Enumeration

1. What are the 5 requisites for a bill of exchange to be negotiable?

1. Must be in writing and signed by the drawer
2. Must contain an unconditional promise or order to pay a sum certain in money
3. Must be payable on demand or at a fixed, determinable future time
4. Must be payable to order or to bearer
5. Drawee must be named or otherwise indicated therein with reasonable certainty
2. What are the 3 requisites for an agent to avoid personal liability?
1. He is duly authorized
2. He adds words to his signature indicating that he signs as an agent, that is, for or on behalf of a
principal or in a representative capacity
3. He discloses his principal
3. What are the 12 kinds of real defenses?
1. Forgery
2. Fraud in factum
3. Execution between public enemies
4. Ultravires act of corporation
5. Alteration (Material)
6. Duress
7. Minority
8. Marital Consent, absence of
9. Want of authority of agent
10. Incapacity to contract
11. Want of delivery of an incomplete instrument
12. Illegality of contract
4. What are the 4 warranties of a person who negotiates by mere delivery?
1. That the instrument is genuine and in all respects what it purports to be;
2. He has good title to it
3. All prior parties had capacity to contract
4. He has no knowledge of any fact which would impair the validity of the instrument or render it
valueless
5. 3 instances where notice of dishonor need not be given to indorsers?
1. When the drawee is a fictitious person or person not having capacity to contract, and the indorser
was aware of that fact at the time he indorsed the instrument;
2. Where the indorser is the person to whom the instrument is presented for payment;
3. Where the instrument was made or accepted for his accommodation
6. What are the 3 effects of crossing a check?
1. The check may not be encashed but only deposited in the bank
 2. The check may be negotiated only once – to one who has an account with a bank
3. The act of crossing the check serves as a 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,
otherwise he is not a holder in due course.

Problem Solving

1. Without receiving value, and for the sole purpose of lending his name to B, A issued a promissory note in the
amount of P120,000 payable to the order of B who then negotiated it to C, the latter knowing that A did not
receive any value for issuing the note.
a. Can C be considered a holder in due course and proceed against A if the latter interposes the defense of
want of consideration and C is aware of the want of consideration?
C is a holder in due course and may proceed against A since there is no want of consideration. It is
immaterial if A actually received consideration for the instrument. A is an accommodation party and may
be held liable for the note. The consideration that was given is in favor of B and it renders the defense of
want of consideration unavailable.
b. Supposing A actually received P150,000 as consideration for lending his name, will that change your
answer? Why or why not? No. It will only affirm A’s liability for the instrument. Even as an
accommodation maker, who did not receive value for the instrument, he may be held liable for the same.
c. Suppose A paid the note to C, can A recover the P120,000 from B although A is the party primarily liable?
Yes. They have the right to sue the accommodated parties for reimbursement since the relation between
them is in effect that of principal and sureties.
2. A issued a promissory note. The note was negotiated to B, B to C, C to D, D to E, holder. When E presented
the note for payment , A refused to pay because he was sick in the hospital and needed the money for his
medical expenses. E then gave a notice of dishonor to D only.
a. Can E proceed against D? Yes. E has an immediate right of recourse against D, since the instrument
was dishonored by non-payment and a notice was given to D.
b. Can E proceed against C? No. C is discharged because there is no notice given to him.
c. Can E proceed against B? No. B is discharged because there is no notice given to him.
d. Suppose E negotiated the note further to F, who did not give a notice of dishonor to anybody, can F
proceed against D? Yes. D has received a notice but he may interpose personal defenses against F
who is not a holder in due course.
e. Suppose after dishonor by A, C offers to pay the note to E, which payment E accepts, can C proceed
against D for reimbursement (even if C did not give a notice of dishonor to D)? In such a situation,
can C also proceed against B if he wants to? C cannot proceed against D for reimbursement
because D is a subsequent party to him. A valid tender of payment by C, a prior party, discharges D
who is a subsequent party. C may proceed against B. C is remitted to his former rights and may
present the instrument to B or even re-negotiate the same.
 3. A bought construction equipment from B, in payment, A executed a promissory note in favor of B or order in
the amount of P500,000. B sold the note without indorsement to C for P450,000. Upon presentment, A
refused to pay and argued that the construction equipment did not operate properly. Accordingly, C sued A.
However, one day, before the complaint was filed, C’s lawyer noticed that the note was not indorsed and he
therefore immediately went to B and asked the latter to indorse the note to C. After the note was indorsed,
the complaint was filed. To avoid payment on the note, A argues (i) breach of contract (ii) fraud in factum (iii)
failure of consideration. On the other hand, C argues he is a holder in due course. Decide.
C is not a holder in due course. The reckoning period is at the time of indorsement. The
indorsement happened after A refused payment from C. Therefore C had knowledge that the instrument is
dishonored at the time of indorsement and took it in bad faith. C, not being a holder in due course, is subject
to all defenses available. The defense of breach of contract and failure of consideration may be placed against
C since the construction equipment, being broken, amounted to a failure of consideration. There is however
no sufficient evidence to support fraud in factum.

Multiple Choice

1. A statement of transaction that gives rise to the instrument; B Does not render an instrument non-negotiable
2. Antedating or postdating an instrument; B Does not affect validity or negotiability unless it is done for an
illegal or fraudulent purpose
3. If an instrument is ambiguous such that there is doubt whether it is a bill or note; B The holder may treat it
either at his option
4. A qualified indorser is; B Not secondarily liable on the instrument but may be held liable for breach of his
warranties
5. If a holder-; B Intentionally cancels or strikes out an indorsement that is unnecessary for his title, all indorsers
subsequent to the cancelled or stricken signature are discharged from liability
6. A holder who is -; B Not a holder in due course may still recover on the instrument
7. As a general rule -; D presentment for payment is not necessary to charge the parties who are primarily liable
but is necessary to charge parties who are secondarily liable such as drawers and indorsers unless otherwise
provided by law
8. Presentment for payment -; D Waived expressly or impliedly; and in such a case, if there is no presentment,
parties secondarily liable will not be discharged
9. Presentment for payment may be waived -; Before or after maturity of the negotiable instrument; and in such
a case, if there is no presentment, parties secondarily liable will not be discharged
10. Notice of dishonor given to -; D Joint parties who are not partners must be given to each of them unless one
of them has authority to receive for others
11. An agent may give notice of dishonor and agent may receive notice of dishonor -; D However, the latter must
be authorized by the principal, while the former need not be authorized by the principal
12. If notice of dishonor is not made on time -; D secondarily liable is discharged, but if notice of dishonor is not
made in the proper place, the party secondarily liable is not discharged as long as the latter actually receives
notice on time.