RFBT - NEGOTIABLE INSTRUMENTS AND BOUNCING CHECK LAW Flashcards Preview

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Flashcards in RFBT - NEGOTIABLE INSTRUMENTS AND BOUNCING CHECK LAW Deck (188)
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1
Q

What is a Negotiable Instrument?

A

A negotiable instrument is a written contract for the payment of money which complies with the requirements of Sec 1 of the Negotiable instruments law.

It is intended as a substitute for money and passes from hand to hand as money, so as to give the Holder in Due Course the right to hold the instrument free from defenses available to prior parties.

2
Q

What are the two distinctive features of a negotiable instrument?

A
  1. ) Negotiability - allows it to be passed from one hand to another similar to money
  2. ) Accumulation of secondary contracts -2ndary contracts are entered as the instrument is passed from one person to another.
3
Q

What are considered in determining the negotiability of an instrument?

A
  1. ) The whole of the instrument
  2. ) Those that appear on the face of the instrument
  3. ) Compliance with the requirement under Sec 1 of the Act.
4
Q

What are the requirements under Sec 1 of NIL for an instrument to be negotiable?

A
  1. ) It must be IN WRITING AND SIGNED BY THE MAKER OR DRAWER.
  2. ) It must contain an UNCONDITIONAL PROMISE OR ORDER TO PAY A SUM CERTAIN IN MONEY
  3. ) It must be PAYABLE ON DEMAND, OR AT A FIXED OR DETERMINABLE FUTURE TIME
  4. ) It must be PAYABLE TO ORDER OR BEARER.
  5. ) Where the instrument IS ADDRESSED TO A DRAWEE, HE MUST BE NAMED OR OTHERWISE INDICATED THEREIN WITH REASONABLE CERTAINTY
5
Q

What is meant by issue?

A

It is the first delivery of the instrument complete in form, to a person who takes it as a holder.

6
Q

How is an instrument payable to bearer negotiated?

A

It may be negotiated by MERE DELIVERY

7
Q

How is an instrument payable to order negotiated?

A

It may be negotiated by INDORSEMENT COMPLETED BY DELIVERY

8
Q

What is meant by Presentment for acceptance?

A

Presentment for acceptance is the act of exhibiting the bill of exchange to the drawee for his acceptance.

9
Q

When is presentment for acceptance required?

A

a,) If the bill is payable at a fixed period after sight or in cases where it is necessary to fix the maturity of the instrument.

b. ) When the bill expressly stipulates that it shall be presented for acceptance .
c. ) When the bill of exchange is drawn payable elsewhere than at the residence or place of business of the drawee.

10
Q

What is meant by acceptance?

A

Acceptance of a bill of exchange is the signification of the drawee of his assent to the order of the drawer. ACCEPTANCE MUST BE IN WRITING AND SIGNED BY THE DRAWEE.

11
Q

When is a bill of exchange dishonored by non-acceptance?

A

A bill of exchange dishonored by non-acceptance when:

a. ) It is presented for acceptance and such is refused or cannot be obtained
b. ) When presentment for acceptance is excused and the bill is not accepted

12
Q

What is meant by Presentment for Payment?

A

Presentment for payment is the production of a promissory note to the party primarily liable for the payment of the same, or of a bill of exchange to the drawee or acceptor for payment.

13
Q

When is there dishonor by non-payment?

A

An instrument is dishonored by non-payment when:

a. ) It is duly presented for payment and payment is refused or cannot be accepted
b. ) Presentment for payment is excused and the instrument is overdue and unpaid.

14
Q

What is a Notice of Dishonor?

A

Notice of Dishonor means notifying the drawer and the indorsers that the instrument has not been accepted by the drawee, or that is has not been accepted by acceptor, in cases of bills of exchange, or by the maker in cases of promissory notes.

15
Q

What is meant by protest?

A

Protest is a formal written statement SIGNED BY A NOTARY stating that he PRESENTED A FOREIGN BILL OF EXCHANGE FOR ACCEPTANCE OR FOR PAYMENT and that IT WAS REFUSED.

16
Q

How is an instrument discharged?

A
  1. ) Payment in due course
  2. ) Intentional cancellation of the instrument
  3. ) Other acts which discharges a simple contract
  4. ) Confusion
17
Q

What is a negotiable promissory note?

A

It is an UNCONDITIONAL PROMISE IN WRITING SIGNED BY THE MAKER, to PAY A SUM CERTAIN IN MONEY, at a FIXED OR DETERMINABLE FUTURE TIME, PAYABLE TO THE BEARER.

18
Q

What is a bill of exchange?

A

A bill of exchange is an unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or bearer.

19
Q

Is mere acknowledgment of debt acceptable in making an instrument negotiable?

A

No, it is not enough. It renders the instrument non-negotiable. There must be a promise to make it negotiable, such as

“I acknowledge my debt to P or order for PHP 5,000 payable on May 31, 2020

OR

“I acknowledge my debt to P or order for PHP 5,000 to be paid on-demand”

The “payable on” and “to be paid on demand” signify an intention to pay.

20
Q

Is mere authorization/request to pay acceptable in making an instrument negotiable?

A

No, since it only gives drawee the discretion to pay. It renders the instrument non-negotiable.

THE PROMISE OR ORDER SHOULD BE ABSOLUTE AND UNCONDITIONAL.

21
Q

When is an instrument payable on demand?

A

It is payable on demand when:

  • “on demand”
  • “at sight”
  • “upon presentation”
  • or when an instrument is issued when it is already overdue, making it payable on demand.

“Pay to P or order 5000 on July 12,2020” Today is August 1,2020. It is payable on demand since it was issued when it was already due.

22
Q

What is indorsement?

A

It means completion by signing on and delivery of the instrument.

23
Q

When an instrument is payable to the order of a fictitious person, it has the effect of?

A

Being payable to bearer.

“Pay to the order of Superman”

24
Q

What is an indorsement in blank?

A

It is one that specifies no indorsee. It has the effect of being payable to bearer.

25
Q

Is “Pay to the order of X AND Y 5000 sgd A” negotiable?

A

Yes. in this case there are 2 payees ADDRESSED JOINTLY.

26
Q

Is “Pay to the order of X OR Y 5000 sgd A” negotiable?

A

No. If there are 2 or more payees, they must be paid jointly and not mere alternatives or succession.

27
Q

Is “Pay to the order of X, or in his absence Y, 5000 sgd A” negotiable?

A

No. If there are 2 or more payees, they must be paid jointly and not mere alternatives or succession.

28
Q

What are the provisions/stipulations/omissions and other matters in an instrument not affecting negotiability?

A

1.) When the sum payable is to be PAID WITH INTEREST

  1. ) When the sum payable is to be paid by STATED INSTALLMENTS
    a. The installments must be stated
    b. The installment’s maturity must be fixed and determinable
  2. ) When the sum payable is to be paid by STATED INSTALLMENTS WITH A PROVISION OF AN ACCELERATION CLAUSE.
  3. ) When the sum to be paid is with an exchange, whether at a fixed rate or current rate.
  4. ) When the sum payable is to be paid with costs of collection or an attorney’s fee in case of nonpayment at maturity
  5. ) The instrument indicates a particular fund out of which reimbursement is to be made or a particular account be debited with the amount.
  6. ) The instrument contains a statement of the transaction that gave rise to the instrument.
  7. ) The instrument authorizes the sale of collateral securities in case it is not paid at maturity.
  8. ) The instrument authorizes the confession of a judgment if the instrument is not paid at maturity.
  9. ) The instrument waives the benefit of any law intended for the protection or advantage of the obligor.
  10. ) The instrument gives the holder an election to require something to be done in lieu of the payment of money.
  11. ) The instrument is not dated.
  12. ) The instrument does not specify the value given.
  13. ) The instrument does not specify the place where it is drawn or the place it is to be paid
  14. )The instrument bears a seal
  15. ) The instrument designates a particular kind of money in which payment is to be made.
29
Q

Is “pay to the order of X PHP 1000 sgd Y in two installments” negotiable?

