NEGOTIABLE INSTRUMENTS LAW | ATTY.

CABOCHAN

(1) An indorsement may be written on a separate paper, called an allonge, and it need not (6) An instrument originally payable to bearer which was specially indorsed can still be
be attached to the negotiable instrument negotiated by mere delivery by the holder

FALSE TRUE
As provided in Sec. 31 of the NIL, an indorsement may also be made in the separate paper A bearer instrument is always an instrument to bearer. Sec. 40 of the NIL provides that where an
attached to the instrument called “allonge. instrument, payable to bearer, is indorsed specially it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders as make
(2) The indorsement must be of the entire instrument. An indorsement which transfers title through his indorsement.
only part of the amount of the instrument is not a valid indorsement.
(7) M makes a negotiable promissory note payable to the order of P. P indorsed it in blank.
FALSE “(Sgd.) P” and delivered the said note to C. C can put on top of the signature of P, “Pay to
Sec. 32 of the NIL provides that indorsement must be of the entire instrument. If the instrument C” to change the blank indorsement to a special indorsement to read as “Pay to C. (Sgd.)
is indorsed for a lesser amount, the transfer is still effective but it is merely an assignment of P”
credit. In relation to Sec. 30, an instrument is deemed negotiated when it is transferred from one
person to another as to constitute the transferee the holder thereof. An assignment is still a valid TRUE
indorsement, the same being considered as a restrictive indorsement (Sec. 36 A). Sec. 35 of the NIL provides that the holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in blank any contract consistent with
(3) A negotiable promissory note for P20,000, payable to the order of B, is indorsed as the character of the indorsement
follows: “Pay to X P15,000 and to D P5,000” is a valid indorsement
(8) An instrument originally negotiable continues to be negotiable until conditionally
TRUE indorsed
Sec. 31 of the NIL disallows negotiation to two or more indorsees severally. This happens when
the indorser indorses the instrument for the entire amount reflected therein but divides the same FALSE
to two or more persons. Thus, the situation comprehended above is not considered negotiation SEC. 47 of the NIL provides that an instrument originally negotiable continues to be negotiable
although it may be considered an assignment, which is still a valid indorsement. until it has been restrictively indorsed or discharged by payment or otherwise.
(4) A negotiable instrument originally payable to bearer may be converted into an (9) “Pay to A for collection. (Sgd). P” is an example of a restrictive indorsement.
instrument payable to order by making a special indorsement.
TRUE
FALSE Sec. 36 (b) provides that an indorsement is restrictive where it constitutes the indorse the agent
A bearer instrument is always an instrument to bearer. Sec. 40 of the NIL provides that where an of the indorser. In the case above, A is an agent of P.
instrument, payable to bearer, is indorsed specially it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders as make (10) An indorsement that does not have words of negotiability (to order or to bearer), for
title through his indorsement. example “Pay to A”, instead of “Pay to A or order” is a restrictive indorsement and
therefore renders the instrument non-negotiable.
(5) An instrument originally payable to order can be converted into an instrument payable
to bearer FALSE
Sec. 36 of the NIL enumerates the instances when an indorsement is restrictive. Non-inclusion
TRUE of the words “to order” or “to bearer” does not restrict an instrument, nor does it impair the
An instrument originally payable to order can be converted into an instrument payable to bearer negotiability of the instrument as per the requirements specified in Sec. 1 of the same code.
by indorsing it in blank (Sec. 9 E)

