fie!rate or at the current rate& or

(5) with costs of collection or anattorneys fee in case paymentshall not be ma!e at maturity(Sec. 2.

N%te * sum is certain if from the faceof the instrument it can be!etermine! even if it reuiresmathematical computation.("un!iang an! *uino)

,a"a!e i& %o&e"+apable of being transforme! intomoney since negotiable instrumentsare inten!e! to be substitutes for

money


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9,oney as use! in the law is notnecessarily limite! to 9legal ten!eras !efine! by law but inclu!es anyparticular in! of current money.(see Sec. 6(e an! !NB #. ulueta)

*n agreement to pay in foreigncurrency is vali!. (RA &1&3)

N%nne%t*able *n instrument whichcontains an or!er or promise to !o anact in a!!ition to the payment of money (with the eception of certainacts enumerate! in Sec. 5 )

7ayable in personal property lie

merchan!ise shares of stoc or gol!.

,aer or the person primarily liablehas the option to reuire somethingto be !one in lieu of payment of money. ( +ampos

Ne%t*able If the %t*%n to reuiresomething to be !one in lieu of payment of money is with the '%l+er

,A.ABLE ON DEMAND OR ATFI4ED OR DETERMINABLE TIME7urpose5 to inform the hol!er of theinstrument of the !ate when he mayenforce payment thereof.

8n !eman!5 *n instrument ispayable on !eman!5(#) Where it is epresse! to bepayable on !eman! or at sight or on

presentation& or (2) In which no time for paymentis epresse!.

Where an instrument is issue!accepte! or in!orse! when over!ueit is as regar!s the person soissuing accepting or in!orsing itpayable on !eman! ("ec. J).

Note5 ol!er may call for payment

any time& maer has an option to payat any time an! the refusal of the

hol!er to accept payment willterminate the running of interest if any but the obligation to pay the noteremains.

*t a fie! time5 8nly on the stipulate!!ate an! not before may the hol!er !eman! its payment."houl! he fail to !eman! paymentthe instrument becomes over!ue butremains vali! an! negotiable. It ismerely converte! to a !eman!instrument with respect to the personwho issue! accepte! or in!orse! itwhen over!ue. ("ec. J)

*t a !eterminable future time5 *ninstrument is payable at a!eterminable future time which isepresse! to be payable5(#) *t a fie! perio! after !ate or sight& or (2) 8n or before a fie! or !eterminable future time specifie!therein& or (@) 8n or at a fie! perio! after the occurrence of a specifie! eventwhich is certain to happen thoughthe time of happening be uncertain.

*n instrument payable upon acontingency is not negotiable an!the happening of the event !oes notcure the !efect ("ec. =).

Note5 ;euires that the maturity of the instrument can be absolutely

!etermine! with certainty. (*ba!)

3amples5 *t a fie! perio! after !ateor sight e.g. 9@> !ays after !ate.

8n or before a fie! or !eterminablefuture time specifie! therein e.g.9payable on or before >>

8n or at a fie! perio! after the

occurrence of a specifie! eventwhich is certain to happen though


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the time of happening be uncertaine.g. 9payable within C> !ays after the!eath of Kose

3ffect of acceleration provisions5 If

option (absolute or con!itional) toaccelerate maturity is on the maerstill

N3G8I*0$3

If option to accelerate is on thehol!er an! can be eercise! onlyafter the happening of a specifie!eventLact over which he has nocontrol (con!itional) still

N3G8I*0$3

Note5 If option is absolute non'negotiable.

Insecurity +lauses5 7rovisions in thecontract which allow the hol!er toaccelerate payment 9if he !eemshimself insecure. he instrument isren!ere! non'negotiable. ("un!iangan! *uino)

7rovisions eten!ing time of payment5General rule5 Negotiability notaffecte!. 3ffect is similar with that of an acceleration clause at the optionof the maer.

3ception5 Where a note with a fie!maturity provi!es that the maer has

the option to eten! time of paymentuntil the happening of contingencythe instrument is N8 negotiable.he time for payment may never come at all.

,A.ABLE TO ORDER OR TOBEARER (AS/ED IN 16),ust contain wor!s of negotiability5:or eample5(#) 97ay to the or!er of Kuan

+ru/ or 9I promise to pay to theor!er of Kuan +ru/

(2) 97ay to Kuan +ru/ or or!eror 9I promise to pay Kuan +ru/ or or!erNote5 Nee! not follow the languageof the law but any term which clearly

in!icates an intention to conform tothe legal reuirements is sufficient.

Negotiability !etermine! from theface of the instrument5 henegotiability or non'negotiability of aninstrument is !etermine! from theface of the instrument itself. Wherewor!s Eor bearerE printe! on a checare cancelle! by the !rawerinstrument becomes not negotiable.

(+alte vs. +* #BB2)

7ayable to bearer5 he instrument ispayable to bearer5(#) When it is epresse! to be sopayable& or (2) When it is payable to a personname! therein or bearer& or (@) When it is payable to theor!er of a fictitious or non' eistingperson an! such fact was nown tothe person maing it so payable& or (=) When the name of the payee!oes not purport to be the name of any person& or (6) When the only or lastin!orsement is an in!orsement inblan ("ec. B).

3amples5(#) 3presse! to be so payable '

EI promise to pay the bearer the sumE(2) 7ayable to a person name!therein or bearer 'E7ay to * or bearerE(@) 7ayable to the or!er of afictitious person or non' eistingperson an! such fact was nown tothe person maing it so payable '97ay to Kohn


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in!orsement in blan.

Note5 ,ay be negotiate! by mere!elivery

Beae I&*t$%e&t (16) * !elivers a bearer instrument to 0. 0then specially in!orses it to + an! +later in!orses it in blan to


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(1) * payee who is not maer!rawer or !rawee& or

(2) he !rawer or maer& or () he !rawee& or (3) wo or more payees -ointly& or

(5) 8ne or some of several payees&or

(8) he hol!er of an office for thetime being.

Where the instrument is payable toor!er the payee must be name! or otherwise in!icate! therein withreasonable certainty (Sec. &.

N%te$ Without the wor!s Eto or!erE

or Eto the or!er ofE the instrument ispayable only to the person!esignate! therein an! is thereforenon'negotiable. (C%n$%l*+ate+

!lyw%%+ "n+u$tr*e$ #$. "FC 8ea$*n,

19&7

:or or!er instruments ' negotiationreuires !elivery an! in!orsement of the transferor. (Sec. 30

Where the maer is the payee5

(1) In effect maing himself liable tohimself. hus the instrumentpro!uces no legal effect.

(2) Will pro!uce legal effects onlyonce the payee'maer in!orsesthe instrument to another personbecause such in!orsement willthen give rise to rights an!obligations. (*ba!)

IF BILL OF E4CHANGE9 DRAWEE

MUST BE NAMED ORDESIGNATED WITH REASONABLECERTAINTM

(1) *pplies only to bill of echange(2) * bill may be a!!resse! to 2 or

more !rawees -ointly whether they are partners or not but notto 2 or more !rawees in thealternative or in succession (Sec.12&.

4ale$(1) 9% :uan Cru; an+ :%$e Reye$ A

negotiable(2) 9% :uan Cru; %r :%$e Reye$ A

not negotiable& no certainty as to!rawee


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BAR -UESTIONS:

A) Negotiai!it" (17)+an a bill of echange or apromissory note ualify as anegotiable instrument if Aa. it is not !ate!& or b. the !ay an! the month but not theyear of its maturity is given& or c. it is payable to 9cashF or !. it names two alternative !rawees

SUGGESTED ANSWER:a) Mes.


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!) he 7N gives the hol!er the optioneither to reuire payment in money or to reuire the maer to serve as thebo!yguar! or escort of the hol!er for @> !ays.

SUGGESTED ANSWER:a) 7aragraph # A negotiability is9N8 *::3+3 pesos.he payee acnowle!ge! having

receive! the note on *ugust # 2>>>. * 0ar reviewee ha! tol! whohappens to be your frien! that isnot a hol!er in !ue course un!er *rticle 62 of the NegotiableInstruments $aw (*ct 2>@#) an!therefore !oes not en-oy the rightsan! protection un!er the statute. ass for our a!vice specifically inconnection with the note beingun!ate! an! not mentioning a placeof payment an! any consi!eration.What woul! your a!vice be? (2%).

SUGGESTED ANSWER:a) 4; is right. he promissory note isnot negotiable. It is not issue! toor!er or bearer. here is no wor! of negotiability containing therein. It isnot issue! in accor!ance with"ection # of the Negotiable

Instruments $awb) he fact that the instrument isun!ate! an! !oes not mention theplace of payment !oes not militateagainst its being negotiable. he !atean! place of payment are notmaterial particulars reuire! to maean instrument negotiable.he fact that no mention is ma!e of any consi!eration is not material.+onsi!eration is presume!.

/i&* o' Negotia!e I&*t$%e&t*


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*.


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may treat it as either at his election("ec. #JQeR)

CHEC/(Se# 165) * chec is abill of echange!rawn on aban payableon !eman!.

0. (#)Negotiable promissory note '

9"eptember #6 2>>29:or value receive! I herebypromise to pay Kuan "antos or or!er the sum of 3N 81"*N<73"8" (7#>>>>) thirty (@>) !aysfrom !ate hereof.