A

No, to make installments in an instrument negotiable, the payment of the installment MUST BE STATED, like indicating its date of payment.

30
Q

What is an acceleration clause?

A

A clause stating that upon default of payment of installment, the whole amount shall become due.

31
Q

Explain the stipulation stating that an instrument indicating a particular fund out of which reimbursement is to be made or a particular account be debited with the amount.

A

Two steps are involved to be negotiable

1 - drawee pay the payee out of his own fund
2- drawee reimburses himself from the particular account stated.

If the payment is to be made directly out of a particular account, the same is not negotiable.

32
Q

What is the effect of an incomplete but delivered instrument? What happens if it is filled up beyond the authority given?

A

There is a prima facie authority in an INCOMPLETE BUT DELIVERED INSTRUMENT to:

  1. ) Fill up the blanks
  2. ) Fill up the instrument for any amount`

If it is filled up beyond authority given and the holder is:
1.) Holder in due course - he may PROCEED AGAINST ALL THE PARTIES INCLUDING THE MAKER

2.) Holder NOT in due course - He may PROCEED AGAINST GUILTY PARTY AND SUBSEQUENT PARTIES ONLY. This is because IN THE HANDS OF A HOLDER NOT IN DUE COURSE, “WANT OF AUTHORITY TO COMPLETE THE INSTRUMENT” is a personal defense.

33
Q

What is the effect of an incomplete and undelivered instrument? To whom is it enforceable?

A

The instrument shall NOT BE VALID IN THE HANDS OF ANY HOLDER, as against any person whose signature was placed thereon before delivery.

It is enforceable only against the guilty party (who stole the incomplete and undelivered instrument) and parties subsequent to him.

34
Q

R signs a check leaving it blank as to amount and payee. S steals it and fills it up with him as payee for PHP 50,000. He then indorses it to A, A to B, B to C, C to H. To whom can H proceed against if he is a:

  1. ) Holder in due course?
  2. ) Holder NOT in due course?
A

In both cases, H cannot proceed against R since “want of an incomplete instrument” is a real defense.

Here H can only proceed against S,A,B, and C.

35
Q

R signs a check leaving it blank as to amount and payee, then giving it to S, authorizing him to fill it up for PHP 10,000. S goes beyond his authority and fill it up for PHP 12,000. He then indorses it to A, A to B, B to C, C to H. To whom can H proceed against if he is a:

  1. ) Holder in due course?
  2. ) Holder NOT in due course?
A

INCOMPLETE BUT DELIVERED INSTRUMENT

If H is a HIDC, H can proceed against all the parties.
If H is not a HIDC, H can proceed only against the guilty parties and those subsequent to the guilty party, thus, S A B and C.

36
Q

What is the effect of a complete and undelivered instrument?

A

The instrument shall be enforceable against all the parties, except when it is held by someone who is not a HIDC, in which case he cannot proceed against the maker, since “want of delivery of a COMPLETE instrument” is a personal defense.

If the holder is a:
1.) Holder in due course - he may PROCEED AGAINST ALL THE PARTIES INCLUDING THE MAKER

2.) Holder NOT in due course - He may PROCEED AGAINST GUILTY PARTY AND SUBSEQUENT PARTIES ONLY. This is because IN THE HANDS OF A HOLDER NOT IN DUE COURSE, “WANT OF DELIVERY OF A COMPLETE THE INSTRUMENT” is a personal defense.

37
Q

How should an instrument be interpreted if there is a discrepancy between the sum payable written in words and in figures?

A

It should be interpreted as the sum payable in WORDS, but if the words are ambiguous, reference to the figures shall be made.

38
Q

If the instrument provides for an interest but it does not specify a date when interest is to run, when should the interest run?

A

Interest runs from the date of the instrument, if there is not, the date the instrument was issued.

39
Q

If the instrument is not dated, it will be dated as of?

A

The date of time it was issued.

40
Q

What happens when there is conflict between the written and printed provisions of an instrument?

A

The written provisions shall prevail.

41
Q

What happens when an instrument is so ambiguous that there is doubt whether it is a bill or a note?

A

The holder may treat it as either bill or note at his option.

42
Q

What happens when a signature is placed upon the instrument and it is not clear as to what capacity the person intended to sign?

A

The person signing shall be deemed an indorser.

43
Q

What is the effect if two or more persons signs an instrument containing the words “I promise to pay” ?

A

The persons signing “I promise to pay” shall be liable solidarily.

44
Q

What does Procuration mean?

A

Procuration is the act of appointing another as one’s agent/attorney.

A signature by procuration operates as a notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing ACTED WITHIN THE ACTUAL LIMITS OF HIS AUTHORITY.

45
Q

What is the liability of a person whose signature does not appear on the instrument? What are the exceptions?

A

GR: A person whose signature does not appear on an instrument is not liable thereon.

Exceptions:
1. When a person signs under a TRADE/ASSUMED NAME.

  1. Where an AUTHORIZED AGENT signs on behalf of his principal, the principal is liable even though his signature does not appear on the instrument.
  2. Where a person forges the signature of another, the forger is liable.
  3. Where the acceptor accepts the instrument on paper (ALLONGE) other than the bill itself.
  4. When a person promises to accept in writing a bill before it is drawn.
  5. Where a person negotiates a bearer instrument by delivery.
  6. Where a drawee destroys a bill or refuses within 24 hours to return the bill accepted or not accepted.
46
Q

What are the requisites for an agent not to be liable when he signs on behalf of his principal?

A
  1. He must be AUTHORIZED
  2. He must add words to his signature DESCRIBING HIMSELF AS AN AGENT
  3. He must DISCLOSE HIS PRINCIPAL
  4. He must ACT WITHIN THE SCOPE OF HIS AUTHORITY
47
Q

M makes a promissory note payable to the order of P. P issues the same to A, a minor. A then indorses to B, B to C, and C to H.

From whom may H collect?

A

H can collect from all the parties EXCEPT A.

NO HOLDER CAN COLLECT FROM A MINOR BECAUSE MINORITY IS A REAL DEFENSE.

48
Q

M makes a promissory note payable to the order of P, a minor. P issues the same to A. A then indorses to B, B to C, and C to H.

From whom may H collect?

A

H can collect from all the parties EXCEPT P.

NO HOLDER CAN COLLECT FROM A MINOR BECAUSE MINORITY IS A REAL DEFENSE.

49
Q

M, a minor, makes a promissory note payable to the order of P. P issues the same to A. A then indorses to B, B to C, and C to H.

From whom may H collect?

A

H can collect from all the parties EXCEPT M.

NO HOLDER CAN COLLECT FROM A MINOR BECAUSE MINORITY IS A REAL DEFENSE.

50
Q

What does Forgery mean?

A

Forgery is the counterfeiting or fraudulent alteration of any writing and may consist in the signing of another’s name or the alteration of an instrument in the name, amount, with the INTENT TO DEFRAUD.

