NEGOTIABLE

INSTRUMENTS LAW
GROUP
ASSGINMENT

Submitted by:

BONTAGEN, Jessa

CLEMENS, Regienald

DE LA ROSA, Chelsea

MASAOY, Kwincel

POCSOL, Brigitte

TABANDA, Mikael Lorenzo

LLB 2B
Contents
PROBLEM 1: ................................................................................................................................................ 4
1) Can Inday require Maria to pay P100,000.00? .................................................................... 4
2) Suppose Inday is not a HIDC, is Maria liable to pay? ........................................................ 4
3-a) Suppose only 6 boxes of selected premium used clothes equivalent to P30K were
delivered by Perla to Maria, can Inday who is not a HIDC require Maria to pay
P100,000.00? .......................................................................................................................................... 5
3-b) How much could Maria be made liable in 3-a, if any? ................................................... 5
PROBLEM 2: ON PARTIES AND CONSIDERATION ............................................................................... 5
a. Where the post-dated checks issued for value? Explain. ................................................ 5
b. Is Indio a holder for value? Why? ........................................................................................... 6
c. Based on the checks issued by B, when may B be held liable thereon? (sources of
liability) .................................................................................................................................................... 6
PROBLEM 3: ABSENCE OR FAILURE OF CONSIDERATION AND DEFENSE PRO-TANTO............. 6
3-A Malou makes a promissory note amounting to P10,000 in favor of Pete in
payment for an invention which does not exist. Pete indorses the note to Amanda, a
holder in due course. May the PARTIES recover on the promissory note? Explain. ........ 6
3-B Same facts as in 3-A, but assume that there is really an invention owned by
Pete which was sold, but Pete failed to deliver it to Malou because the next day, Pete
sold it again and simultaneously delivered it to Xander who in good faith took the
invention. May the PARTIES recover on the promissory note? Explain. .............................. 7
3-C Same arrangement as in 3-A only that it was in payment for a truckload of
vegetables and only 3/5 was delivered. May the PARTIES recover on the promissory
note? Explain. ...................................................................................................................................... 7
PROBLEM 4 LIEN ..................................................................................................................................... 8
a. Is Alfred a holder for value. If yes, to what extent? If no, why?.................................... 8
b. May Alfred enforce the check although Pauls debt is not yet due? If yes, upon
whom and for how much? If no, then when can he enforce it and against whom? ... 8
c. Supposing that the amount of the check is only P5,000, to what extent is Alfreds
lien thereon? ......................................................................................................................................... 8
d. Supposing that the amount of the check is P15,000, to what extent is Alfreds lien
thereon? ................................................................................................................................................. 8
e. Supposing that the signature of Mandy was forged, how may Alfred recover on
the check? ............................................................................................................................................ 8
PROBLEM 5 TRUE or FALSE .................................................................................................................... 9
 1. A holder of a negotiable instrument (NI) is presumed to be a holder for value until
the contrary is shown by any party who claims otherwise. ..................................................... 9
2. One who has taken a NI as collateral security for a debt has lien on the
instrument. ............................................................................................................................................. 9
3. A drawee who accepts the bill cannot allege want of consideration against the
drawer..................................................................................................................................................... 9
5. There is no negotiation if the transfer does not make the transferee the holder of
the instrument. ...................................................................................................................................... 9
6. BONUS: Love and affection, gratitude and moral obligation based on honor and
dignity are not considered valuable consideration. Accordingly, want of
consideration may be raised for any of them as a defense against a holder not in due
course. .................................................................................................................................................... 9
7. H is a holder for value not only with respect to B to whom he gave a valuable
consideration but also with respect to M, P and A. .................................................................. 9
8. For M, P is not a holder for value. ............................................................................................ 9
9. For C, H is not a holder for value. ............................................................................................ 9
10. As regards M, P, A, and B, H is a holder for value because they (M, P, A, B)
became parties to the note prior to the time that value has been given to B. ................ 9
PROBLEM 6 on TRANSFER AND NEGOTIATION of NEGOTIABLE INSTRUMENTS ...................... 10
Topics Covered: Issuance and Delivery of NI, Negotiation Defined, Incomplete
Negotiation of Order Instruments ...................................................................................................... 10
PART A MULTIPLE CHOICE .............................................................................................................. 10
PART B MODIFIED MATCHING TYPE ............................................................................................. 10
PROBLEM 1:
Maria wrote of a check containing the amount of P100,000.00 which is made payable to the
order of Perla. Maria issued this check to Perla with the understanding that Perla will deliver
20 boxes of selected premium used clothes to Maria. Perla indorsed the check to Inday who
is a holder in due course (HIDC). However, the drawee bank PNB did not pay the check
upon presentment by Inday.