("igne!) 7e!ro +ru/

to5 7hilippine National 0an3scolta ,anila 0ranch

Negotia!e I&*t$%e&t:A%ig$o$* I&*t$%e&t* (16)ow !o you treat a negotiableinstrument that is so ambiguousthat there is !oubt whether it is abill or a note? (6%)

SUGGESTED ANSWER:#. Where a negotiable instrument is

so ambiguous that there is !oubtwhether it is a bill or a note thehol!er may treat it either as a bill of echange or a promissory note athis election.

Bo&: Ca*= Bo& +* S$et"Bo& (2003)


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instrument so !ate! is !elivere!acuires the title thereto as of the!ate of !elivery ("ec. #2).

COM,LETION OF BLAN/S (Se#

13)Where the instrument is wanting inany material particular the personin possession thereof has a primafacie authority to complete it byfilling up the blans therein.

* signature on a blan paper !elivere! by the person maing thesignature in or!er that the paper may be converte! into a negotiable

instrument operates as a primafacie authority to fill it up as suchfor any amount.

:or such instrument to beenforceable against any personwho became a party thereto prior toits completion it must be fille! upstrictly in accor!ance with theauthority given an! within areasonable time.

When subseuently negotiate! to ahol!er in !ue course (EREDINSTRUMENTS (Se# 13)

(#) ol!er has prima facieauthority to fill up the instrument.(2) he instrument must befille! up strictly in accor!ance withthe authority given an! withinreasonable time(@)


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!elivere! the same to 7ete whoaccepte! the note as payment of the !ebt. What !efense or !efenses can "eSorita Isobel setup against 7ete? 3plain. (@%)

SUGGESTED ANSWER:he !efense (personal !efense)which "eSorita Isobel can set upagainst 7ete is that the amount of 7#>>>>>.>> is not in accor!ancewith the authority given to her to0ra! (in the presence of 7ete) an!that 7ete was not a hol!er in !uecourse for acting in ba! faith whenaccepte! the note as payment

!espite his nowle!ge that it wasonly #>>>>.>> that was allowe! by"eSorita Isobel !uring their meetingwith 0ra!.

Io%!ete a& $&e!i+eeI&*t$%e&t*; =o!e i& $e#o$*e (2000) * single proprietor of a businessconcern is about to leave for abusiness trip an! as he so often!oes on these occasions signsseveral checs in blan. einstructs 0 his secretary tosafeeep the checs an! fill themout when an! as reuire! to payaccounts !uring his absence. 0 fillsout one of the checs by placingher name as payee fills in theamount en!orses an! !elivers thechec to + who accepts it in goo!

faith as payment for goo!s sol! to0. 0 regrets her action an! tells *what she !i!. * !irects the 0an intime to !ishonor the chec. When+ encashes the chec it is!ishonore!. +an * be hel! liable to+?

SUGGESTED ANSWER:Mes * can be hel! liable to +assuming that the latter gave notice

of !ishonor to *. his is a case of an incomplete instrument but

!elivere! as it was entruste! to 0the secretary of *. ,oreover un!er the !octrine of comparativenegligence as between * an! +both innocent parties it was the

negligence of * in entrusting thechec to 0 which is the proimatecause of the loss.

INCOM,LETE ANDUNDELI>ERED INSTRUMENTS(Se# 15)Where an incomplete instrumenthas not been !elivere! it will notbe a vali! contract in the han!s of any hol!er as against any person

whose signature was place!thereon before !elivery if complete! an! negotiate! withoutauthority. Non'!elivery of anincomplete instrument is a real!efense.

Note5 * !rawee ban whosenegligent custo!y of the checsafter partial eecution contribute!to its escape is stoppe! fromraising the real !efense un!er "ec.#6.

Io%!ete a& $&e!i+eei&*t$%e&t* (2000)7N maes a promissory note for 76>>>.>> but leaves the name of the payee in blan because hewante! to verify its correct spellingfirst. e min!lessly left the note on

top of his !es at the en! of thewor!ay. When he returne! thefollowing morning the note wasmissing. It turne! up later when presente! it to 7N for payment.0efore who turne! out to havefilche! the note from 7NFs officeha! en!orse! the note after inserting his own name in the blanspace as the payee. 7N!ishonore! the note conten!ing

that he !i! not authori/e itscompletion an! !elivery. 0ut sai!


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he ha! no participation in or nowle!ge about the pilferage an!alteration of the note an! thereforehe en-oys the rights of a hol!er in!ue course un!er the Negotiable

Instruments $aw. Who is correctan! why? (@%)

SUGGESTED ANSWER:a) 7N is right. he instrument isincomplete an! un!elivere!. It !i!not create any contract that woul!bin! 7N to an obligation to pay theamount thereof.

Io%!ete I&*t$%e&t*;

Io%!ete De!i+eeI&*t$%e&t* +* Io%!eteU&e!i+ee I&*t$%e&t (2008)Kun was about to leave for abusiness trip. *s his usual practicehe signe! several blan checs. einstructe!;uth his secretary to fill them aspayment for his obligations. ;uthfille! one chec with her name aspayee place! 7@>>>>.>> thereonen!orse! an! !elivere! it to ,arie."he accepte! the chec in goo!faith as payment for goo!s she!elivere! to ;uth. 3ventually ;uthregrette! what she !i! an!apologi/e! to Kun. Imme!iately he!irecte! the !rawee ban to!ishonor the chec. When ,arieencashe! the chec it was!ishonore!.

#. Is Kun liable to ,arie? (6%)

SUGGESTED ANSWER:Mes. his covers the !elivery of anincomplete instrument un!er "ection #= of the NegotiableInstruments $aw which provi!esthat there was prima facie authorityon the part of ;uth to fill'up any of the material particulars thereof.aving !one so an! when it is first

complete! before it is negotiate! toa hol!er in !ue course lie ,arie it

is vali! for all purposes an! ,ariemay enforce it within a reasonabletime as if it ha! been fille! upstrictly in accor!ance with theauthority given.

2. "upposing the chec was stolenwhile in ;uths possession an! athief fille! the blan checen!orse! an! !elivere! it to ,ariein payment for the goo!s hepurchase! from her is Kun liable to,arie if the chec is !ishonore!?(6%)

COM,LETE AND UNDELI>EREDINSTRUMENTS (Se# 18)

3very contract on a negotiableinstrument is incomplete an!revocable until !elivery of theinstrument for the purpose of givingeffect thereto.

0etween imme!iate parties an! asregar!s a remote party other than ahol!er in !ue course the !eliveryin or!er to be effectual must bema!e either by or un!er theauthority of the party maing!rawing accepting or in!orsing.

When the instrument is in thehan!s of


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a separate paper (=) 8ne who signs his assume!or tra!e name(6) * person negotiating by!elivery (as in the case of a bearer

instrument) is liable to hisimme!iate in!orsee.

SIGNING IN TRADE NAME8ne who signs in a tra!e or assume! name will be liable to thesame etent as if he ha! signe! inhis own name ("ec. #D)

SIGNATURE OF AGENT"ignature of any party may be

ma!e by !uly authori/e! agentestablishe! as in or!inary agency.

SIGNATURE ,ER ,ROCURATION8perates as notice that the agenthas limite! authority to sign an!the principal is boun! only in casethe agent in so signing acte! withinthe actual limits of his authority("ec. 2#)

LIABILIT.General rule5 Where a person a!!sto his signature wor!s in!icatingthat he signs on behalf of aprincipal then he is not liable if hewas !uly authori/e!.

3ceptions5(#) ,ere a!!ition of wor!s!escribing him as an agent without

!isclosing his principal ("ec. 2>)(2) Where a broer or agentnegotiates an instrument withoutin!orsement he incurs all liabilitiesin "ec. C6 unless he !isclosesname of principal an! the fact thathe is only acting as an agent. ("ec.CB)

INDORSEMENT B. MINOR ORCOR,ORATION

he in!orsement or assignment of the instrument by a corporation or

by an infant (minor) passes theproperty therein notwithstan!ingthat from want of capacity thecorporation or infant may incur noliability thereon ("ec. 22).

REAL e'e&*e but available onlyto the incapacitate! party (i.e. theminor or the corporation).

FORGER.+ounterfeit maing or frau!ulentalteration of any writing which mayconsist of5(#) "igning of anotherFs namewith intent to !efrau!& or

(2) *lteration of an instrument inthe name amount name of payeeetc. with intent to !efrau!.

General rule5 When a signature isforge! or ma!e without theauthority of the person only theforge! signature (not theinstrument itself an! the other genuine signatures) is whollyinoperative

3ffects5(#) No right to retain theinstrument(2) No right to give a !ischargetherefor (@) No right to enforce paymentthereof against any party theretocan be acuire! through or un!er such signature

3ception5 he party against whomit is sought to be enforce! ispreclu!e! from setting up theforgery or want of authority as a!efense ("ec. 2@).

,ERSONS ,RECLUDED FROMSETTING U, DEFENSE OFFORGER.(#) hose who warrant or a!mit

the genuineness of the signature inuestion. his inclu!es in!orsers


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persons negotiating by !elivery an!acceptors.(2) hose who by their actssilence or negligence areestoppe! from setting up the

!efense of forgery.