51
Q

What is the effect of forgery?

A

1.) The signature that is FORGED OR MADE WITHOUT AUTHORITY IS WHOLLY INOPERATIVE except when:

a. The forged signature is not necessary to the title of the holder.
b. ) By the acts/silence/inaction/negligence of a party, they are ESTOPPED FROM SETTING UP THE DEFENSE OF FORGERY.
c. ) The acceptor, indorser, or those who negotiate an instrument, warrant that among other matters the instrument is genuine and in all respects what it purports to be.

52
Q

P makes a promissory note payable to his own order placing the name of M and forging M’s signature. P then indorses the note to A, A to B, B to C, and C to H.

a. ) From whom can H claim?
b. ) Suppose before accepting the note from C, H asked M if the signature was really his to which M replied positively. What is its effect on the forgery?

A

This is an instance of FORGERY OF MAKER’S SIGNATURE IN A PROMISSORY NOTE PAYABLE TO ORDER.

a. H can hold all parties liable except M. In addition, H can hold P criminally liable for forgery.
b. M will become liable on the note because of his assent/negligence to examine the instrument.

53
Q

M makes a note payable to the order of P. P then indorses the note to A. The note is stolen from A by F who then negotiates the same to B by forging A’s signature. B indorses the note to C, C to D, and D to H.
a.) From whom can H claim?

A

This is an instance of FORGERY OF INDORSER’S SIGNATURE IN A PROMISSORY NOTE PAYABLE TO ORDER.

a. H, whether HIDC or not, cannot hold M,P,A liable because IN AN ORDER INSTRUMENT, PROPER INDORSEMENT IS NECESSARY FOR ITS NEGOTIATION. H however may claim from B,C,D. He can also hold F criminally and civilly liable for the forgery.

54
Q

P makes a promissory note payable to bearer by placing the name and forging the signature of M as maker. Thereafter P delivers the note to A, A to B, B to C, and C to H. From whom can H claim?

A

This is an instance of FORGERY OF MAKER’S SIGNATURE IN A PROMISSORY NOTE PAYABLE TO BEARER.

H, whether a HIDC or not, cannot go after M because the forged signature is wholly inoperative as to him.

H can hold P criminally liable for forging M’s signature.

H can hold C liable on his warranty as a person negotiating by mere delivery. H CANNOT HOLD A AND B LIABLE SINCE THE LIABILITY OF A PERSON NEGOTIATING BY MERE DELIVERY IS ONLY TO THE IMMEDIATE TRANSFEREE.

55
Q

What are the cases of forgery?

A

You need to look closely and identify what case of forgery is in question.

  1. ) Forgery of maker’s signature in a promissory note PAYABLE TO ORDER.
  2. ) Forgery of an indorsement in a promissory note PAYABLE TO ORDER.
  3. ) Forgery of maker’s signature in a promissory note PAYABLE TO BEARER.
  4. ) Forgery of an indorsement in a promissory note PAYABLE TO BEARER.
  5. ) Forgery of the drawer’s signature
  6. ) Forgery of an indorser’s signature in a bill of exchange
56
Q

M makes a promissory note payable to bearer and delivers it to P. P indorses it to A. The note is then stolen from A by F who indorses the note to C, C to D, and D to H. From whom can H claim?

A

This is an instance of FORGERY OF AN INDORSEMENT IN A PROMISSORY NOTE PAYABLE TO BEARER.

  • H can collect from M,P,A if he is a HIDC.
  • H cannot collect from M,P,A if he is not a HIDC, because of “want of delivery of a complete instrument”
  • H can hold F criminally and civilly liable
  • H can collect from B,C,D.
57
Q

P executes a bill of exchange payable to his own order placing thereon the name of R as drawer and forging R’s signature. He presents the bill to W, drawee, who accepts the same. Thereafter, P indorses the bill to A, A to B, B to C, and C to H. From whom can H claim?

A

This is an instance of FORGERY OF DRAWER’S SIGNATURE.

  • H can collect from W, because by accepting the bill, W admitted the genuineness of R’s signature.
  • Any of the parties mentioned can hold P civilly and criminally liable for the forgery
  • W cannot debit the account of R because the signature of R is wholly inoperative against him, besides W owes R the contractual duty of knowing R’s signature
  • Should W dishonor the bill, H can go after A,B,C who purported that the instrument is genuine in all material respects
58
Q

R, drawer, executes a bill of exchange payable to the order of P, payee, with W bank as drawee. F stole the instrument from P, and forged P’s signature then indorsed it C bank, which accepted it and credited F’s account. C bank indorsed it to W bank which paid it. W bank then charged the amount to R’s account. What are the rights and liabilities of the parties?

A

This is an instance of FORGERY OF INDORSER’S SIGNATURE IN A BILL OF EXCHANGE.

R, drawer - Drawer is not liable on the check because it drew the check payable to the order of P. It did not authorize W to pay the check to any other person than P or his order

W bank, Drawee - Drawee is liable to the drawer for the amount of check it charged because it violated the instructions of the drawer. However, he can recover from from C bank against whom it may hold liable under the warranties of an indorser.

P, Payee - P can demand payment from R because he has not been paid of his claim. He however cannot be liable on the check since his signature was forged.

C bank - C is liable to W

F, forger is liable criminally and civilly.

59
Q

What is consideration?

A

Consideration is the cause of a contract, it is the essential reason WHY the parties entered into a contract.

60
Q

What is a holder for value?

A

Holder for value is one who has given valuable consideration for an instrument issued or negotiated to him.

61
Q

M issues a promissory note payable to the order of P for PHP 10,000. P indorses the note to H to secure P’s debt of PHP 8,000. H is a holder for value to the extent of his lien of PHP 8,000. At maturity how much can H claim from M?

A
  1. ) If M has no defenses against P, H can collect the full amount of PHP 10,000 from M. However, he has to give the PHP 2,000 to P.
  2. ) If M has a personal defense against P, H can only collect PHP 8,000 from M.
  3. ) If M has a real defense, H cannot collect anything from M.
62
Q

What is want/absence of consideration?

A

There is want/absence of consideration if no consideration was intended to pass, such as when a fake ring was given for a promissory note.

This is a PERSONAL DEFENSE, AVAILABLE ONLY AGAINST THOSE WHO ARE NOT HOLDERS IN DUE COURSE.

63
Q

What is failure of consideration?

A

There is a failure of consideration if there is an inability to have the consideration performed or given.

This is a PERSONAL DEFENSE, AVAILABLE ONLY AGAINST THOSE WHO ARE NOT HOLDERS IN DUE COURSE.

64
Q

What is partial failure of consideration?

A

There is partial failure of consideration when the consideration is not completely or only partially performed.

This is a PERSONAL DEFENSE, AVAILABLE ONLY AGAINST THOSE WHO ARE NOT HOLDERS IN DUE COURSE.

65
Q

M issued a promissory note payable to the order of P for PHP 10,000 for a ring which P said was made of pure gold, which was really only gold plated. Subsequently P indorsed the note to A, A to B, B to C and C to H. How much can H collect if he is:

a. ) HIDC
b. ) Not HIDC?

A

a. H can collect the whole amount from M since he is a HIDC.
b. H cannot collect anything from M if he is not a HIDC, since in this case M can raise the defense of WANT/ABSENCE OF CONSIDERATION.