QUESTIONS: (assume that in Q1 and Q2 no boxes of clothes were delivered)

1) Can Inday require Maria to pay P100,000.00?

Yes, Inday can require Maria to pay P100,000.00 on the ground of

presumption of consideration.

Sec. 24 of the Negotiable Instruments law provides that, every negotiable

instrument is deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears thereon to have
become a party thereto for value.

Moreover, the Supreme Court ruled in Cayanan vs. North Star

International Travel, Inc. that, upon issuance of a negotiable check, in the
absence of evidence to the contrary, it is presumed that the same was issued for
valuable consideration which may consist either in some right, interest, profit or
benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or
undertaken by the other side. In other words, convincing evidence must be
presented to overthrow the presumption and prove the checks were in fact
issued without valuable consideration.

Furthermore, a holder in due course can assert all his rights afforded to
him under Sec. 57 of the same law.

In the instant case, since Inday is a holder in due course, she may require
Maria to pay P100,000.00 unless Maria can overcome the presumption of
consideration by presenting clear and convincing evidence.

2) Suppose Inday is not a HIDC, is Maria liable to pay?

No. Maria is not liable to pay Inday.

Absence of consideration, pursuant to Sec. 28 of the Negotiable

Instruments Law is a personal defense such that it canbe asserted only against a
transferee who is not a holder in due course.

In the instant case, there was absence of consideration as it turns out that no
boxes of used clothes were delivered. When Perla indorsed the check to Inday
who is not a holder in due course, Inday cannot collect from Maria because the
latter can invoke the defense of absence of consideration.
3-a) Suppose only 6 boxes of selected premium used clothes equivalent to P30K were
delivered by Perla to Maria, can Inday who is not a HIDC require Maria to pay P100,000.00?

No. Inday cannot require Maria to pay the full amount of P100,000.00.

Under Sec. 28 of the Negotiable Instruments Law, a partial consideration is a

defense pro tanto, whether the failure is an ascertained and liquidated amount
or otherwise. This is only a defense as against an immediate party or as against a
remote party who is not a holder in due course.

In this case, only 6 boxes amounting to P30,000.00 were delivered by Perla

to Maria, a clear case of partial consideration. As such, Inday cannot require
Maria to pay the full amount of P100,000.00.

3-b) How much could Maria be made liable in 3-a, if any?

Maria is liable to pay Inday P30,000.00.

Partial failure of consideration may be asserted as a defense pro tanto, as

against anyone not a holder in due course.

In this case, the check contains P100,000.00 as payment of the premium

used clothes, but what was delivered was only worth P30,000.00. As such, Marias
liability to Inday is only limited to P30,000.00.

PROBLEM 2: ON PARTIES AND CONSIDERATION

To start-up his business, Borromeo (B) borrowed from Manny (M) P1million pesos payable in
stated installments with 12% interest. The contract of loan contained an acceleration clause.
As payment, B issued 10 post-dated BPI checks in favor M. M, the brave and creative
businessman that he is, had the checks discounted with Indio. M, upon conversion of the
checks to cash, used the proceeds to lend it to other borrowers also for an interest.

a. Where the post-dated checks issued for value? Explain.

Yes, the post-dated checks were issued for value.

Under the Negotiable Instruments Law, particularly section 25 thereof,

value has been defined as any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is
deemed such whether the instrument is payable on demand or at a future
time.