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(11) A qualified indorsement constitutes the indorser a mere assignor and renders the (15) A holder in due course is always a holder for value
instrument non-negotiable
TRUE
FALSE A holder in due course is one who has taken the instrument under the conditions of Sec. 52 of
An instrument, originally negotiable, continues to be negotiable until it has been restrictively the NIL and holds the instrument free from personal defences available to prior parties.
indorsed or discharged by payment or otherwise as provided in Sec. 47 of the NIL. A qualified
indorsement constitutes the indorser a mere assignor of the title to the instrument, as provided in Sec. 52 C specifies that a holder in due course is a holder that took the instrument in good faith
Sec. 38 of the NIL. and for value. Sec. 26 provides that 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
(12) An indorsement that reads as: “Pay to A, if he passes the 2022 Bar Exams. (Sgd.)P” is time.
a conditional indorsement that prohibits the further negotiation of the instrument
(16) A holder is any person in possession of a negotiable instrument
FALSE
A conditional indorsement does not impair the negotiability of a negotiable instrument. Only a FALSE
restrictive indorsement can impair the negotiability of the instrument. A holder is the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof (Sec. 191, NIL). An example of a possessor who is not a holder is a drawee who took
(13) M makes a note payable to the order of P. P indorses the note in blank, “(Sgd.) P” and the instrument upon presentment for payment.
delivers the same to A. A specially indorses the note to B. “Pay to B (Sgd. A.)” B, the
holder, can negotiate the note by delivery (17) A holder in due course holds the instrument free from any defect of title to prior
parties and may enforce payment against parties even if there is a real defence
FALSE
An original order instrument becoming payable to bearer, if the same is indorsed specially, it FALSE
can no longer be negotiated further by mere delivery. It has to be indorsed. A holder in due course holds the instrument free from any defect of title of prior parties and may
enforce payment against parties who raises personal or equitable defences.
(14) M makes a note payable to P or bearer. P indorses the note as follows: “Pay to A if he
graduates in SBU (Sgd.) P.” A delivers the note to B. A dropped out of school and was not (18) Legal and equitable defences are the same
able to graduate in SBU. B can still enforce the note against M and M is still liable to B.
FALSE
FALSE A legal or real defence may be raised against all holders even against a holder in due course. An
Sec. 39 of the NIL provides that where an indorsement is conditional, the party required to pay equitable or personal defence may be raised only against holders who are not holders in due
the instrument may disregard the condition and make payment to the indorse or hi transferee course.
whether the condition has been fulfilled or not. But any person to whom an instrument so REAL DEFENCES PERSONAL DEFENSES
indorsed is negotiated will hold the same, or the proceeds thereof, subject tot he rights of the
person indorsing conditionally. NATURE Absolute defences are those pertaining to Equitable defences are those which are
the instrument itself and are available available only against a person not a holder
Applying the provision to the situation above, B cannot enforce the note against M and M is not against all holders, whether in due course in due course or a subsequent holder who
or not stands in privity with him
liable to B because the suspensive condition set by M was not fulfilled by A. B, as a holder, only
acquires the same rights that A has. Since A does not have any right to demand payment from M STATUS OF CONTRACT Void Voidable
for the reason that he did not fulfil the condition specified, B cannot also demand payment from
M. AVAILABILITY AGAINST HDC Available even against HDC Not available against HDC

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REAL DEFENCES PERSONAL DEFENSES (21)Minority is a real defence which can be raised against a holder in due course by
parties prior to the minor.
DEFENCES PAID-WIFI-MUD-FEM Cubic-rain-wifi-micu
1. Prescription 1. Non-delivery of Complete instrument FALSE
2. Material Alteration 2. Ultra Vires acts of corporations *where
3. Illegality
 the corporation has the power to issue a Sec. 22 of the NIL provides that negotiation by a minor passes time to the instrument. The
*if declared vid for any purpose negotiable paper but the issuance was minor himself is not liable and the defence is available only to the minor himself. If the minor
4. Duress amounting to forgery not authorised for the particular purpose negotiates the instrument to other capacitated persons, the same capacitated persons or previous
5. Want of authority of agent for which it was issued
6. Non-deliver of Incomplete instrument 3. Negotiation in Breach of faith parties (who are equally capacitated persons) cannot raise the defence of minority.
7. Forgery 4. Insertion of wrong date in instrument
8. Insanity
 5. Conditional delivery of complete (22) M, maker, issued a note payable to the order of P as payee, who sweet talked M to
*where the insane person has a instrument issue the note to him without giving any consideration. The said note was successively
guardian appointed by the court 6. Filling up blank beyond Reasonable indorsed. P to A, A to B, B to C, and C to D, a holder in due course. D later indorsed the
9. Minority time
10. Ultra Vires Act of Corporation 7. Absence or failure of consideration, note to E, who was aware of the lack of consideration but was not a part of what P did. If
11. Discharge in Insolvency whether partial or total E presents the note to M for payment, M can refuse to pay because E was aware of the
12. Fraud in Factum or Fraud in Esse 8. Illegal consideration want of consideration.
Contractus or Fraud in Execution 9. Filling up blank Not within authority
13. Execution of instrument between 10. Want of authority of agent where he has
public Enemies apparent authority FALSE
14. Marriage in the case of a wife 11. Fraud in Inducement M cannot refuse to pay E because E is free from any personal defence based on the shelter rule.
12. Acquisition by Force, duress, or fear
13. Intoxication
14. Mistake Sec. 58 of the NIL provides that a holder who derives his title through a holder in due course,
15. Insanity
 and who is not himself a party to any fraud or illegality affecting the instrument, has all the
*where there is no notice of insanity on
the part of the one contracting with the rights of such former holder in respect of all parties prior to the latter.
insane person
16. Negotiation under Circumstances that Applying the provision to the case, E, who derived his title from D—a holder in due course—
amount to fraud
17. Acquisition of the instrument by acquires all the rights of D. As such, E is free from the defence of want of consideration which
Unlawful means is a personal defence.