66
Q

M issued a promissory note payable to the order of P for PHP 10,000 for merchandise he purchased from P. However P only delivered PHP 7,000 worth of products to M. Subsequently P indorsed the note to A, A to B, B to C and C to H. How much can H collect if he is:

a. ) HIDC
b. ) Not HIDC?

A

a. H can collect the whole amount from M since he is a HIDC.

b. H can only collect PHP 7,000 from M since M can set up the defense PARTIAL FAILURE OF CONSIDERATION.

67
Q

What is an accommodation party? What are its requisites?

A

An accommodation party is one who has signed the instrument as maker, drawer, acceptor or indorser WITHOUT RECEIVING VALUE therefor, AND FOR THE PURPOSE OF LENDING HIS NAME TO SOME OTHER PERSON. It has the following requisites:

a. He signs the instrument as maker/drawer/acceptor/indorser
b. He does not receive value by virtue of the instrument
c. He signs the instrument for the purpose of lending his name to some other person

68
Q

What are the modes of transfer of negotiable instruments?

A

1.) By assignment - assignee acquires no greater right than that of the assignor

  1. ) By operation of law - transfer without assignment or negotiation, either by:
    a. ) Death of holder which transfers it to his estate
    b. ) Bankruptcy of holder, where title vests in assignee or trustee
  2. ) By negotiation - transfer of negotiable instrument from one person to another
    a. If payable to order, indorsement completed by delivery
    b. If payable to bearer, either
  3. Mere delivery
  4. Indorsement completed by delivery
69
Q

What is indorsement?

A

Indorsement is the act of signing one’s name on a negotiable instrument payable to order, indicating the intent to transfer the ownership of the instrument to another.

70
Q

As a matter of practice, where is an indorsement made?

A

On the back of the instrument.

71
Q

What is an allonge?

A

Allonge is a separate paper attached to an instrument making it an integral part of the instrument.

72
Q

Can an instrument still be negotiated wherein only a portion of the amount is indorsed?

A

Generally, no, since indorsement must be made on the entire instrument. However IF THE INSTRUMENT HAS BEEN PAID IN PART, IT MAY BE INDORSED AS TO THE RESIDUE.

73
Q

“Pay to the order of X, PHP 10,000 sgd Y”
at the back of the note, it says
“Pay to A PHP 7,000”

Is this a valid indorsement? When can it be a valid indorsement?

A

This is not a valid indorsement.

However, it is valid IF Y has paid X PHP 3,000. X can then indorse the balance of PHP 7,000 to A.

74
Q

“Pay to X PHP 7000 and to Y PHP 3000”

Is this a valid indorsement?

A

No, the transfer to two persons renders the indorsement invalid. This is to prevent multiplicity of suits.

75
Q

“Pay to X and Y PHP 10,000”

Is this a valid indorsement?

A

Yes. Should they wish to negotiate the instrument further, both of them must indorse it together, unless one of them is authorized to indorse for both of them.

76
Q

What are the kinds of indorsement?

A

SBRQC

  1. ) Special indorsement
  2. ) Blank indorsement
  3. ) Restrictive indorsement
  4. ) Qualified indorsement
  5. ) Conditional indorsement
77
Q

“Pay to X PHP 1,000 sgd Y” Is this instrument negotiable?

A

Yes. The mere absence of words implying the power to negotiate does not make an indorsement restrictive. “Pay to the order of X” has the same effect as “Pay to X”

78
Q

What is a qualified indorsement? What effect does a qualified indorsement have? (words such as without recourse/indorser not holden/ at the indorsee’s risk)

A

It constitutes the indorser a mere assignor of the title to the instrument.

“Pay to the order of X WITHOUT RECOURSE/INDORSER NOT HOLDEN/AT THE INDORSEE’S RISK.”

This means that the qualified indorser IS NOT LIABLE IF THE HOLDER CANNOT COLLECT BECAUSE OF:
A. INSOLVENCY OF PRIOR PARTIES
B. INSTRUMENT IS INVALID
C. NO VALUABLE CONSIDERATION WAS GIVEN

He is still liable on his warranties under Sec 65:
(a) That the instrument is genuine and in all respects what it purports to be;

(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;

(d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

79
Q

What is a special indorsement?

A

It specifies the person to whom or to whose order the instrument is to be payable. “Pay to X PHP 1,000 sgd Y”

The indorsement of the indorsee is necessary for the further negotiation of the instrument if it is an order instrument.

80
Q

What is a blank indorsement?

A

It specifies no indorsee. if the instrument is an order instrument, the instrument becomes a bearer instrument if indorsed blank and may be negotiated by mere delivery. “Pay to X PHP 1,000 sgd Y” at the back is “—blank— sgd X”

81
Q

What is a restrictive indorsement?

A

It is an indorsement that either

a.) Prohibits further negotiation - “Pay to X ONLY”

b.) Constitutes the indorsee the agent of the indorser (AGENCY TYPE)
“Pay to X for collection”
“Pay to X for collection and deposit”
“Pay to X for collection only”

c.) Vests title in the indorsee in trust for or to the use (TRUST TYPE)
of some other person
“Pay to X in trust/ for the use of/ Y”

82
Q

What is a conditional indorsement?

A

It is an indorsement subject to the happening of a condition.

Party required to pay may disregard the condition and make payment to the indorsee. In that case, the indorsee is still bound by the condition of his indorsee

83
Q

“I promise to pay X or Y PHP 10000 sgd Z”

a. Is this instrument negotiable?
b. How is this instrument indorsed?

A

a. It is not negotiable

b. Either X or Y can indorse the note.

84
Q

When can indorsements be struck out? What is the effect of striking out an indorsement?

A
  1. ) For order instruments
    a. ) Indorsements following a blank indorsement

2.) For bearer instruments
a.) Holder may strike out any indorsement, whether
special or blank.

Effect of striking out:

  1. ) Indorser whose indorsement is struck out is relieved from his liability on the instrument
  2. ) All subsequent indorsers are likewise relieved from their liability.
85
Q

MM issues a promissory note payable to the ORDER of PP. With AA as holder, the back of the note shows the following:

"Pay to AA sgd PP"
"Pay to BB sgd AA "
"Pay to CC sgd BB "
"Pay to DD sgd CC "
"Pay to EE sgd DD "
"Pay to AA sgd EE"

What indorsements can AA strike out?

A

AA can strike out his indorsement to BB and those subsequent to it. He cannot strike those subsequent indorsements individually without striking his indorsement to BB. He cannot strike out PP’s indorsement since it is necessary to his title.

86
Q

MM issues a promissory note payable to PP or BEARER. With HH as holder, the back of the note shows the following:

"Pay to AA sgd PP"
"Pay to BB sgd AA "
"  -BLANK- sgd BB "
"Pay to DD sgd CC "
"Pay to EE sgd DD "
" -BLANK-  sgd EE"

What indorsements can HH strike out?

A

HH may strike out any of the indorsements since the instrument is payable to bearer.

87
Q

M executes a promissory note payable to the order of P. P indorses the note to A, A to B, B to C, C to D, D to E, and E back to A. Can A enforce payment against B,C,D and E?

A

No, since B C D and E are INTERVENING PARTIES. As long as A is the holder, they have a temporary defense. If A indorses it to another person named F, F can go after the intervening parties.

88
Q

What is a holder in due course? What is not a holder in due course?

A

A HIDC is a holder who has taken the instrument under the following conditions:

  1. ) That it is complete and regular upon its face
  2. ) That he became the holder of it BEFORE IT WAS OVERDUE, and without notice that it had been previously dishonored, if such was the fact
  3. ) That he took it in good faith and for value
  4. ) That at the time it was negotiated to him, he had NO NOTICE OF INFIRMITY in the instrument or defect in title of the person negotiating it.