Moreover, consideration has been defined as the inducementcause or

impelling influence which induces a contracting party to enter into the contract

In this case, the checks were issued by Borromeo, the drawer, to Manny,
the payee, in order to secure the loan amounting to 1 Million Pesos. Such loan
obtained by the former may be considered as a pre-existing debt or antecedent
one, as the case may be, which constitutes value pursuant to the above cited
provision.
b. Is Indio a holder for value? Why?

Yes. Section 26 of the Negotiable Instruments Law provides that, What

constitutes holder for value. - Where value has at any time been given for
the instrument, the holder is deemed a holder for value in respect to all parties
who become such prior to that time.

A holder for value is the one who gives valuable consideration for an
instrument issued or negotiated to him. In this case, M transferred the postdated
checks to Indio in exchange for cash. Under the negotiable instruments law, if the
holder gave cash in exchange of a instrument such cash is considered as the
valuable consideration. Therefore Indio is a holder for value.

c. Based on the checks issued by B, when may B be held liable thereon? (sources of
liability)

Under section 60 of the Negotiable Instruments Law, drawer is considered

to be secondarily liable in the following instances:.
He engages merely that the bill will be accepted or paid or both,
according to its tenor, and that he will pay only when
1. It is dishonored
2. And the necessary proceedings of dishonor are duly taken (Sec. 61 NIL)

The liability of the drawer is subject to the two conditions and attaches
only upon their fulfillment. The drawer, by merely drawing the bill and signing his
name in the bill as such drawer, without more, impliedly engages to be so
secondarily liable, as if he has incorporated the provisions of Section 61 in the bill.
If the bill is not paid, accordingly, if a bill is not paid, the drawer becomes
liable for the payment of its value to the holder provided that notice of dishonor is
given.

However, a drawer may be held primarily liable when It was held that
until the bill has been accepted, the drawer is the principal debtor and
after acceptance, the drawee or acceptor is the principal debtor and the
drawer becomes secondarily liable

PROBLEM 3: ABSENCE OR FAILURE OF CONSIDERATION AND

DEFENSE PRO-TANTO

3-A Malou makes a promissory note amounting to P10,000 in favor of Pete in payment for an
invention which does not exist. Pete indorses the note to Amanda, a holder in due course.
May the PARTIES recover on the promissory note? Explain.

As between Malou and Pete, there can be no recovery on the promissory

note. But, as to Amanda, there can be a recovery as she is a holder in due
course.

Absence of consideration means a total lack of any valid consideration of

the contract. Sec. 28 of the Negotiable Instruments Law postulates that absence
 of consideration is a matter of defense as against any person who is not a holder
in due course.

In this case, Pete cannot recover from the promissory note as there is
absence of consideration, to wit: payment for an invention which does not exist.
But, since Pete indorsed the note to Amanda, who is a holder in due course,
Amanda can recover from Malou because the absence of consideration is only
a personal defense not available against a holder in due course.

3-B Same facts as in 3-A, but assume that there is really an invention owned by Pete which
was sold, but Pete failed to deliver it to Malou because the next day, Pete sold it again and
simultaneously delivered it to Xander who in good faith took the invention. May the PARTIES
recover on the promissory note? Explain.

Pete cannot recover on the promissory note from Malou because of

failure of consideration, but Xander can recover since he is in good faith.

Failure of consideration refers to the failure or refusal of one of the parties

to do, perform or comply with the consideration agreed upon. The effect of
which, as provided for by Sec. 28 of the Negotiable Instrument Law, is a matter of
defense against any person not a holder in due course.

In this case, since there was really an invention owned by Pete which was
sold, but he failed to deliver it to Malou because he sold it again and
simultaneously delivered it to Xander, there exist a failure of consideration. By
such failure, Pete cannot recover from Malou. As to Xander, who in good faith
took the invention, he can recover on the promissory note as the defense of
failure of consideration can no longer be availed of.

3-C Same arrangement as in 3-A only that it was in payment for a truckload of vegetables
and only 3/5 was delivered. May the PARTIES recover on the promissory note? Explain.

If only 3/5 of the truckload of the vegetables was delivered, then Pete
can only recover 3/5 of the promissory note from Malou as there is partial failure
of consideration.