RULES ON FORGER.

,ROMISSOR. NOTE

Order

,aerFs signature forge! (1),aer is notnever becameinstrument.

(2) In!orsers subseuenare liable becwarranties.

()7arty who ma!e the

7ayeeFs signature forge! (1),aer an! payee are not liable.(2) In!orsers subseuent to

are liable.()7arty who ma!e the forgery is liab

In!orserFs signature forge! (1),aer payee in!orsersignatureLs wasLwere forgall in!orsers prece!ing theare not liable.

(2) In!orsers subseuent toare liable.

()7arty who ma!e the forgery is liab

BILL OF E4CHANGE

Order Instrument


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(such as colleclast en!orser)

(=) 7arty who ma!eliable

7ayeeFs signature forge! (1)


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obligation. $ater *le foun! thegoo!s to be !efective. While in+elsoFs possession the 7N wasstolen by Kuly #= #BDC).(N8* 03N35 he uestion !oes


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not ualify the term Eforge! checE. *n answer a!!ressing the liabilitiesof a !rawer shoul! be !eeme!sufficient. *nswers a!!ressingliabilities of parties shoul! liewise

be given full cre!it)

De'e&*e*; Foge" (2003)+ maintaine! a checing accountwith 10*N4 ,aati 0ranch. 8neof his checs in a stub of fifty wasmissing. $ater he !iscovere! that,s. >> fromanother branch of the ban. >=)

(2) 3tensions of 7rice vs. Neal!octrine


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If a !rawerL!epositorFs negligencean! !elay shoul! cause a ban tohonor a forge! chec !rawer cannot later complain shoul! ban

refuse to recre!it his account.

WHEN DRAWEE MA. RECO>ERFROM DRAWER(#) Where the instrument isoriginally a bearer instrumentbecause the in!orsement can be!isregar!e! as being unnecessaryto the hol!erFs title(2) In!orsement forge! by anemployee or agent of the !rawer

(@) If !ue to the !rawerFsnegligenceL!elay the forgery is not!iscovere! until it is too late for theban to recover from the hol!er or the forger

WHEN DRAWEE MA. NOTRECO>ER FROM HOLDER(#) Where the instrument isoriginally a bearer instrumentbecause the in!orsement can be!isregar!e! as being unnecessaryto the hol!erFs title(2) If !rawee fails to actpromptly if he !elays in informingthe hol!er whom he pai!

BETWEEN DRAWEE BAN/ ANDCOLLECTING BAN/+ollecting ban is only liable for forge! in!orsements an! not

forgeries of the !rawer or maerFssignature (7N0 v +* #BCD).

he collecting ban or last in!orser generally suffers the loss becauseit has the !uty to ascertain thegenuineness of all prior in!orsements consi!ering that theact of presenting the chec for payment to the !rawee is anassertion that the party maing the

presentment ha! !one its !uty toascertain the genuineness of the

in!orsements (07I v +* #BB2).

In presenting the checs for clearing the collecting agent ma!ean epress guarantee on the

vali!ity of 9all the prior en!orsements.

he !rawee ban is not similarlysituate! as the collecting banbecause the former maes nowarranty as to the genuineness of any in!orsement. he !raweebanFs !uty is but to verify thegenuineness of the !rawerFssignature an! not of the

in!orsement because only the!rawer is its client.

Notes5 owever where thenegligence of the !rawee ban isthe proimate cause of thecollecting banFs payment of achec with a forge! in!orsementthe !rawee ban may be hel! liableto the collecting ban.

When both are guilty of negligencethe !egree of negligence of eachwill be weighe! in consi!ering theamount of loss which each shoul!bear (07I v +* #BB2)

C=e#@*; >a!iit"; Wai+e o' Ba&@* !iai!it" 'o &eg!igee(11),r. $im issue! a chec !rawn

against 07I 0an in favor of ,r Muas payment of certain shares of stoc which he purchase!. 8n thesame !ay that he issue! the checto Mu $im or!ere! 07I to stoppayment. 7er stan!ar! baningpractice $im was ma!e to sign awaiver of 07IFs liability in the eventthat it shoul! pay Mu throughoversight or ina!vertence.


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07I for paying against his or!er.a!$e5 *ny consi!eration sufficientto support a simple contract.

*n antece!ent or pre'eisting !ebt

constitutes value& an! is !eeme!such whether the instrument is

payable on !eman! or at a futuretime. ("ec. 26)

W=o i* a Ho!e 'o >a!$e (HF>)(#) * hol!er of an instrument for

which value has been given at anygiven time but only with respect toall parties who have becomeparties to the instrument prior to thetime at which value has beengiven. ("ec. 2C)(2) * hol!er who as a lien onthe instrument but only to theetent of his lien. ("ec. 2J)

B$e& o' oo' ' presumption of

consi!eration5 3very negotiableinstrument is !eeme! prima facieto have been issue! for a valuableconsi!eration& an! every personwhose signature appears thereonto have become a party thereto for value ("ec. 2=).

E''e#t o' a&t o' #o&*ieatio&5 *bsence or failure of consi!erationis a matter of !efense as againstany person not a hol!er in !uecourse hence a personal !efense.

A##o%%oatio& ,at"

*n accommo!ation party is onewho has signe! the instrument asmaer !rawer acceptor or in!orser without receiving valuetherefor an! for the purpose of

len!ing his name to some other person ("ec. 2B).

LIABILIT.he person to whom the instrumentthus eecute! is subseuentlynegotiate! has a right of recourseagainst the accommo!ation party inspite of the formerFs nowle!gethat no consi!eration passe!between the accommo!ation an!

accommo!ate! parties ("ec. 2B).


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$iable on the instrument to a hol!er for value notwithstan!ing suchhol!er at the time of the taing of the instrument new him to be onlyan accommo!ation party. ence

as regar!s an *7 the =th con!itioni.e. lac of notice of infirmity in theinstrument or !efect in the title of the persons negotiating it has noapplication. ("telco ,areting+orp. vs. +* #BB2)

ACCOMMODATION ,ART. ASSURET.

*ccommo!ation 7arty (*7) is

generally regar!e! as a surety for the party accommo!ate!

When the *7 maes payment tohol!er of the note he has the rightto sue the accommo!ate! party for reimbursement. (*gro+onglomerates Inc. v. +*)

Note5 * corporation cannot act asan accommo!ation party. he issueor en!orsement of negotiableinstruments by a corporationwithout consi!eration an! for theaccommo!ation of another is ultravires (+risologo v. +*)

,atie*; A##o%%oatio& ,at"(10)o accommo!ate +armen maer of a promissory note Korge signe!

as in!orser thereon an! theinstrument was negotiate! to ;affya hol!er for value. *t the time ;affytoo the instrument he new Korgeto be an accomo!ation party only.When the promissory note was notpai! an! ;affy !iscovere! that+armen ha! no fun!s he sue!Korge. Korge plea!s in !efense thefact that he ha! en!orse! theinstrument without receiving value

therefor an! the further fact that;affy new that at the time he too

the instrument Korge ha! notreceive! any value or consi!erationof any in! for his in!orsement. IsKorge liable? * obtaine! a loanof 7#>>th from 0 payable not later than 2>. 0 reuire! * toissue him a chec for that amountto be !ate! 2>. "ince he!oes not have any checingaccount * with the nowle!ge of 0 reueste! his frien! +7resi!ent of "aa! 0aning +orp("aa!) to accommo!ate him. +agree! he signe! a chec for theaforesai! amount !ate! 2> !rawn against "aa!Fsaccount with the *0+ +ommercial0aning +o. he 0y'laws of "aa!reuires that checs issue! by itmust be signe! by the 7resi!entan! the reasurer or the Oice'7resi!ent. "ince the reasurer was

absent + reueste! the Oice'7resi!ent to co'sign the checwhich the latter reluctantly !i!. hechec was !elivere! to 0. hechec was !ishonore! uponpresentment on !ue !ate for insufficiency of fun!s.a) Is "aa! liable on the chec asan accommo!ation party?b) If it is not who then un!er theabove facts isLare the

accommo!ation party?


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SUGGESTED ANSWER:a.) "aa! is not liable on the checas an accommo!ation party. heact of the corporation inaccommo!ating a frien! of the

7resi!ent is ultra vires (+risologo'Kose v +* G; D>6BB #6"ep#BDB).While it may be legally possible for the corporation whose business isto provi!e financialaccommo!ations in the or!inarycourse of business such as onegiven by a financing company to bean accommo!ation party thissituation however is not the casein the bar problem.

b) +onsi!ering that both the7resi!ent an! Oice' 7resi!ent weresignatories to the accommo!ationthey themselves can be sub-ect tothe liabilities of accommo!ationparties to the instrument in their personal capacity (+risologo'Kosev +* #6"ep#BDB)

,atie*; A##o%%oatio& ,at"(18)Nora applie! for a loan of 7#>>thwith 01; 0an. 0y way of accommo!ation NoraFs sisterOilma eecute! a promissory notein favor of 01; 0an. When Nora!efaulte! 01; 0an sue! Oilma!espite its nowle!ge that Oilmareceive! no part of the loan. ,ayOilma be hel! liable? 3plain.

