Nego Recit (10/1/18)

1. A met B, a lawyer, in a bar 3 months ago and later engaged the services of B
to delay the filing of a criminal case against him by the NBI. A executed a
negotiable promissory note in favor of B which reads as follows:

I promise to pay B, my attorney-in-law, or his order, the amount of

P50000.00 which represents the cash advances he made in connection
with my case he is handling before the DOJ.

When B tried to collect from A, the latter refused and claims that he issued
the note to cover alleged advances by B to NBI officials which were never
delivered.

B files an action against A to collect payment based on the note.

a. Was the note issued for a valuable consideration? Explain.

b. You are the judge, how will you decide the case.

According to sir: Relate this to Art. 1409, 1412 & 1306 of the NCC; RPC (on
Bribery) and the case of Pineda v. De la Rama
Personal answer:
a. Yes, the note is issued for a valuable consideration. The consideration in
this case is the cash advances of B, as stated in the note, which were
supposed to be in the amount of P50,000.

There is no “no valuable consideration” scenario here because the illegal

act of bribery as an illegal consideration pertains to the contract of service
established between A and B. The promissory note has a valuable
consideration which is not illegal in the form of cash advances of B in
handling A’s case.

Thus, having a valuable consideration, the absence or failure thereof will

only be a personal defense to those not a holder in due course.

b. I will rule in favor of A. According to Sec. 28 of the NIL, the absence or

failure of consideration is a defense as against any person not a holder in
due course. In this case, there is a failure of consideration because of the
failure of the parties to comply or perform with the consideration agreed
upon, which occurred when B never used his money for handling the case
of A. Since B is not a holder in due course and one of the primary parties
in a negotiable promissory note, the personal defense of A against B is
applicable. Therefore, A does not need to pay B.

In addition, I will also declare the contract of service between A and B as

void for having an illegal consideration, in violation of the provisions of
 the RPC on Bribery and in pursuant to Art. 1409, 1412 and 1306 of the
NCC.

2. Mario issues a negotiable promissory note to Pete for P20,000. Pete owes
Ana P15,000 since Pete has no cash on hand, he negotiates the P20,000 note
to Ana as payment for his debt of P15,000.

On maturity date, how much can Ana collect from Mario? Explain.

According to sir: Relate this to Sec. 27 and this case involves a holder for
value. Learn to distinguish the differences between a Holder for value vs.
Holder in due course. Also, take note that: “consideration is a personal
defense,” as stated in sec. 28.
Personal answer:
Ana can only collect P15,000. According to sec. 27 of the NIL, where the
holder has a lien on the instrument, he is deemed a holder for value to the
extent of his lien. In this case, Ana is not supposed to be a holder of the
instrument since it was not indorsed to her but merely placed in her
possession as security. But by virtue of sec. 27, she is deemed a holder for
value to the extent of her lien. In addition, the promissory note between Pete
and Mario is prima facie presumed, under sec. 24 that Pete provided for
equal consideration as the amount in the note. It would be unfair to not
receive an equal amount in exchange of his indorsement to Ana. Hence, Ana
may only collect the P15,000 as owed by Pete.

3. M issues a negotiable promissory note to P or order in the amount of P10000

(payable on Nov. 1, 2018) in consideration of 10 forged shares of stocks
which M did not know were forged. P indorses the note to A. On maturity
date, how much can A collect from M? Explain.

According to sir: There is absence of consideration in this case. Also, take

not that: “in the absence of the facts, holder is presumed to be a holder in due
course” & “do not use sec. 24, which is used for establish a prima facie
consideration when the instrument clearly stated what is the consideration;
there is no need for prima facie proof here.”
Personal answer:
A can collect the whole amount of P10,000. According to sec. 28 of the NIL,
absence or failure of consideration is merely a personal defense against any
person not a holder in due course. In this case, there is an absence of
consideration because of the total lack of consideration for being a forgery,
making it non-existent. A is presumed to be a holder in due course in absence
of any indication that he is not. Hence, the defense of absence of
consideration cannot be used against A, allowing him to collect the whole
amount of the note.
4. A, drawer, issues a check in the amount of P100,000 to the order of B, payee;
C is the drawee bank. Y fraudulently gets hold of the check and forges the
signature of B, making it appear that B indorsed the check to him. X opens an
account with Y Bank and deposits said check. Y Bank (collecting bank)
indorses the check to C Bank through the clearing house. C Bank remits the
amount to Y Bank for the account of X. X withdraws the proceeds of the check
from Y Bank and disappears.

What are the rights and liabilities of the parties? Explain.

According to sir: Mahaba diba? Illustrate this first to easily grasp the rights
& liabilities of all parties. Relate this to the case of BDO v. Equittable.
Personal answer:

A (drawer) Right to make C pay the amount

without additional deduction to his
account.
Secondarily liable to B.
B (payee) Right to collect from C, the primarily
liable party.
C (drawee-bank) Right to ask for the amount from Y.
Primarily liable to B.
X (forger-indorsee) Criminally liable as forger and civilly
liable to Y for the amount.
Y (collecting bank) Right to ask for damages against X.
Liable to C for being precluded from
setting up the forgery (sec. 23)