In case of partial failure of consideration, Sec. 28 of the Negotiable

Instruments Law provides that such is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise. By pro tanto, we mean
partial payment.

Here, since only 3/5 of the truckload of vegetables was delivered, Pete
can recover only 3/5 of the promissory note, which is P6,000.00. As such, Malou is
not liable to the extent of 2/5 of the undelivered portion.
PROBLEM 4 LIEN
Mandy drew a check for PI0,000.00 to the order of Paul who pledges it to Alfred to secure
the payment of Paul's debt of P7,000.00. The check is payable on demand. Pauls debt to
Alfred is payable a year later. The check is indorsed and delivered by Paul to Alfred.

a. Is Alfred a holder for value. If yes, to what extent? If no, why?

Yes. Under Sec. 26 of the Negotiable Instruments Law it provides where

value has at any time been given for the instrument, the holder is deemed a
holder for value in respect to all parties who become such prior to that time.
Since the check was pledged to Alfred he is then a holder for value to the extent
of Paul's debt of P7,000.00.

b. May Alfred enforce the check although Pauls debt is not yet due? If yes, upon whom
and for how much? If no, then when can he enforce it and against whom?

Yes, Alfred may enforce the check even if the debt of P7,000.00 is not yet
due, he may recover the full amount of P10,000.00, holding the surplus for Paul,
the pledgor.

c. Supposing that the amount of the check is only P5,000, to what extent is Alfreds lien
thereon?

Supposing that the amount of the check is only P5,000.00, then Alfred is a
holder for value for the full amount of P5,000.00 and is entitled to recover to that
extent.

d. Supposing that the amount of the check is P15,000, to what extent is Alfreds lien
thereon?

Alfred is a holder for value to the extent of P7,000 which is also the extent
of his lien. On the maturity of the check, even if the debt of P7,000 is not yet due,
Alfred may recover the full amount of P15,000, holding the surplus for Paul, the
pledgor.

If the amount of the instrument is more than the debt secured by such
instrument, the pledgee is a holder for value to the extent of his lien. He can
collect the full value of the instrument, and apply the same to the payment of the
debt but he must deliver the surplus to the pledgor.

e. Supposing that the signature of Mandy was forged, how may Alfred recover on the
check?

Alfred may go against Paul, an indorser who warranted that the

instrument is genuine and was valid and subsisting at the time of the indorsement.

Mandy is not liable for the check. Her signature being forged makes it
wholly inoperative. As against Mandy, Alfred acquired no right to enforce
payment of the check. Since forgery is a real defense.
PROBLEM 5 TRUE or FALSE
1. A holder of a negotiable instrument (NI) is presumed to be a holder for value until the
contrary is shown by any party who claims otherwise.
Answer: TRUE

2. One who has taken a NI as collateral security for a debt has lien on the instrument.
Answer: TRUE

3. A drawee who accepts the bill cannot allege want of consideration against the drawer.
Answer: TRUE

4. If NI is payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated

by the indorsement of the holder and completed by delivery.
Answer: TRUE

5. There is no negotiation if the transfer does not make the transferee the holder of the
instrument.
Answer: TRUE

6. BONUS: Love and affection, gratitude and moral obligation based on honor and dignity
are not considered valuable consideration. Accordingly, want of consideration may be
raised for any of them as a defense against a holder not in due course.
Answer: TRUE

Comment: Upon reflection, I may have said that this was the majority view. I SHOULD HAVE
SAID that this was the MINORITY VIEW and which is not accepted by many. Please be
corrected!
For 7 to 8: Relate the statements to the presented scenario: M issues a PN payable to the
order of P for P5k without valuable consideration. P indorses that note to A, A to B, and B to
H who gives B P5k for the note indorsed to him.

7. H is a holder for value not only with respect to B to whom he gave a valuable
consideration but also with respect to M, P and A.
Answer:

8. For M, P is not a holder for value.

Answer:

For 9 to 10: Relate the statements to the presented scenario: M issues a PN payable to the
order of P for P5k. P indorses that note to A, A to B, and B to C who is known to have given
value to B for the note indorsed to him. Later, C indorses the note to H as a gift.