SUGGESTED ANSWER:Mes Oilma may be hel! liable.Oilma is an accommo!ation party. *s such she is liable on theinstrument to a hol!er for valuesuch as 01; 0an. his is trueeven if 01; 0an was aware at thetime it too the instrument thatOilma is merely an accommo!ationparty an! receive! no part of theloan ("ee "ec 2B NI$& 3ulalio

7ru!encio v +* G; $'@=6@B Kul#= DC #=@ s J)

,atie*; A##o%%oatio& ,at"(16):or the purpose of len!ing hisname without receiving value

therefore 7e!ro maes a note for 72>>>> payable to the or!er of who in turn negotiates it to M thelatter nowing that 7e!ro is not aparty for value.#. ,ay M recover from 7e!ro if thelatter interposes the absence of consi!eration? (@%)2. "upposing un!er the same facts7e!ro pays the sai! 72>>>> mayhe recover the same amount from

? (2%)

SUGGESTED ANSWER:#. Mes. M can recover from 7e!ro.7e!ro is an accommo!ation party. *bsence of consi!eration is in thenature of an accommo!ation.>>>to M 7e!ro can recover the amountfrom . is the accommo!ate!party or the party ultimately liablefor the instrument. 7e!ro is only anaccommo!ation party. 8therwise itwoul! be un-ust enrichment on thepart of if he is not to pay 7e!ro.

,atie*; A##o%%oatio& ,at"(200)"usan 4awa!a borrowe! 76>>>>>from MU 0an which reuire! hertogether with ;ose ;eyes who !i!not receive any amount from theban to eecute a promissory notepayable to the ban or its or!er onstate! maturities. he note waseecute! as so agree!.What in! of liability was incurre!

by ;ose that of an accommo!ationparty or that of a soli!ary !ebtor?


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3plain. (=%)

SUGGESTED ANSWER:(per


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he transfer of theinstrument from oneperson to another soas to constitute thetransferee as hol!er thereof (Sec.30.

he transferee !oesnot become a hol!er an! he merely stepsinto the shoes of thetransferor. *ny!efense available

against the transferor is available againstthe transferee.

MODES OF NEGOTIATION

B. DELI>ER. IF ,A.ABLE TOBEARER (SEC 0)


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all subseuent hol!ers unless theinstrument is an originally bearer instrument in which case he isliable only to those who tae titlethrough his in!orsement ("ec =>).

(c) *n instrument payable tobearer an! in!orse! specially maynevertheless be further negotiate!by !elivery. ("ec =>)

8riginally bearer instrument alwaysremains a bearer instrument("un!iang an! *uino)(2) 0lan(a) "pecifies no in!orseeinstrument so in!orse! is payable

to bearer an! may be negotiate!by !elivery(b) he hol!er may convert ablan in!orsement into a specialin!orsement by writing over thesignature of the in!orser in blanany contract consistent with thecharacter of the in!orsement. ("ec@6)(c) *n or!er instrument may beconverte! into a bearer instrumentby means of a blan in!orsementan! may be later reconverte! intoan or!er instrument by asubseuent special in!orsement

A* to tit!e ta&*'ee(#) ;estrictive A "uchin!orsement either5(a) 7rohibits further negotiationof instrument

(b) +onstitutes in!orsee asagent of in!orser (c) Oests title in in!orsee in trustfor another ("ec @C)

;ights of ;estrictive In!orsee5(a) ;eceive payment(b) 0ring any action thereon thatthe in!orser coul! bring.(c) ransfer his rights as suchin!orsee but all subseuent

in!orsees acuire only the title of first in!orsee un!er restrictive

in!orsement. ("ec @J)

(2) Non'restrictive

A* to @i& o' !iai!it" a**$%e

" i&o*e (#) Tualifie!(a) +onstitutes in!orser as mereassignor of title(b) ,a!e by a!!ing the wor!s9without recourse ("ec. @D).(c) 0ut this !oes not mean thatthe transferee only has the rights of an assignee& transfer remains anegotiation an! transferee can stillbe a hol!er capable of acuiring a

title free from !efenses of prior parties.(!) 3ffects5(i) ;elieves the ualifie!in!orser of his liability to pay theinstrument shoul! the maer beunable to pay(ii) he ualifie! in!orser !oesnot guarantee the solvency of themaer but merely his legal title tothe instrument(iii) he instrument may still befurther negotiate!& no effect on itsnegotiability

(2) Non'ualifie!

A* to e*eea*ee o' ee** !i%itatio&*(#) +on!itional(a) *!!itional con!ition annee!

to in!orserFs liability& such con!itionmust be epresse!(b) Where an in!orsement iscon!itional a party reuire! to paythe instrument may !isregar! thecon!ition an! mae payment tothe in!orsee or his transfereewhether con!ition has been fulfille!or not.(c) 0ut any person to whom aninstrument so in!orse! is

negotiate! will hol! the same or the procee!s thereof sub-ect to the


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rights of the person in!orsingcon!itionally. ("ec. @B)

(2) 1ncon!itional

Ot=e @i&* o' i&o*e%e&t(#) *bsolute A 8ne by which thein!orser bin!s himself to pay uponno other con!ition than the failureof prior parties to !o so an! of !uenotice to him of such failure(2) Koint A Where instrumentpayable to the or!er of two or morepayees or in!orsees not partnersall must in!orse unless the onein!orsing has authority to en!orse

for the others ("ec. =#)(@) Irregular A Where a personnot otherwise a party to theinstrument places thereon hissignature in blan before !eliveryhe is liable as in!orser

Rig=t* o' t=e Ho!e * hol!er is a payee or in!orsee of abill or note who is in possession of it or the bearer thereof ("ec. #B#).e has the following rights ("ec.6#)5

(#) o sue on the instrumentin his own name

1nin!orse! intruments5 "ec. =B.ransfer without in!orsement&effect of. Where the hol!er of aninstrument payable to his or!er transfers it for value withoutin!orsing it the transfer vests in

the transferee such title as thetransferor ha! therein an! thetransferee acuires in a!!itionthe right to have thein!orsement of the transferor.0ut for the purpose of !etermining whether thetransferee is a hol!er in !uecourse the negotiation taeseffect as of the time when thein!orsement is actually ma!e.

Note5 his section applies only

to an instrument payable to theor!er of the transferor. hiscannot apply to bearer instruments.

+ancellation of in!orsement5"ec. =D. "triing outin!orsement. he hol!er may atany time strie out anyin!orsement which is notnecessary to his title. hein!orser whose in!orsement isstruc out an! all in!orserssubseuent to him are therebyrelieve! from liability on theinstrument.

In!orsement by agent5 "ec. 2>.$iability of person signing asagent an! so forth. Where theinstrument contains or a persona!!s to his signature wor!sin!icating that he signs for or onbehalf of a principal or in arepresentative capacity he isnot liable on the instrument if hewas !uly authori/e!& but themere a!!ition of wor!s!escribing him as an agent or as filling a representativecharacter without !isclosing hisprincipal !oes not eempt himfrom personal liability.

(2) 7ayment in !ue course tothe hol!er !ischargesinstrument

HOLDER IN DUE COURSE(HDC)

WHO ARE HDCS(#)


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(@)


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the !efense eisting at the timeof the transfer.(2) *s to what constitutes areasonable time regar! is to beha! to the nature of the

instrument the usage of tra!eor business with respect to suchinstrument an! the facts of theparticular case. ("ec. #B@)(@) *n instrument is not invali!for the reason only that it is *N3'


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sufficient

* chec with 2 parallel lines inthe upper left han! corner means that it coul! only be

!eposite! an! may not beconverte! to cash.+onseuently suchcircumstance shoul! put thepayee on inuiry an! upon him!evolves the !uty to ascertainthe hol!ersF title to the chec or the nature of his possession.:ailing in this respect thepayee is !eclare! guilty of grossnegligence amounting to legal

absence of goo! faith an! assuch the consensus of authorityis to the effect that the hol!er of the chec is not a hol!er ingoo! faith. ("tate Investmentouse vs. I*+ #BDB)

9OR OFDUE COURSE HOLDING3very hol!er is !eeme! primafacie to be a hol!er in !uecourse ("ec. 6B).(#) 01;


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COURSE(#) 8ne who became a hol!er of an instrument without anysome or all of the reuisitesun!er "ec. 62

(2) With respect to !eman!instruments if it is negotiate!an unreasonable length of timeafter its issue the hol!er is!eeme! not a hol!er in !uecourse. ("ec. 6@)(@) ;ights of a hol!er not in !uecourse ("ec. 6#)5(a) o sue on the instrumentun!er in his own name(b) o enforce the instrument

he only !isa!vantage of ahol!er who is not a hol!er in!ue course is that thenegotiable instrument is sub-ectto !efenses as if it were non'negotiable. Q+han Wan vs. an4im (#BC>)R

,atie*; Ho!e i& D$e Co$*e(1)$arry issue! a negotiablepromissory note to 3velyn an!authori/e! the latter to fill up theamount in blan with his loanaccount in the sum of 7#>>>.owever 3velyn inserte!76>>> in violation of theinstruction. "he negotiate! thenote to Kulie who ha!

nowle!ge of the infirmity. Kuliein turn negotiate! sai! note toth post'!ate!"ep @> #BB6 as security for a!iamon! ring to be sol! oncommission. 8n "ep #6 #BB6Imel!a negotiate! the chec to, investment which pai! the

amount of 7=>th to her. 3vafaile! to sell the ring so shereturne! it to Imel!a on "ep #B#BB6. 1nable to retrieve her chec 3va with!rew her fun!sfrom the !rawee ban. huswhen , Investment presente!the chec for payment the!rawee ban !ishonore! it.$ater on when , Investmentsue! her 3va raise! the

!efense of absence of consi!eration the chec having


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been issue! merely as securityfor the ring that she coul! notsell. >> payable to +< or his

or!er on "eptember #6 2>>2.+< in!orse! the note in blanan! !elivere! the same to 3:.G stole the note from 3: an!on "eptember #= 2>>2presente! it to *0 for payment.When ase! by *0 G sai!+< gave him the note inpayment for two cavans of rice. *0 therefore pai! G 7#>> onthe same !ate. 8n "eptember

#6 2>>2 3: !iscovere! thatthe note of *0 was not in his


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possession an! he went to *0.It was then that 3: foun! outthat *0 ha! alrea!y ma!epayment on the note. +an 3:still claim payment from *0?