Absent one of the conditions above, holder does not become a HIDC.

89
Q

When is an instrument INCOMPLETE and IRREGULAR upon its face, thus making the holder not a HIDC?

A

It is incomplete and/or irregular when it has unfilled blanks or it is wanting in any material particular such as:

  1. ) Name of payee
  2. ) Name of drawee
  3. ) Amount of the instrument
  4. ) Without date of maturity
  5. ) Has material alterations
90
Q

What is a personal/equitable defense? What are examples of personal defenses?

A

Personal/equitable defense refer to acts or circumstances leading to the issuance of the instrument. They are available only against that person or subsequent holder who stands in privity with him. The following are examples of personal defenses:

  1. ) Insertion of a wrong date
  2. ) Want of authority to complete instrument
  3. ) Want of delivery of complete instrument
  4. ) Absence or failure of consideration
  5. ) Acquisition of instrument/signature by fraud/duress/force/fear.
  6. ) Negotiation in breach of faith
  7. ) Fraud in inducement
91
Q

What is real/legal/absolute defense? What are some examples?

A

Real defenses are those that attach to the instrument itself and can be used as reasons against payment to any holder, even a HIDC. Some examples include:

  1. Want of delivery of an incomplete instrument
  2. Forgery
  3. Minority
  4. Fraud in fact
  5. Discharge at or after maturity
  6. Illegality of contract
  7. Duress amounting to forgery.
92
Q

S1: An instrument originally payable to ORDER may be converted into a BEARER instrument.

S2: An instrument originally payable to BEARER may be converted into an ORDER instrument.

Which statements are correct?

A

Only statement 1 is correct.

93
Q

What are the rights of a Holder in due course?

A
  1. ) To sue on the instrument in his own name
  2. ) To receive payment of the instrument, and if the payment is in due course, the instrument is discharged.
  3. ) To hold the instrument free from any defect of title of prior parties and free from defenses available to the parties among themselves.
  4. ) To enforce payment of the instrument for the full amount thereof against all parties liable thereon.
94
Q

What are the rights of a Holder NOT in due course?

A
  1. ) To sue on the instrument in his own name
  2. ) To receive payment of the instrument, and if the payment is in due course, the instrument is discharged.
  3. ) To hold the instrument but is subject to the same defenses as if were non-negotiable.
  4. ) To have all the rights of a holder in due course if he derives his title through such HIDC and he himself is not a party to any fraud or illegality affecting the instrument.
95
Q

Buddha induced Vishnu by fraud to issue a promissory note payable to the order of Buddha but without Buddha giving valuable consideration to Vishnu. Thereafter Buddha indorsed the note to Jehovah, who had no notice of Buddha’s defective title, hence, Jehovah is a HIDC. Thereafter Jehovah negotiated the note to Apollo Q, who knew of Buddha’s defective title but had no participation in the inducement made by Buddha. May Apollo Q collect from Vishnu?

A

Yes, because Apollo Q derived his title from Jehovah, a HIDC, and Apollo Q himself was not a party to the fraud employed by Buddha. Therefore, Apollo Q shall have all the rights of a HIDC even though he knew of the fraud.

96
Q

In negotiable instruments, who are the parties primarily liable? Who are the parties secondarily liable?

A

Primarily liable:

  1. ) Maker of a promissory note.
  2. ) Acceptor of a bill of exchange
  3. ) Certifier of a check

Secondarily liable:

  1. ) Indorser of a bill of exchange or promissory note
  2. ) Drawer of a bill of exchange
  3. ) Persons negotiating by mere delivery of bill of exchange or promissory note
97
Q

What are the liabilities of a maker?

A
  1. ) He engages to pay the instrument according to its tenor

2. ) He admits the existence of the payee and his capacity to indorse.

98
Q

What are the liabilities of an acceptor?

A
  1. ) He admits the existence of the payee and his then capacity to indorse
  2. ) He engages to pay the instrument according to the tenor of his acceptance

3.) He admits
a.) The existence of the drawer
b.) The genuineness of the drawer’s signature
c.) The capacity and authority of the drawer to draw
the instrument.

99
Q

What are the liabilities of a drawer?

A

1.) He admits the existence of the payee and his then capacity to indorse.

  1. ) He engages that on presentment, the bill will be accepted or paid or both and that if it is dishonored, he shall pay the bill to the holder/subsequent indorsee when the following conditions are present:
    a. ) The bill is presented to the drawee for acceptance or for payment
    b. ) The drawee dishonors the bill either by non-payment or non-acceptance
    c. ) The proceedings on dishonor have been duly taken, such as giving to him a notice of dishonor, and protest and notice of protest in case of a foreign bill of exchange.
100
Q

What are the liabilities of a qualified indorser?

A
  1. ) He warrants that the instrument is genuine and in all material respects what it purports to be.
  2. ) He warrants that he has good title to it.
  3. ) He warrants that all prior parties had capacity to contract.
  4. ) He warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
101
Q

What happens if subsequent parties acquire title from a qualified indorsement?

A

The warranties of a qualified indorser extend to all subsequent parties even if they are a HIDC or not.

102
Q

What are the liabilities of a person negotiating by mere delivery?

A
  1. ) He warrants that the instrument is genuine and in all material respects what it purports to be.
  2. ) He warrants that he has good title to it.
  3. ) He warrants that all prior parties had capacity to contract.
  4. ) He warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
  5. ) His warranty extends in favor of NO HOLDER OTHER THAN THE IMMEDIATE TRANSFEREE.
103
Q

What are the liabilities of a general indorser?

A
  1. ) He warrants that the instrument is genuine and in all material respects what it purports to be.
  2. ) He warrants that he has good title to it.
  3. ) He warrants that all prior parties had capacity to contract.
  4. ) He warrants that the instrument is valid and subsisting
  5. ) He engages that on due presentment, the bill will be accepted or paid or both and that in case of dishonor, he shall pay the bill to the holder or to any subsequent indorsee who may be compelled to pay it to the holder when the following conditions are present:
    a. ) The bill is presented to the drawee for acceptance or for payment
    b. ) The drawee dishonors the bill either by non-payment or non-acceptance
    c. ) The proceedings on dishonor have been duly taken, such as giving to him a notice of dishonor, and protest and notice of protest in case of a foreign bill of exchange.
104
Q

To whom does warranties of a general indorser extend?

A
  1. ) To subsequent holders
  2. ) Persons who derive their titles from HIDC
  3. ) Immediate transferees although they are not HIDC
105
Q

M is the maker and P is the payee of an order instrument. H is the holder. The back of the promissory note shows the ff:

“Pay to A sgd P”
“Pay to B without recourse sgd A”
“Pay to H sgd B”

H presents the note to M for payment but M is insolvent. P,A,B were not aware of the insolvency. Can H collect from P,A,B?

A

H can only collect from P and B, since A is a qualified indorser.

106
Q

What is an irregular or anomalous indorser? What are his liabilities?

A

An irregular or anomalous indorser is one who is not otherwise a party to an instrument who places his signature in blank before delivery. His liabilities include:

a. ) Liability to the payee and subsequent parties
b. ) Liability to parties subsequent to maker or drawer.

Example:
M makes a note payable to the order of P. X indorses the note in blank before its delivery to P. Thereafter, P indorses the note to A, A to B, and B to H. X is liable to P, A, B and H, but is not liable to M. The same is true if M makes a note payable to his order, or makes a note payable to bearer.

