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NEGOTIABLE INSTRUMENTS LAW

Answer the following questions thoroughly: Mere yes or no answer will


not suffice. Answers must be supported by explanations.

1. M makes a note payable to the order of P. P indorses the note to A. The


note is stolen from A by F who negotiates the same to B by forging As
signature. B, thereafter, indorses the note to C, C to D, and D to H,
holder. Can H collect the note from B? Why? To whom can H collect?
Why?

- Yes, H can collect the note from B because . H can collect


from F because F is liable for forging the signature of A. H
can also collect from B, C, and D because by accepting the
note, they are liable on their warranty that the instrument
is genuine.

2. P makes a promissory note payable to his own order placing the name of
M as maker and forging the signature of M. Thereafter, P indorses the
note to A, A to B, B to C, and C to H, holder. Can H collect from M?
Why? To whom can H collect? Why?

- No, because the forged signature of M is wholly inoperative


as to him and forgery is a real defense. H can collect from P
for forging the signature of M. H can also collect from A, B,
and C because they are liable on their warranty that the
instrument is genuine.

3. P makes a promissory note payable to bearer by placing the name of M


as maker and forging the signature of M. Thereafter, P delivers the note
to A, A to B, B to C, and C to H, holder. Can H collect from M? Why? To
whom can H collect? Why?

- No, because the forged signature of M is wholly inoperative


as to him. H can collect from P for forging the signature of
M. H can also collect from C on his warranty that the
instrument is genuine.

4. P wants to buy construction materials from H on credit but he has no


property to give as security. He thus asks M, a rich businessman friend
who is also known to H, to make and sign a promissory note payable to
his (Ps) order but without M receiving any consideration for the
instrument. P thereafter indorses the note to H who sells to him the
materials on credit. Can H collect from M? Why?
- Yes, H can collect from M because

5. M makes a note payable to P or bearer. P indorses the note to A


specially. How may A further negotiate the instrument?
- A can further negotiate the instrument by mere delivery.
6. 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. May A further
negotiate the instrument? Why? Can A enforce payment against B, C, D
and E? Why?
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7. P induced M by fraud to issue a promissory note payable to the order of
P but without P giving valuable consideration to M. Thereafter, P
indorsed the note to H who had no notice of Ps defective title, hence a
holder in due course. Thereafter, H negotiated the note to X, who knew
of Ps defective title but had no participation in the inducement made by
P. May X collect from M? Why?
- Yes, because X, who is a holder not in due course who
derives his title from H, a holder in due course and who
isnt a party himself to any fraud or illegality affecting
the instrument, has all the rights of such former holder in
respect of parties prior to the latter.
8. M issued a promissory note payable to the order of P. P thereafter
indorsed the note to A for a ring which A knew all along was embellished
with an ordinary glass and not emerald as he claimed it to be. Because
he acquired the note by means of fraud, As title is therefore defective.
Subsequently, A indorsed the note to B, B to C, and C to H, holder. Is H
a holder in due course? Why?
- Yes, because
9. M issued a promissory note payable to the order of P for PHP 10,000 for
merchandise he purchased from the latter. P, however, was able to
deliver merchandise worth PHP 7,000 only. Later, P indorsed the note to
A, A to B, B to C, and C to H. At maturity, how much may H collect from
M?
- H may collect Php 10,000 if he is a holder in due course.
But if H is not a holder in due course, he may collect only
Php 7,000 from M who can raise the defense of partial
failure of consideration amounting to Php 3,000.
10. Maria issued a promissory note payable to the order of Peter for P
10,000 for a ring which Peter said was made of pure gold but which was
only gold plated. Subsequently, Peter indorsed the note to Alvin, Alvin to
Bobby, Bobby to Cat, and Cat to Howie. On due date, how much, if any,
may Howie collect from Maria?
11. Maria executed a promissory note payable to the order of Peter
which was blank as to the amount and delivered it to Peter. Maria
authorized Peter to place the amount P 10,000 on the promissory note.
However, Peter wrote the amount of P 12,000 on the blank. Thereafter,
he endorsed the note to Arnold, then Arnold to Bum, Bum to Carmen,
and Carmen to Helen, a holder. How much can Helen collect from
Maria? Why?

12. I promise to pay Peter Tan or order the sum of P 100,000 on or


before December 25, 2014, which is secured by my pledge of my
certificate of stock in Meralco. I hereby authorize Peter Tan to sell the
certificate of stock if this note is not paid at maturity and to apply the
proceeds of the sale to the amount due under this note. Is the
instrument a negotiable instrument? Why?

13. P induced M by fraud to issue a promissory note payable to the


order of P but without P giving valuable consideration to M. Thereafter, P
indorsed the note to H who had no notice of Ps defective title, hence a
holder in due course. Thereafter, H negotiated the note to X, who knew
of Ps defective title but had no participation in the inducement made by
P. May X collect from M?

14. P wants to buy construction materials from H on credit but he has


no property to give as security. He thus asks M, a rich businessman
friend who is also known to H, to make and sign a promissory note
payable to his (Ps) order but without M receiving any consideration for
the instrument. P thereafter indorses the note to H who sells to him the
materials on credit. May H collect from M? Why?

15. Hypothetical Case M makes a note payable to the order of P in


the amount of PHP 10,000. P indorses the note to A as follows Pay to A
if he passes the 2013 civil engineering licensure examination.

a. M must wait for the condition to be fulfilled before he can pay A. Is


the statement true or false? Explain your answer.

- False, because M may disregard the condition and pay A


even though A has not yet passed the civil engineering
licensure examination.

b. M cannot be compelled to pay even if the condition is fulfilled because


the conditional indorsement renders the instrument non-negotiable.
Is the statement true or false? Explain your answer.
- False, because a conditional indorsement does not render
the instrument non-negotiable.

16. Hypothetical Case M, maker, P payee, of a note payable to the


order of P. The back of the note contains the indorsement of P to A, A to
B, B to C, C to D, and D to H.

a. If M is a minor, can H compel M to pay the note? Explain your


answer.
- H cannot compel M because Ms minority is a real defense.
b. If B, C and D are minors, can H compel M to pay the note? Explain
your answer.
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c. What type of holder is H? Explain your answer. .
- H is a holder in due course because every holder is deemed
prima facie to be a holder in due course.

17. Hypothetical Case R signs a check amounting to PHP 50,000


but which is blank as to the name of the payee. He keeps the check in
his drawer but S, his secretary steals it, places her name as payee on the
blank, and negotiates it to A, A to B, B to C, and C to H, holder. A, B
and C have no knowledge of the theft of the check and its unauthorized
completion by S.

a. H may enforce payment of the check against R if H is a holder in due


course. Is the statement true or false? Explain your answer.
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b. H may enforce payment of the check against S, whether H is a holder
in due course or not. Is the statement true or false? Explain your
answer.
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