Why? (@%)0. *s a seuel to the same factsnarrate! above 3: out of pityfor *0 who ha! alrea!y pai!7#>>>.>> to G !eci!e! toforgive *0 an! instea! go after +< who in!orse! the note inblan to him. Is +< still liable to3: by virtue of the in!orsementin blan? Why? (2%)

SUGGESTED ANSWER: *. No. 3: cannot claimpayment from *0. 3: is not ahol!er of the promissory note.o mae the presentment for payment it is necessary toehibit the instrument which 3:cannot !o because he is not inpossession thereof.0. No because +< negotiate!the instrument by !elivery.

Negotiai!it"; Ho!e i& D$eCo$*e (12)7erla brought a motor car payable on installments from *utomotive +ompany for 726>th. "he ma!e a !ownpayment of 76>th an! eecute!a promissory note for thebalance. he company

subseuently in!orse! the noteto ;eliable :inance +orporationwhich finance! the purchase.he promissory note rea!59:or value receive! I promise!to pay *utomotive+ompany or or!er at its office in$egaspi +ity the sum of 72>>>>>.>> with interest attwelve (#2%) percent per annum payable in eual

installments of 72>>>>.>>monthly for ten (#>) months

starting 8ctober 2# #BB#.

,anila "eptember 2# #BB#.

(sg!) 7erla

7ay to the or!er of ;eliable:inance +orporation. *utomotive +ompany

0y5 ("g!) ,anager

0ecause 7erla !efaulte! in thepayment of her installments;eliable :inance +orporationinitiate! a case against her for a

sum of money. 7erla argue!that the promissory note ismerely an assignment of cre!ita non'negotiable instrumentopen to all !efenses available tothe assignor an! therefore;eliable :inance +orporation isnot a hol!er in !ue course.a) Is the promissory note amere assignment of cre!it or anegotiable instrument? Why?b) Is ;eliable :inance +orp ahol!er in !ue course?3plain briefly.

SUGGESTED ANSWER:a) he promissory note in theproblem is a negotiableinstrument being in compliancewith the provisions of "ec # NI$.Neither the fact that the payable

sum is to be pai! with interestnor that the maturities are instate! installments ren!ersuncertain the amount payable("ec 2 NI$)b) Mes ;eliable :inance+orporation is a hol!er in !uecourse given the factualsettings. "ai! corporationapparently too the promissorynote for value an! there are no

in!ications that it acuire! it inba! faith ("ec 62 NI$ see "alas


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v +* #D# s 2BC)

Ho!e i& $e #o$*e (2000)7N maes a promissory note for 76>>>.>> but leaves the name

of the payee in blan becausehe wante! to verify its correctspelling first. e min!lessly leftthe note on top of his !es atthe en! of the wor!ay. Whenhe returne! the followingmorning the note was missing.It turne! up later when presente! it to 7N for payment.0efore who turne! out tohave filche! the note from 7NFs

office ha! en!orse! the noteafter inserting his own name inthe blan space as the payee.7N !ishonore! the noteconten!ing that he !i! notauthori/e its completion an!!elivery. 0ut sai! he ha! noparticipation in or nowle!geabout the pilferage an!alteration of the note an!therefore he en-oys the rights of a hol!er in !ue course un!er the NegotiableInstruments $aw. +an thepayee in a promissory note be a9hol!er in !ue course within themeaning of the NegotiableInstruments $aw (*ct 2>@#)?3plain your answer. (2%)

SUGGESTED ANSWER:

* payee in a promissory notecannot be a 9hol!er in !uecourse within the meaning of the Negotiable Instruments $awbecause a payee is animme!iate party in relation tothe maer. he payee is sub-ectto whatever !efenses real of personal available to the maer of the promissory note.ALTERNATI>E ANSWER:

* payee can be a 9hol!er in !uecourse. * hol!er is !efine! as

the payee or in!orsee of theinstrument who is in possessionof it. 3very hol!er is !eeme!prima facie to be a hol!er in !uecourse.

Liai!itie* o' ,atie*7rimary liability5 heuncon!itional promise attachesthe moment the maer maesthe instrument while theacceptorFs assent to theuncon!itional or!er attaches themoment he accepts theinstrument. No further act isnecessary in or!er for the

liability to accrue. 7resentmentfor payment is all that isnecessary.

,ARTIES ,RIMARIL. LIABLE(Se# 80 a& 82)7ersons who by the terms of the instrument are absolutelyreuire! to pay the same

MA/ER (SEC 80)7romises to pay accor!ing tothe tenor of the instrument(promissory note)

ACCE,TOR (SEC 82)1pon acceptance of the bill of echange engages to pay thebill accor!ing to the tenor of theacceptance.

1ncon!itionally liable& he is!uty'boun! to pay the hol!er at!ate of maturity W8N hol!er !eman!s payment from himan! he is not relieve! fromliability even if the instrumentshoul! become over!ue !ue tofailure of hol!er to mae such!eman!.

Note5 1ntil he accepts the bill of

echange the !rawee assumesno liability to pay the instrument.


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,ARTIES SECONDARIL.LIABLE"econ!ary liability5 * partysecon!arily liable is not boun!

to pay unless the following havebeen fulfille!5(#)


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an! to all subseuent parties(2) Instrument payable to theor!er of maerL!rawer or payable to bearer5 liable to allparties subseuent to

maerL!rawer (@) "igns for accommo!ation of payee5 liable to all partiessubseuent to payee ("ec. C=)

8r!er of $iability amongIn!orsers ("ec. CD)(#) *mong themselves5 liableprima facie in the or!er theyin!orse but proof of another agreement a!missible

(2) *s to the ol!er5 ol!er may sue any of the in!orsersregar!less of or!er of in!orsement(@) Koint payeesLin!orsees!eeme! to in!orse soli!arily

I&o*e: Ieg$!a I&o*e +* Ge&ea! I&o*e (2005)


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,e*e&t%e&t 'o ,a"%e&t7resentment means5

(#) he pro!uction of a 0ill of 3change to the !rawer or acceptor for payment& or (2) he pro!uction of a7romissory Note to the party

liable for payment.

Date a& ti%e o' e*e&t%e&t:(#) 0earing fie! maturityLnotpayable on !eman! A on the!ay it falls !ue if !ay of maturityfalls on "un!ay or a holi!ay theinstruments falling !ue or becoming payable on "atur!ayare to be presente! for payment

on the net succee!ingbusiness !ay ("ec. D6)

(2) 7ayable on !eman! A withina reasonable time after itsissue iv at the option of thehol!er may be presente! for payment before twelve oclocnoon on "atur!ay when thatentire !ay is not a holi!ay ("ec.

D6)(@)


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NECESSIT. OF,RESENTMENT FOR,A.MENTWhen necessary5 In or!er to

charge the !rawer an!in!orsers("ec. J>)

When N8 necessary5(#) o charge the personprimarily liable on theinstrument("ec. J>)(2) o charge the !rawer wherehe has no right to epect or

reuire that the !rawee or acceptor will pay the instrument.("ec. JB)(@) o charge an in!orser wherethe instrument was ma!e or accepte! for hisaccommo!ation an! he has noreason to epect that theinstrument will be pai! if presente!. ("ec. D>)(=) When the bill of echangehas previously been !ishonore!by non'acceptance an! has notbeen subseuently accepte!

,ARTIES TO WHOM,RESENTMENT FOR,A.MENT SHOULD BE MADEGeneral rule5 7resentment for payment must be ma!e to theperson primarily liable on the

instrument or if he is absent or inaccessible to any personfoun! at the place where thepresentment is ma!e.

3ceptions5 Where the personprimarily liable isLare5(#)


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payment on the specifie!maturity !ate but 7N !i! notshow up. 7N lost his right torecover the interest !uesubseuent to the maturity of

the note an! the costs of collection.

DISHONOR B. NON,A.MENThe instrument is !ishonore! bynon'payment when5(#) It is !uly presente! for payment an! payment isrefuse! or cannot be obtaine!&or

(2) 7resentment is ecuse! an!the instrument is over!ue an!unpai! ("ec. D@).