107
Q

What is Presentment for Payment?

A

Presentment for payment is the production of a bill of exchange to the drawee or acceptor for payment, or of a promissory note to the party liable for payment of the same.

108
Q

Is presentment for payment necessary against the party primarily liable?

A

No.

109
Q

Is presentment for payment necessary against the party secondarily liable?

A

Yes it is necessary, except for:

a. Drawer, when he has no right to expect or require that the drawee/acceptor will pay the instrument
b. Indorser, where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

110
Q

What constitutes a sufficient presentment?

A

Presentment must be made on the date fixed WITHOUT GRACE, unless delay in presentment for payment is excused when caused by circumstances beyond control. Presentment must be made AT A REASONABLE HOUR ON A BUSINESS DAY.

Promissory notes must be presented for payment within A REASONABLE TIME AFTER ISSUANCE

Bill of exchanges must be presented for payment WITHIN A REASONABLE TIME AFTER THE LAST NEGOTIATION.

111
Q

If a day falls on a Saturday, what are the options of the holder who wants to present an instrument? If its a Sunday?

A

If Saturday:

a. On a succeeding business day
b. Before 12:00 noon of that Saturday provided that it is not a holiday

If Sunday, it must be presented on the next business day.

112
Q

What is a notice of dishonor?

A

Notice of dishonor means bringing either orally or in writing, to the knowledge of the drawer or indorsers of an instrument the fact that a specified negotiable instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it.

113
Q

What is the purpose of a notice of dishonor?

A

Its purpose is to enable the party to be charged to preserve and protect his rights against prior parties.

114
Q

What are the grounds for giving the notice of dishonor?

A
  1. ) Non-acceptance of the instrument

2. ) Non-payment of the instrument

115
Q

When is giving notice of dishonor necessary?

A

Against party primarily liable - NOT NECESSARY, since he is the one who dishonored the instrument.

Against parties secondarily liable - Necessary to make them liable, EXCEPT WHEN
a.) There is a waiver of notice of dishonor
b.) When notice is dispensed with
c.) As regards the indorser when:
- the drawee is a fictitious person or person not
having the capacity to contract, and indorser was not
aware of that fact
- Where indorser is the person to whom the
instrument is presented
- Where the instrument was made or accepted for his
accommodation
d.) When notice of dishonor by non-acceptance was previously given
e.) As regards a HIDC without notice

116
Q

R draws a bill of exchange in favor of P as follows:

“Pay to P or order PHP 50,000. Notice of dishonor waived sgd R To: W”

The bill is indorsed by P to A, A to B, B to C and C to H. H presents it to W for acceptance but W dishonors it. To whom must H give a notice of dishonor?

A

H need not give a notice of dishonor because all the parties are bound by it SINCE THE WAIVER OF NOTICE OF DISHONOR IS EMBODIED IN THE INSTRUMENT.

117
Q

R draws a bill of exchange in favor of P as follows:

“Pay to P or order PHP 50,000 sgd R To: W”

The bill is indorsed by P to A, A to B, B to C and C to H. At the back of the note is the following:

“Pay to A sgd P”
“Pay to B, notice of dishonor waived sgd A”
“Pay to C sgd B”
Pay to H, sgd C”

H presents it to W for acceptance but W dishonors it. To whom must H give a notice of dishonor?

A

H must give a notice of dishonor to P, B, and C. Notice is not needed for A since he waived it. The same is only applicable to A.

118
Q

What does it mean when notice of dishonor is dispensed with?

A

It means that after reasonable diligence, notice of dishonor cannot be given or does not reach the parties sought to be charged, because of circumstances beyond control.

119
Q

What is the effect of failing to give notice of dishonor?

A

The drawer or indorsers to whom such notice of dishonor is not given is DISCHARGED.

120
Q

M makes a promissory not payable to the order of P. P indorses the note to A, A to B, B to C, C to D, and D to H, holder. H presents the note to M for payment but M dishonors it.

  1. ) To whom can H give a notice of dishonor?
  2. ) Can S, a stranger give notice in behalf of H?
  3. ) Can S, as an agent of H, give notice in his own name?
  4. ) Can S, as an agent of H, give notice in behalf of H?
  5. ) Can A/B/C/D give notice of dishonor? Who can give notice to whom?
  6. ) Can T, a stranger, give notice on behalf of A,B,C,D?
  7. ) What is the effect if H gives notice only to C?
  8. ) H notifies P,A,B,C. To whom does benefit inure to?
A
  1. H can give notice to P/A/B/C/D
  2. Yes
  3. Yes
  4. Yes
  5. Yes, any of A,B,C,D can give notice of dishonor, but only to those prior to him, and provided H has given them a notice. So, A can only give notice to P, B to A and P, C to P,A,B, and D to P,A,B,C.
  6. Yes
  7. C cannot give notice to D. D then will be discharged.
  8. Notice to P inures to the benefit of A,B,C,D. Notice to A inures to the benefit of B,C,D.
121
Q

How is notice of dishonor given?

A

Either oral or written, personally or by mail.
If by mail:
Notice is deemed to have been deposited in the post office when deposited to any branch. Sender is deemed to have given due notice notwithstanding any miscarriage of mails.

122
Q

What is estafa?

A

Estafa is done by POSTDATING/ISSUING A CHECK IN PAYMENT OF AN OBLIGATION when the offender HAS NO FUNDS IN THE BANK, OR HIS FUNDS DEPOSITED ARE NOT SUFFICIENT TO COVER THE AMOUNT OF THE CHECK. The failure of the drawer to deposit the necessary amount WITHIN THREE (3) DAYS FROM RECEIPT OF NOTICE OF DISHONOR FROM THE BANK/PAYEE SHALL BE PRIMA FACIE EVIDENCE OF DECEIT.

123
Q

What are the elements of estafa?

A
  1. ) Postdating/issuing a check in payment of an obligation CONTRACTED AT THE TIME THE CHECK WAS ISSUED.
  2. ) Lack of funds to cover amount
  3. ) Damage to the payee
124
Q

What are the acts punished under BP 22 or Bouncing Checks Law?

A
  1. ) Making or drawing and issuing any check to apply on account FOR VALUE, KNOWING AT THE TIME OF ISSUE THAT HE DOES NOT HAVE SUFFICIENT FUNDS WITH DRAWEE FOR PAYMENT, which is subsequently dishonored by drawee bank.
  2. ) Having sufficient funds in or credit with the drawee bank shall fail to keep sufficient funds or maintain a credit to cover the full amount of the check if presented for payment within a period of NINETY (90) DAYS from the date appearing thereon for which reason it is dishonored by the bank.
125
Q

In cases of checks drawn by corporations, who will be liable in cases of violations BP 22?

A

The persons who actually signed the check.

126
Q

What is the penalty for violation of BP 22?

A
  • Imprisonment of 30 days to 1 year OR
  • Fine of not less than the amount on check but not more than double the amount on check, which shall not exceed PHP 200,000 OR
  • both, at court’s discretion
127
Q

What is the prescriptive period for BP 22?

A

4 years from the commission of the offense or from the discovery thereof.

128
Q

Differentiate Estafa and violation of BP 22.

A

Estafa involves DECEIT AND DAMAGE in POSTDATING/ISSUING CHECK IN PAYMENT OF OBLIGATION.