9. For C, H is not a holder for value.

Answer:

10. As regards M, P, A, and B, H is a holder for value because they (M, P, A, B) became
parties to the note prior to the time that value has been given to B.
Answer:
PROBLEM 6 on TRANSFER AND NEGOTIATION of NEGOTIABLE
INSTRUMENTS
Topics Covered: Issuance and Delivery of NI, Negotiation Defined,
Incomplete Negotiation of Order Instruments
PART A MULTIPLE CHOICE
CHOICES for 1-3 are the following: (Write the CAPITAL LETTER of the BEST ANSWER.)
A. Assignment
B. Negotiation
C. Issuance
D. Indorsement
E. Delivery
1. It is the first delivery of the instrument complete in form to a person who takes it as a
holder
Answer: C

2. It is the transfer of a NI from one person to another made in such a manner as to

constitute the transferee the holder thereof.
Answer: B

3. It means the transfer of possession, actual or constructive, from one person to another.
Answer: E

4. The writing of the signature on a paper attached to the negotiable instrument

A. Allonge
B. Procuration
C. Forgery
D. Alteration
Answer: A

5. Aldo purchase an overdue negotiable promissory note signed by Bobby. Therefore, Aldo is
not a holder in due course. Can Aldo still enforce the instrument against Bobby and hold the
latter still liable for the amount stipulated in the instrument?
A. No, because the promissory note is already overdue.
B. No, because Aldo is not a holder in due course.
C. Yes, because the Negotiable Instrument Law does not provide that a holder who is not a
holder in due course may not recover on the instrument in any case.
D. Yes, because Bobby cannot raise the defense that the promissory note is overdue.
Answer: C

PART B MODIFIED MATCHING TYPE

(Write the CAPITAL LETTER of the BEST ANSWER.)
Match the following doctrines with the related cases upon which they were emphasized and
upheld by the court.

For items 1 to 6, choices are:

A. Ang Tek Lian vs. the Court of Appeals, G.R. No. L-2516, September 25, 1950
B. Sesbreno vs. Court of Appeals, 222 SCRA 466, 1993
C. State Investment House, Inc. v. Court of Appeals, 217 SCRA 32
D. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust Company, G.R.
No. 97753, August 10, 1992
E. Yang vs. CA, 409 SCRA 159 (2003)

1. Where a check is made payable to the order of cash, the word cash does not purport
to be the name of any person, and hence the instrument is payable to bearer. The
drawee bank need not obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement.
Answer: A

2. Every holder is presumed to be a HDC. Also, a holder is not obliged to show that there
was valuable consideration, since the same is presumed. He does not also have to show
that he made the aforementioned inquiry. Absence the showing of a circumstance that
should have put the holder into such an inquiry, the failure to inquire is not tantamount to
bad faith.
Answer: E
3. A drawer who issued two checks as security for jewelry to be sold by the drawer is liable
to an endorsee to whom the payee negotiated the checks even if the drawer returned the
pieces of jewelry to the payee, since the payee is presumed to be a holder in due course
and the drawer cannot invoke want of consideration between the drawer and the payee as
a defense.
Answer: C

4. If an assigned promissory note had already been extinguished because its maker is
similarly indebted to the assignor, then the defense of set-off or legal compensation
could also be invoked against the assignee of the note. The debtors consent is not
needed to effectuate assignment of credit and negotiation.
Answer: B

5. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery or by delivery alone
where the negotiable instrument is in bearer form. A negotiable instrument may,
however, instead of being negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment of a negotiable
instrument are, of course, different. A non-negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument. In this case, while the
promissory note was marked "non-negotiable," it was not at the same time stamped
"non-transferable" or "non-assignable." Hence, there is no stipulation which prohibited the
promissory notes assigning or transferring, in whole or in part.
Answer: B

6. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred

from one person to another in such a manner as to constitute the transferee the holder
thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof. In case of a bearer instrument, mere delivery would suffice.
Answer: D