In case of waiver of protestwhether in the case of a foreignbill of echange or other NI A!eeme! to be a waiver not onlyof a formal protest but also of presentment an! notice of !ishonor ("ec. ###)

Noti#e o' Di*=o&o Notice given by hol!er or hisagent to party or partiessecon!arily liable that theinstrument was !ishonore! by5(#) Non'acceptance by the!rawee of a bill& or (2) Non'payment by theacceptor of a bill& or

(@) Non'payment by the maer of a note ("ec. DB)

Re@ an! #>=)

,ARTIES TO BE NOTIFIED

(#) Non'acceptance (bill) A topersons secon!arily liable namely

the !rawer an! in!orsers as the case

may be

(2) Non'payment (both bill an! note)

A to in!orsers

Note5 Notice must be given to persons

secon!arily liable. 8therwise such

parties are !ischarge!. Notice may begiven to the party himself or to his

agent.

W=e& gi+e&

Notice may be given as soon as the

instrument is !ishonore! ("ec. #>2)

W=e& &ot &e#e**a" to gi+e to

ae (18)SUGGESTED ANSWER:

Notice of !ishonor is not reuire! to be

given to the !rawer in any of the

following cases5

(#)


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Notice of !ishonor is not reuire! to be

given to an in!orser in the following

cases5

(#) )

W=o *=o$! gi+e (Se# 0):

(#) ol!er

(2) *gent or representative of hol!er.(@) *ny party who may be compelle!

to pay lie in!orsers.

(=) *gent of any party who may be

compelle!.

EFFECT OF NOTICENotice of !ishonor is reuire! to charge

parties secon!arily liable.

1pon vali! notice of !ishonor

imme!iate right of recourse against the

in!orser arises. It is as if the in!orser

becomes primarily liable in the sense

that the hol!er nee! not claim payment

from the person primarily liable("un!iang an! *uino).

FORM OF NOTICE (Se# 8)

he notice may be5

(#) In writing& or

(2) ,erely oral

he notice may be given in any terms

which5(#) "ufficiently i!entify the

instrument& an!

(2) In!icate that it has been

!ishonore! by non'acceptance or non'

payment

It may in all cases be given by

!elivering it personally or through the

mails

WAI>ER

Notice of !ishonor may be waive! either

before the time of giving notice has

arrive! or after the omission to give !ue

notice an! the waiver may be

epresse! or implie!. ("ec. #>B)

Where the waiver is embo!ie! in theinstrument itself it is bin!ing upon all


Page 41 of 56


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parties& but where it is written above

the signature of an in!orser it bin!s him

only. ("ec. ##>)

DIS,ENSATION WITH NOTICE(#) When party to be notifie! nows

about the !ishonor actually or

constructively ("ecs. ##='##J)

(2) If waive! ("ec. #>B)

(@) When after !ue !iligence it

cannot be given ("ec. ##2).

EFFECT OF FAILURE TO GI>E

NOTICE:ailure to give notice to parties

secon!arily liable !ischarges such

parties

*n omission to give notice of !ishonor

by non'acceptance !oes not pre-u!ice

the rights of a hol!er in !ue course

subseuent to the omission ("ec. ##J)

Di*#=age o' Negotia!e I&*t$%e&t


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B" C=o% %a(e:

(#) payment in !ue course by or

on behalf of principal !ebtor

(2) payment in !ue course by party

accommo!ate! where party isma!eLaccepte! for accommo!ation

B. INTENTIONAL CANCELLATION

* cancellation ma!e unintentionally

or un!er a mistae or without the

authority of the hol!er is inoperative.

0ut where an instrument or anysignature thereon appears to have

been cancelle! the bur!en of proof

lies on the party who alleges that the

cancellation was ma!e unintentionally

or un!er a mistae or without authority.

("ec. #2@)

B. OTHER ACTS THAT

DISCHARGE A SIM,LECONTRACT FOR ,A.MENT

OF MONE.

*ny other act which !ischarges a

simple contract for

payment of money (*rt. #2@# of the

+ivil +o!e) e. issuance of a renewal

note (novation).

B. REAC-UISITION OF,RINCI,AL DEBTOR IN HIS OWN

RIGHT

7rincipal !ebtor becomes hol!er of

instrument at or after maturity in his

own right

B. MATERIAL ALTERATION

,aterial alteration without assent of

all parties liable avoi!s

instrumentecept as against party to

alteration an! subseuent in!orsers

("ec. #2=)

DISCHARGE OF ,ARTIESSECONDARIL. LIABLE

GROUNDS UNDER SEC 120

* person secon!arily liable on the

instrument is !ischarge!5

(#) 0y any act which !ischarges

the instrument&

(2) 0y the intentional cancellation

of his signature by the hol!er&(@) 0y the !ischarge of a prior

party&

(=) 0y a vali! ten!er or payment

ma!e by a prior party&

(6) 0y a release of the principal

!ebtor unless the hol!ers right of

recourse against the party secon!arily

liable is epressly reserve!&

(C) 0y any agreement bin!ing uponthe hol!er to eten! the time of

payment or to postpone the hol!ers

right to enforce the instrument unless

ma!e with the assent of the party

secon!arily liable or unless the right of

recourse against such party is

epressly reserve!. ("ec. #2>)

OTHER GROUNDS(#) :ailure to mae !ue

presentment ("ecs. J> #==)

(2) :ailure to give notice of

!ishonor

(@) +ertification of chec at

instance of hol!er

(=) ;eacuisition by prior party

(6) Where instrument negotiate!

bac to a prior party such party mayreissue an! further negotiate but not


Page 43 of 56


44/56

entitle! to enforce payment against

any intervening party to whom he was

personally liable

(C) Where instrument is pai! by

party secon!arily liable it is not!ischarge! but

(a) the party so paying it is remitte!

to his former rights as regar! to all

prior parties

(b) an! he may strie out his own

an! all subseuent in!orsements an!

again negotiate instrument ecept5

where it is payable to or!er of @r!

party an! has beenpai! by !rawer or where itFs

ma!eLaccepte! for accommo!ation

an! has been pai! by party

accommo!ate!

(J) by taing a ualifie!

acceptance

RIGHT OF ,ART. WHO

DISCHARGED INSTRUMENTWhere the instrument is pai! by a

party secon!arily liable thereon it is

not !ischarge!& but the party so

paying it is remitte! to his former

rights as regar!s to all prior parties

an! he may strie out his own an! all

subseuent in!orsements an! again

negotiate the instrument ecept5

(#) Where it is payable to the or!er of a thir! person an! has been pai!

by the !rawer&

(2) Where it was ma!e or accepte!

for accommo!ation an! has been

pai! by the party accommo!ate!.

("ec. #2#)

RENUNCIATION B. HOLDER (Se#

122)he hol!er may epressly renounce

his rights against any party to the

instrument before at or after its

maturity. *n absolute an!

uncon!itional renunciation of his rights

against the principal !ebtor ma!e at or after the maturity of the instrument

!ischarges the instrument.

;enunciation must be in writing unless

the instrument is !elivere! up to the

person primarily liable thereon

;enunciation !oes not affect the rights

of an


45/56

principal or interest

(@) ime or place of payment

(=) Number or relations of the

parties

(6) ,e!ium or currency in whichpayment is to be ma!e

(C) hat which a!!s a place of

payment where no place of payment

is specifie!

(J) *ny other change or a!!ition

which alters the effect of the

instrument in any respect.

EFFECT OF MATERIALALTERATION

(#) *lteration by a party A *voi!s

the instrument ecept as against the

party who ma!e authori/e! or

assente! to the alteration an!

subseuent in!orsers. owever if an

altere! instrument is negotiate! to a

>C) 7age JB of #>@ Oersion

#BB>'2>>@ *rrange! by "1$*W +lass

2>>6 Oersion #BB>'2>>C 1p!ate! by

>>> an! close! his account.

When the chec was returne! to him

after a month William !iscovere! the

alteration. , 0an recre!ite!

72#>>>> to WilliamFs current account

an! sought reimbursement from N<

0an. N< 0an refuse! claiming that

, 0an faile! to return the altere!

chec to it within 2= hour clearingperio!. Who as between , 0an

an! N< 0an shoul! bear the loss?

3plain.

SUGGESTED ANSWER:

N< 0an shoul! bear the loss if ,

0an returne! the altere! chec to N<

0an within twenty four hours after its

!iscovery of the alteration. 1n!er thegiven facts William !iscovere! the

alteration when the altere! chec was

returne! to him after a month. It may

safely be assume! that William

imme!iately a!vise! , 0an of such

fact an! that the latter promptly

notifie! N< 0an thereafter. +entral

0an +ircular No. B as amen!e! on

which the !ecisions of the "upreme+ourt in ongong "hanghai

0aning +orp v 7eopleFs 0an rust

+o an! ;epublic 0an vs +* were

base! was epressly cancelle! an!

superse!e! by +0 No @#J !ate! . he latter was in turn

amen!e! by +0 +ircular No 6D>

!ate! "ept #B #BJJ. *s to altere!

checs the new rules provi!e that the!rawee ban can still return them


Page 45 of 56


46/56


47/56

ualification to the or!er of the !rawer

(2) Tualifie! A which in epress

terms varies the effect of the bill as

!rawn5

(a) +on!itional A maes payment

by the acceptor !epen!ent on the

fulfillment of a con!ition therein state!