Violation of BP 22 does not involve deceit and damage, what is punished is the act of issuance of checks without sufficient funds because it damages the banking system, trade, commerce, and public order.

129
Q

How is a negotiable instrument discharged?

A
  1. ) By payment by or on behalf of principal debtor
  2. ) By payment in due course by party accommodated
  3. ) By intentional cancellation of the instrument by the holder
  4. ) Other acts which discharges a simple contract
130
Q

M issues a promissory note payable to order of P. P indorses the note to A, A to B, B to C, and C to H. H renounces his right against A. What is the effect of the renunciation as regards the liability of P, B and C?

A

B and C, the parties SUBSEQUENT to A, are also discharged from liability. P is not discharged.

131
Q

What are the effects when payment is made by a party secondarily liable?

A

1.) Instrument is NOT DISCHARGED
2.) Party paying is remitted to his former rights against prior parties
3.) He may strike out his own and subsequent indorsements.
4.) He may renegotiate the instrument except when
a.) Where it is payable to the order of a 3rd person
and has been paid by the drawer
b.) Where it was made or accepted for
accommodation and has been paid by the party
accommodated.

132
Q

What are the effects of material alteration?

A

Holder is NOT HIDC - the instrument is avoided except as against:

a. ) The party who made/authorized the alteration
b. ) subsequent indorsers

HIDC - the instrument is not avoided.

133
Q

M makes a note payable to the order of P for PHP 10,000. P alters the amount to PHP 40,000 then indorses it to A, A to B, B to C, and C to H. Against whom may H enforce payment if H is a

  1. ) Not HIDC
  2. ) HIDC
A
  1. ) Not HIDC - H can enforce payment against P,A,B,C for 40,000. H cannot enforce payment against M on BOTH THE ALTERED AND ORIGINAL TENOR of the instrument since it is avoided as against M.
  2. ) HIDC - H can enforce payment against P,A,B,C for 40,000, and PHP 10,000 against M.
134
Q

What is spoliation?

A

Spoliation is an alteration made by a stranger to the instrument.

135
Q

What is the effect of an immaterial alteration on an instrument?

A

It does not destroy the negotiability of an instrument.

136
Q

What is acceptance?

A

Acceptance is the signification by the drawee of his assent to the order of the drawer.

137
Q

What are the kinds of acceptance?

A
  1. ) Actual
  2. ) Constructive
  3. ) General
  4. ) Qualified
138
Q

What is an actual acceptance? What are its requisites?

A

Actual acceptance must BE IN WRITING and:

  • it must be signed by the drawee
  • must not express that payment will be in other forms other than money
  • There must be delivery/notification of acceptance.
139
Q

Is an oral acceptance binding upon the drawee?

A

No.

140
Q

What is constructive acceptance?

A

There is constructive acceptance when drawee

  • destroys the bill
  • REFUSES WITHIN 24 HOURS after deliver to return the bill accepted
141
Q

What is general acceptance?

A

General acceptance is an acceptance to pay at a particular place.

142
Q

1 - “Payable at PNB Jacinto”
1 - “Payable at PNB Jacinto ONLY”

What kind of acceptances are these?

A

1 - General acceptance

2 - Qualified acceptance

143
Q

What is qualified acceptance?

A

Qualified acceptance varies the effect of the bill drawn

  • Conditional
  • Partial
  • Local
  • Qualified as to time
144
Q

What are the rights of the holder as to qualified acceptances?

A

1.) The holder may refuse to take a qualified acceptance. If he does not obtain an unqualified acceptance, he may treat the instrument as dishonored by nonacceptance.

145
Q

What is presentment for acceptance?

A

It is the exhibition of a bill of exchange to the drawee for his acceptance.

146
Q

When is presentment for acceptance required?

A

Presentment for acceptance is required in the following cases

  1. ) Where the bill is PAYABLE AFTER SIGHT or when PRESENTMENT IS NECESSARY TO FIX MATURITY OF THE INSTRUMENT
  2. ) Where the bill EXPRESSLY STIPULATES THAT IT SHALL BE PRESENTED FOR ACCEPTANCE
  3. ) Where the bill is drawn PAYABLE ELSEWHERE THAT AT THE RESIDENCE OR PLACE OF BUSINESS OF THE DRAWEE
147
Q

What is Protest?

A

Protest is a formal written statement made by a notary public at the request of a holder of bill of exchange stating that he has demanded acceptance or payment of the bill and that it has been refused by the drawee or acceptor for dishonor, whereupon the NOTARY PUBLIC PROTESTS AGAINST ALL PARTIES TO SUCH INSTRUMENT AND DECLARES THAT THEY WILL BE HELD RESPONSIBLE FOR ALL LOSS/DAMAGE ARISING FROM THE DISHONOR OF THE BILL.

148
Q

When is Protest required?

A

It is required only for FOREIGN BILLS, or when A BILL IS ACCEPTED FOR HONOR OR IT IS DISHONORED BY THE ACCEPTOR FOR HONOR.

149
Q

What is an Acceptance for Honor?

A

Acceptance for honor is an acceptance made by a person WHO IS NOT A PARTY TO THE BILL after the bill has been protested for non-acceptance.

150
Q

How is an acceptance for honor made?

A

1.) It must be in writing
2.) It must indicate that it is an acceptance for honor
3.) It must be signed by the acceptor for honor.
“Accepted for the honor of X sgd Y”

151
Q

What does a check with two diagonal line on its upper left portion mean?

A

Striking two parallel lines on the top left corner of the cheque is called Crossing of Cheques.
This symbol simply means that cheques can only be deposited directly into a bank account and can’t be immediately encashed over the counter in any branch of a bank.

152
Q

What law governs negotiable instruments?

A

Act 2031 or the Negotiable Instruments Law, enacted on Feb 3, 1911, published on Mar 4, 1911 and took effect on June 2, 1911.

153
Q

What are the functions of a negotiable instrument?

A
  1. It serves as a substitute for money
  2. Increases purchasing medium in circulation
  3. Intended like money to have a definite value to be taken at sight without the need of investigating into outside facts.
  4. When genuine, it ought to serve as the equivalent of money
154
Q

T or F
The promise or order to pay should be unconditional for it to be negotiable. Even if the condition happens, it does not cure the defect of non-negotiability.

A

True.

155
Q

“Pay to X the sum of 5,000” is negotiable.

A

No, because to be negotiable, it must be payable to order or bearer.

156
Q

Pay to X or order the sum of 10,000 with installments of 1,000 on January 31, 2021 and thereafter every month. Is the instrument negotiable?

A

Yes, since the installment is stated and fixed and determinable.

157
Q

Pay to X or order the sum of 10,000 with installments of 1%. Is the instrument negotiable?

A

No, since the installment is not stated and not fixed and determinable.

158
Q

Give the order of priority where the place where the negotiable instrument is to be paid is not specified.

A

If such a place of payment is not specified, it does not render the instrument non-negotiable.