(b) 7artial A an acceptance to pay

part only of the amount for which the

bill is !rawn.

(c) $ocal A an acceptance to pay

only at a particular place.

(!) Tualifie! as to time(e) he acceptance of some one or

more of the !rawees but not of all.

("ec. #=#)

,oo' o' a##etae ("un!iang an!

*uino)5 he written acceptance may

be in the instrument itself or in a

separate instrument. owever un!er

"ec. #@@ 9the hol!er of a billpresenting the same for acceptance

may reuire the acceptance be written

on the bill an! if such reuest is

refuse! may treat the bill as

!ishonore!

3ffects5 When an acceptance is

written on a paper than the bill itself it

!oes not bin! the acceptor ecept infavor of a person to whom it is shown

an! who on the faith thereof receives

the bill for value.

MANNER

E4,RESS ACCE,TANCE

,ust be in writing an! signe! by the

!rawee an! must not epress that the!rawee will perform his promise by

any other means than the payment of

money. ("ec. #@2) If reuest for a

written acceptance is refuse! the

hol!er may treat the bill as !ishonore!

("ec. #@@)

IM,LIED ACCE,TANCE

(#) If the !rawee refuses to return

the instrument within 2= hours after it

was !elivere! for acceptance.

(2) If the !rawee !estroys the

same.

(@) If the !rawee maes an

uncon!itional promise in writing beforethe instrument is !rawn with respect

to every person who upon the faith

thereof receives the bill for value.

TIME FOR ACCE,TANCE (Se# 18)

he !rawee is allowe! twenty'four

hours after presentment in which to

!eci!e whether or not he will accept

the bill.

he acceptance if given !ates as of

the !ay of presentation.

RULES GO>ERNING ACCE,TANCE

T5 What is the implication of payment

without acceptance by a !rawee?

*5 *ct No. 2>@# or the Negotiable

Instruments $aw (NI$) eplicitlyprovi!es that the acceptor by

accepting the instrument engages

that he will pay it accor!ing to the

tenor of his acceptance. his provision

applies with eual force in case the

!rawee pays a bill without having

previously accepte! it. is actual

payment of the amount in the chec

implies not only his assent to the or!er of the !rawer an! a recognition of his


Page 47 of 56


48/56

correspon!ing obligation to pay the

aforementione! sum but also his

clear compliance with that obligation.

*ctual payment by the !rawee is

greater than his acceptance which ismerely a promise in writing to pay. he

payment of a chec inclu!es its

acceptance. (:30+ vs. Gol! 7alace

Kewellery +o Nachura 2>>D)

;ight to unualifie! acceptance5 he

hol!er may refuse to tae a ualifie!

acceptance an! if he !oes not obtain

an unualifie! acceptance he maytreat the bill as !ishonore! by non'

acceptance.

Where a ualifie! acceptance is

taen the !rawers an! in!orsers are

!ischarge! from liability on the bill

unless they have epressly or

implie!ly authori/e! the hol!er to tae

a ualifie! acceptance or subseuently assent thereto.

When the !rawer or in!orser receives

notice of a ualifie! acceptance he

must within a reasonable time

epress his !issent to the hol!er or he

will be !eeme! to have assente!

thereto.

owever acceptance is presume! to

be unualifie! or absolute. ("un!iang

an! *uino)

,e*e&t%e&t 'o A##etae

Re


49/56

capacity to contract by bill.

(2) Where after the eercise of

reasonable !iligence

presentment cannot be ma!e.

(@) Where although presentmenthas been irregular acceptance has

been refuse! on some other groun!.

("ec. #=D)

TIME,LACEMANNER OF

,RESENTMENT

WHEN MADE

* bill may be presente! for

acceptance on any !ay on which

negotiable instruments may be

presente! for payment un!er the

provisions of "ections J2 an! D6 of

this *ct. When "atur!ay is not

otherwise a holi!ay presentment for

acceptance may be ma!e before

twelve ocloc noon on that !ay. ("ec.

#=C)

What constitutes sufficient

presentment? 7resentment for

payment to be sufficient must be

ma!e5

(#) 0y the hol!er or by some

person authori/e! to receive payment

on his behalf&

(2) *t a reasonable hour on abusiness !ay&

(@) *t the proper place as herein

!efine! (see "ec. J@)&

(=) o the person primarily liable on

the instrument or if he is absent or

inaccessible to any person foun! at

the place where the presentment is

ma!e. ("ec. J2)

ime of maturity5 3very negotiable

instrument is payable at the time fie!

therein without grace. When they !ay

of maturity falls upon "un!ay or a

holi!ay the instrument is payable on

the net succee!ing business !ay.Instruments falling !ue or becoming

payable on "atur!ay are to be

presente! for payment on the net

succee!ing business !ay ecept that

instrument payable on !eman! may

at the option of the hol!er be

presente! for payment before twelve

oFcloc noon on "atur!ay when that

entire !ay is not a holi!ay. ("ec. D6)

HOW MADE (SEC 135)

(#) 0y or on behalf of the hol!er

(2) *t a reasonable hour

(@) 8n a business !ay

(=) 0efore the bill is over!ue

(6) o the !rawee or his agent

Where a bill is a!!resse! to 2 or more!rawees who are not partners A

presentment must be ma!e to them all

7. 8ne has authority to

acceptLrefuse for all

Where the !rawee is !ea! A

presentment may be ma!e to his

personal representative

Where the !rawee has been a!-u!ge!

a banrupt or insolvent or has ma!e

an assignment for the benefit of

cre!itors A presentment may be ma!e

to him or to his trustee or assignee.

C=e#@*; E''e#t; A##etae " t=e

aee a&@ (16)

!raws a chec against his currentaccount with the 8rtigas branch of


Page 49 of 56


50/56

0onifacio 0an in favor of 0. *lthough

!oes not have sufficient fun!s the

ban honors the chec when it is

presente! for payment. *pparently

has conspire! with the banFsbooeeper so that his le!ger car!

woul! show that he still has sufficient

fun!s. he ban files an action for

recovery of the amount pai! to 0

because the chec presente! has no

sufficient fun!s. E ANSWER:

he ban can recover from 0. his is

solutio in!ebiti because there is

payment by the ban to 0 when such

payment is not !ue. he chec issue!

by to 0 as payee ha! no sufficient

fun!s.

C=e#@*; ,e*e&t%e&t (13)Gemma !rew a chec on "eptember

#@ #BB>. he hol!er presente! the

chec to the !rawee ban only on

,arch 6 #BB=. he ban !ishonore!

the chec on the same !ate. *fter

!ishonor by the !rawee ban the

hol!er gave a formal notice of

!ishonor to Gemma through a letter

!ate! *pril 2J #BB=.#) What is meant by 9unreasonable

time as applie! to presentment?

2) Is Gemma liable to the hol!er?

SUGGESTED ANSWER:

#) *s applie! to presentment for payment 9reasonable time5 is meant

not more than C months from the !ate

of issue. 0eyon! sai! perio! it is

9unreasonable time an! the chec

becomes stale.

2) No. *si!e form the chec being

alrea!y stale Gemma is also

!ischarge! form liability un!er the

chec being a !rawer an! a personwhose liability is secon!ary this is !ue

to the giving of the notice of !ishonor

beyon! the perio! allowe! by law. he

giving of notice of !ishonor on *pril

2J #BB= is more than one (#) month

from ,arch 6 #BB= when the chec

was !ishonore!. "ince it is not shown

that Gemma an! the hol!er resi!e! in

the same place the perio! withinwhich to give notice of !ishonor must

be the same time that the notice

woul! reach Gemma if sent by mail.

(NI$ "ec #>@ #>=& :ar 3ast ;ealty

Investment Inc v +* #CC " 26C)

ALTERNATI>E ANSWER:

2) Gemma can still be liable un!er the

original contract for the consi!eration

of which the chec was issue!.

EFFECT OF FAILURE TO MA/E

,RESENTMENT (Se# 133)

:ailure to mae presentment

!ischarges the !rawer an! all

in!orsers ("ec. #==).

DISHONOR B. NONACCE,TANCE

When !ishonore! by non'acceptance5 * bill is !ishonore! by non'


Page 50 of 56


51/56

acceptance5

(#) When it is !uly presente! for

acceptance an! such an acceptance

as is prescribe! by this *ct is refuse!

or cannot be obtaine!& or

(2) When presentment for

acceptance is ecuse! an! the bill is

not accepte!. ("ec. #=B)

>C)

(@) ,emoran!um +hec A * chec

given by a borrower to a len!er for the

amount of a short loan with the

un!erstan!ing that it is not to be

presente! at the ban but will be

re!eeme! by the maer himself whenthe loan falls !ue an! which


Page 51 of 56


52/56

un!erstan!ing is evi!ence! by writing

the wor! 9memoran!um 9memo or

9mem on the chec.