  1. Address of the person to make payment if stated in the instrument
  2. Payer’s usual place of business or residence
  3. Wherever payer may be found
159
Q

M makes a note payable to the order of P. He delivers the note to P with the instruction that P should keep the same until M has obtained the proceeds of his loan from the bank. P, however, disregards the instruction of M and indorsed the note to A, A to B, B to C, and C to H. A, B and C have no knowledge of the defective title. What are the rights of H if he is a:

  1. HIDC
  2. Not HIDC
A
  1. If H is a HIDC, he can enforce payment against any prior parties because a valid delivery by all parties prior to him including M is conclusively presumed.
  2. If H is not a HIDC, he cannot enforce payment against M only. For M, the non-fulfillment of the condition of the loan approval is a valid defense against H. H can go after P, A, B and C.
160
Q

M makes a note payable to the order of P. He delivers the note to P with the instruction that P should keep the same for safekeeping. P, however, disregards the instruction of M and indorsed the note to A, A to B, B to C, and C to H. A, B and C have no knowledge of the defective title. What are the rights of H if he is a:

  1. HIDC
  2. Not HIDC
A
  1. If H is a HIDC, he can enforce payment against any prior parties because a valid delivery by all parties prior to him including M is conclusively presumed.
  2. If H is not a HIDC, he cannot enforce payment against M only. For M, the delivery was for safekeeping, which is a valid defense against H. H can go after P, A, B and C.
161
Q

It is an indorsement where the indorser waives the benefit of any law intended for his protection is known as?

A

Facultative indorsement. “notice of dishonor waived”

162
Q

The acceptor, by accepting the instrument, admits the following except:

a. existence of payee
b. capacity of payee to indorse
c. genuineness of the drawer’s signature
d. right of the holder to enforce payment of the instrument

A

d. right of the holder to enforce payment of the instrument

163
Q

The maker, by making the instrument, has the following liabilities except:

a. engagement to pay the instrument according to its tenor
b. admission of existence of payee
c. admission of capacity of payee to indorse the instrument
d. admission of the right of the holder to enforce payment of the instrument

A

d. admission of the right of the holder to enforce payment of the instrument

164
Q

A check must be in writing and signed by the drawer for it to be negotiable. In addition, a check must have the following requisite except:

a. contain an unconditional order to pay a sum certain in money
b. be payable at a fixed or determinable future time
c. be payable to order or bearer
d. bank drawee must be named therein with reasonable certainty.

A

b. be payable at a fixed or determinable future time

165
Q

When is an instrument payable to order?

A

It is payable to order when it is drawn payable to the order of a specified person or to him or his order.

If it is payable to a specified person, the instrument is not payable to order and is rendered non-negotiable

166
Q

T or F
The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such a person is called a referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit.

A

True. Sec. 131 - Referee in case of need.

167
Q

M, maker, P, payee of a note payable to the order of P. The back of the note contains an indorsement of P to A, A to B, B to C, C to F, and D to H, a HIDC. Assume the following independent facts:
I. M is insolvent
II. P is a minor
III. A’s signature was forged

If C were a QUALIFIED INDORSER, which of the foregoing independent facts will not affect his liability (he will still be liable) although he was not aware of them?

a. I and II
b. II and III
c. I and III
d. all of the them

A

b. II and III

Qualified indorser IS NOT LIABLE IF THE HOLDER CANNOT COLLECT BECAUSE OF:
A. INSOLVENCY OF PRIOR PARTIES
B. INSTRUMENT IS INVALID
C. NO VALUABLE CONSIDERATION WAS GIVEN

If P is a minor, he will still be liable to H

If A’s signature was forged, C can still be liable to H.

168
Q

M, maker, P, payee of a note payable to the order of P. The back of the note contains an indorsement of P to A, A to B, B to C, C to F, and D to H, a HIDC. Assume the following independent facts:
I. M is insolvent
II. P is a minor
III. A’s signature was forged

If C were a GENERAL INDORSER, which of the foregoing independent facts will not affect his liability (he will still be liable) although he was not aware of them?

a. I and II
b. II and III
c. I and III
d. all of the them

A

d. all of the them

169
Q

When does a negotiable instrument cease to become negotiable?

A
  1. When it is restrictively indorsed (the first type only - pay to X only)
  2. When it is discharged by payment or otherwise.
170
Q

T or F
Two persons indorse a note as follows:
“Pay to X” sgd Y sgd Z

Y and Z are liable solidarily on the instrument.

A

True.

171
Q

T or F

A bearer instrument is always a bearer instrument.

A

True.

172
Q

T or F

An order instrument is always an order instrument.

A

False, it can become a bearer instrument.

173
Q

What is the Shelter Rule?

A

GR: A holder who derives his title through a holder in due course has all the rights of such former holder in respect of all parties prior to the latter

EXCEPTION: If he himself is a party to any fraud or illegality affecting the instrument

Example: M issued a promissory note to P and authorized the latter to fill up 1000, but P inserted 5000. P indorsed to A, A to B, B to C. A B C had no knowledge that the instrument was filled up in excess of the authority given. C issued it to X who had knowledge. Here, X can enforce payment on M since X derived the instrument from a HIDC, even though he knew of the defect. He derived title from a HIDC and has all the rights of the same.

174
Q

I promise to pay X or order 5000 on or before Dec 1

The instrument is negotiable.

A

False, no year indicated

175
Q

T or F

An instrument payable to the ORDER OF BEARER is an order instrument.

A

False, bearer instrument.

176
Q

T or F

“I promise to pay to the order of bearer 1000” is an instrument payable to order.

A

False. Supreme Court Ruling states that it is a bearer instrument

177
Q

A bearer instrument may be negotiated by:

a. mere delivery
b. indorsement plus delivery
c. A and B

A

C. Generally A, but can also be B.

178
Q

What is the effect if an instrument originally payable to bearer is negotiated by indorsement plus delivery?

A

It remains to be a bearer instrument that may be negotiated by mere delivery.

179
Q

In case an instrument payable to order is merely delivered without indorsement, the transferee acquires the right to compel transferor to indorse the instrument to the former. T or F

A

True

180
Q

T or F

When the instrument has been paid in part, it may be indorsed as to the residue.

A

True.

181
Q

T or F
An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally is a valid negotiation of the instrument.

A

False, partial negotiation is not valid, except when it has been paid in part and what is negotiated is the residue.

182
Q

T or F

Every negotiation is deemed prima facie to have been effected after the instrument was overdue.

A

False. Every negotiation is deemed prima facie to have been effected BEFORE the instrument was overdue.

183
Q

T or F

Every negotiation is deemed prima facie to have been effected at the place where the instrument is accepted.

A

False. Every negotiation is deemed prima facie to have been effected at the place where the instrument is DATED.

184
Q

Where an instrument is payable to the order of 2 or more payees or indorsees who are not partners, who must indorse the instrument to effectuate valid negotiation?

A

All 2 or more payees unless one indorsing has the authority to indorse for the others.

185
Q

Pay to X 5000 sgd indorser Y

Is the instrument valid?

A

No, the drawee must be named. It is an incomplete instrument

186
Q

M issued a promissory note to bearer to A. A negotiated it by mere delivery to B. B negotiated it to C by indorsement plus delivery. C negotiated it to D by indorsement plus delivery. D negotiated it to E by mere delivery. To whom shall B be liable?

A

To C and D only.

187
Q

What kind of evidence is required for proving violation of BP 22?

A
  1. To prove violation of BP 22 for conviction - Proof beyond reasonable doubt
  2. To prove civil damages - preponderance of evidence
  3. To sue or file a case of BP 22 - probable cause or prima facie evidence
188
Q

What act may be presented by the maker or drawer of a check to destroy prima facie presumption of knowledge of insufficiency of funds or credit?

A

The maker or drawer pays the holder thereof the amount thereon or makes arrangements for payment in full by the drawee of such check WITHIN 5 BANKING DAYS AFTER RECEIVING NOTICE THAT SUCH CHECK HAS NOT BEEN PAID BY THE DRAWEE.