(=) +ertifie! +hec A *n agreementwhereby the ban against whom a

chec is !rawn un!ertaes to pay it at

any future time when presente! for

payment ("ec. #DJ)

(a) +ertification is euivalent to

acceptance. ("ec. #DJ)

(b) Where the hol!er of a chec

procures it to be accepte! or certifie!

the !rawer an! all in!orsers are!ischarge! from liability. ("ec. #DD)

(c) * chec of itself !oes not

operate as an assignment of any part

of the fun!s to the cre!it of the !rawer

with the ban an! the ban is not

liable to the hol!er unless an! until it

accepts or certifies the chec. ("ec.

#DB)

(6) +rosse! +hec A he NI$ is

silent with respect to crosse! checs

although the +o!e of +ommerce

maes reference to such instruments.

*rticle 6=# of the +o!e of +ommerce

states5 9he maer or any legal hol!er

of a chec shall be entitle! to in!icate

therein that it be pai! to a certainbaner or institution which he shall !o

by writing across the face the name of

sai! baner or institution or only the

wor!s Xan! company.

1n!er usual practice crossing a

chec is !one by placing two parallel

lines !iagonally on the left top portion

of the chec ("tate Investment ousevs. I*+ #BDB).

C=e#@*: Co**e C=e#@* (2005)

What is a crosse! chec? What are

the effects of crossing a chec?

3plain.

SUGGESTED ANSWER:

* +rosse! +hec un!er accepte!

baning practice crossing a chec is

!one by writing two parallel lines

!iagonally on the left top portion of the

checs. he crossing is special where

the name of the ban or a business

institution is written between the twoparallel lines which means that th

!rawee shoul! pay only with the

intervention of that company.

E''e#t* o' Co**e C=e#@*

#) he chec may not be encashe!

but only !eposite! in the ban.

2) he chec may be negotiate! only

onceHto one who has an accountwith a ban.

@) he act of crossing the chec

serves as a warning to the hol!er that

the chec has been issue! for a

!efinite purpose so that he must

inuire if he has receive! the chec

pursuant to that purpose& otherwise

he is not a hol!er in !ue course.

C=e#@*: Co**e C=e#@* +*

Cae!!e C=e#@* (2003)


53/56

one mare! or stampe! Epai!E an!Lor

Ecancelle!E by or o behalf of a !rawee

ban to in!icate payment thereof.

C=e#@*; Co**e C=e#@ (11),r 7ablo sought to borrow 72>>th

from ,r +arlos. +arlos agree! to loan

the amount in the form of a post!ate!

chec which was crosse! (i.e. 2

parallel lines !iagonally !rawn on the

top left portion of the chec).

0efore the !ue !ate of the chec 7abl

!iscounte! it with Noble 8n !ue !ate

Noble !eposite! the chec with hisban. he chec was !ishonore!.

Noble sue! 7ablo. he court

!ismisse! NobleFs complaint. Was the

courtFs !ecision correct?

SUGGESTED ANSWER:

he courtFs !ecision was incorrect.

7ablo an! +arlos being imme!iate

parties to the instrument aregoverne! by the rules of privity. Given

the factual circumstances of the

problem 7ablo has no vali! ecuse

from !enying liability ("tate

investment ouse v I*+ G; J2JC=

#@Kuly#BDB). 7ablo un!oubte!ly ha!

benefite! in the transaction. o hol!

otherwise woul! also contravene the

basic rules of un-ust enrichment. 3venin negotiable instruments the +ivil

+o!e an! other laws of genera

application can still apply suppletorily.

ALTERNATI>E ANSWER:

he !ismissal by the court was

correct. * chec whether or not post'

!ate! or crosse! is still a negotiable

instrument an! unless 7ablo is ageneral in!orser which is not

epresse! in the factual settings he

cannot be hel! liable for the !ishonor

of the instrument. In "tate Investment

ouse v I*+ (G; J2JC= #@Kul#BDB)

the court !i! not go so far as to hol!that the fact of crossing woul! ren!er

the instrument non'negotiable.

ALTERNATI>E ANSWER:

In "tate Investment ouse v I*+ (G;

J2JC= #@Kul#BDB) the "+ consi!ere!

a crosse! chec as sub-ecting a

subseuent hol!er thereof to the

contractual covenants of the payor an! the payee. If such were the case

then the instrument is not one which

can still be sai! to contain an

uncon!itional promise to pay or or!er

a sum certain in money. In the transfer

of non'negotiable cre!its by

assignment the transferor !oes not

assume liability for the fault of the

!ebtor or obligor. *ccor!ingly thecourtFs !ecision was correct.

ALTERNATI>E ANSWER:

Mes. he chec is crosse!. It shoul!

have forewarne! ,r. Noble that it was

issue! for a specific purpose. ence

,r Noble coul! not be a hol!er in !ue

course. e is sub-ect to the personal

!efense of breach of trustL agreementby ,r. 7ablo. "uch !efense is

available in favor of ,r +arlos against

,r Noble.

C=e#@*; Co**e C=e#@ (13)

7o 7ress issue! in favor of Kose a

post!ate! crosse! chec in payment

of newsprint which Kose promise! to

!eliver. Kose sol! an! negotiate! thechec to 3cel Inc. at a !iscount.


Page 53 of 56


54/56

3cel !i! not as Kose the purpose of

crossing the chec. "ince Kose faile!

to !eliver the newsprint 7o or!ere!

the !rawee ban to stop payment on

the chec.3fforts of 3cel to collect from 7o

faile!. 3cel wants to now from you

as counsel5

#) What are the effects of crossing a

chec?

2) Whether as secon! in!orser an!

hol!er of the crosse! chec is it a

hol!er in !ue course?

@) Whether 7oFs !efense of lac of consi!eration as against Kose is also

available as against 3cel?

SUGGESTED ANSWER:

#) he effects of crossing a chec are5

a. he chec is for !eposit only in the

account of the payee

b. he chec may be in!orse! only

once in favor of a person who has anaccount with a ban

c. he chec is issue! for a specific

purpose an! the person who taes it

not in accor!ance with sai! purpose

!oes not become a hol!er in !ue

course an! is not entitle! to payment

thereun!er.

2) No. It is a crosse! chec an! 3cel!i! not tae it in accor!ance with the

purpose for which the chec was

issue!. :ailure on its part to inuire as

to sai! purpose as such failure or

refusal constitute! ba! faith.

@) Mes. Not being a hol!er in !ue

course 3cel is sub-ect to the

personal !efense which 7o 7ress can

set up against Kose ("tate Investmentouse v I*+ #J6 " @#>)

C=e#@*; Co**e C=e#@ (15)

8n 8ct #2 #BB@ +helsea "traights a

corp engage! in the manufacture of

cigarettes or!ere! from ,oises 2>>>bales of tobacco. +helsea issue! to

,oises two crosse! checs post!ate!

#6 ,ar B= an! #6 *pr B= in full

payment therefor. 8n #B Kan B=

,oises sol! to


55/56

breach of trust on the part of ,oises

$im in not complying with his

obligation to !eliver the 2>>> bales of

tobacco.

C=e#@*; Co**e C=e#@ (18)

What are the effects of crossing a

chec?

SUGGESTED ANSWER:

he effects of crossing a chec are as

follows5

a. he chec may not be encashe!

but only !eposite! in a ban&b. he chec may be negotiate! only

once to one who has an account with

a ban&

c. he act of crossing a chec serves

as a warning to the hol!er thereof that

the chec has been issue! for a

!efinite purpose so that the hol!er

must inuire if he has receive! the

chec pursuant to that purposeotherwise he is not a hol!er in !ue

course ("ee 0ataan +igar an!

+igarette :actory Inc. v +* G;

B@>=D ,ar @ #BB=&

2@> s C=@)

C=e#@*; Co**e C=e#@ (18)

8n ,arch # #BBC 7entium +ompany

or!ere! a computer from +< 0ytesan! issue! a crosse! chec in the

amount of 7@>>>> post'!ate! ,ar

@# #BBC. 1pon receipt of the chec

+< 0ytes !iscounte! the chec with

:un! ouse. 8n *pril # #BBC

7entium stoppe! payment of the

chec for failure of +< 0ytes to !eliver

the computer. hus when :un!

ouse !eposite! the chec the!rawee ban !ishonore! it. If :un!

ouse files a complaint against

7entium an! +< 0ytes for the

payment of the !ishonore! chec will

the complaint prosper? 3plain.

SUGGESTED ANSWER:

he complaint file! by :un! ouse

against 7entium will not prosper but

the one against +< 0ytes will. :un!

ouse is not a hol!er in !ue course

an! therefore 7entium can raise the

!efense of failure of consi!eration

against it. he chec in uestion was

issue! by 7entium to pay for acomputer that it or!ere! from +<

0ytes. he computer not having been

!elivere! there was a failure of

consi!eration. he chec !iscounte!

with :un! ouse by +< 0ytes is a

crosse! chec an! this shoul! have

put :un! ouse on inuiry. It shoul!

have ascertaine! the title of +< 0ytes

to the chec or the nature of thelatterFs possession. :ailing in this

respect :un! ouse is !eeme! guilty

of gross negligence amounting to

legal absence of goo! faith an! thus

not a hol!er in !ue course. :un!

ouse can collect from +< 0ytes as

the latter was the imme!iate in!orser

of the chec. ("ee 0ataan +igar an!

+igarette :actory v +* et al 2@> s C=@G; B@>=D ,ar @ B=)

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Nego Inst Law Final