(19) An incomplete instrument but delivered is an example of a real defence when the (23) The drawer of a bill of exchange by issuing it engages that he will pay the bill, and
person to whom it was delivered exceeded his authority when he filled the blanks therein admits the existence of the payee and his capacity to indorse

FALSE FALSE
An incomplete instrument subsequently filled up by a person who exceeded his authority and The person who engages to pay a negotiable instrument according to its tenor, and admits the
delivered the same is a personal defence. existence of the payee and his capacity to indorse is not the drawer but the maker (Sec. 60,
NIL).
(20) A holder cannot strike an indorsement necessary to his title
(24) The maker is liable only when the drawee dishonours the note
FALSE
Sec. 48 of the NIL provides that the holder may at any time strike out any indorsement which is FALSE
not necessary to his title. The indorser whose indorsement is struck out, and all endorsers The maker is liable the moment he makes the instrument. No other car is necessary other than
subsequent to him, are thereby relieved from liability on the instrument. making the instrument (Sec. 60, NIL).

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(25) An acceptor is primarily liable and engages to pay according to the tenor of his (30) M makes a negotiable promissory note for P20,000 with P1 and P2 as payees. P1 and
acceptance P2 indorses the note: “To A (Sgd) P1 and P2.” P1 and P2 are deemed jointly and severally
liable to A
TRUE
Sec. 127 in relation to Sec. 62 of the NIL provides that an acceptor, by accepting the instrument, TRUE
engages that he will pay it according to the tenor of his acceptance. He is primarily liable. Sec. 41 of the NIL provides that where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse unless the one indorsing has authority
(26) An irregular indorser is an anomalous indorser who is not a party to an instrument to indorse for others. In relation to this, Sec. 68 warrants that joint payees or joint indorsees who
but places thereon his signature in blank before delivery indorse are deemed to indorse jointly and severally.
TRUE (31) Presentment for payment is the production of a bill of exchange to the drawer for
Sec. 64 of the NIL provides that a person who, not otherwise a party to an instrument, places payment
thereon his signature in blank before delivery is an irregular indorser who is liable as an
indorser in accordance with the conditions specified in the same provision. FALSE
Sec. 72 (d) of the NIL provides that presentment for payment is only done to the person
(27) X draws a bill, where Z is the drawee, payable to his (X) own order but does not want primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the
to negotiate or circulate it without Y endorsing it. Y signs the back of the bill in blank. X place where the presentment is made. In the case of a bill of exchange, persons who are held
then negotiates the bill to A, A to B, B to C, and C to D. If Z dishonours the check, Y liable are the drawee or acceptor. However, it must be noted that a drawee is not liable on an
cannot be held liable by D as an indorser instrument until he accepts the same.
FALSE (32) When a negotiable instrument is dishonoured by non-payment, an immediate right of
Y can be held liable by D as an indorser. Sec. 64 (b) provides that an irregular indorser is liable recourse to all parties secondarily liable thereon accrues to the holder
as an indorser if the instrument is payable to the order of the maker or drawer. He is liable only
to all parties subsequent to the maker or drawer. TRUE
Sec. 84 of the NIL provides that when the instrument is dishonoured by non-payment, an
(28) The warranty of a person negotiating by mere delivery extends only to immediate immediate right of recourse to all parties secondarily liable thereon accrues to the holder.
transferee
(33) Payment in due course is payment made at or after the maturity of the instrument to
TRUE the holder thereof in good faith and without notice that his title is defective
The second to the last paragraph of Sec. 65 of the NIL provides that when the negotiation is by
delivery only, the warranty extends in favour of no holder other than the immediate transferee. Sec. 88 of the NIL provides that payment is made in due course when: (1) it is made at or after
This is because negotiation by mere delivery of a bearer instrument transfers title without the maturity; (2) to the holder thereof; and (3) in good faith and without notice that his title is
rendering the indorser or transferor secondarily liable. defective. It should be noted that payment must be made by or in behalf of the principal debtor
or the accommodated party where the instrument is made or accepted for his accommodation.
(29) The warranties of a qualified indorser and a general indorser are the same
(34) When an instrument is discharged, all parties liable, primary and secondary, are
FALSE released from the obligations arising from the instrument rendering it without force and
Sec. 66 of the NIL provides an additional warranty that is exclusive to a general indorser, that is effect
that the instrument is, at the time of his indorsement, valid and subsisting. He also engages that
on due presentment, it shall be accepted or paid, or both, as the case may be, according to its TRUE
tenor, and that if it be dishonoured and the necessary proceedings on dishonour are duly taken,
he will pay the amount thereof of the holder, or to any subsequent indorser who may be
compelled to pay it.
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NEGOTIABLE INSTRUMENTS LAW | ATTY. CABOCHAN

(35) When a holder strikes out an indorsement, the person whose indorsement has been c. Incapacitated persons who sign through their legal guardians
stricken out is discharged d. Forgers of signatures (Sec. 23)
e. Persons whose signatures were forged but who are precluded from setting up the
TRUE defence of forgery (Sec. 23, i.e. parties who warrant or admit the genuineness of the
Sec. 48 of the NIL provides that the holder may at any time strike out any indorser which is not signature in question; and those who, by their acts, silence, or negligence are estopped
necessary to his title. The indorser whose indorsement is struck out, and all endorsers from setting up the defence of forgery because such acts or omissions amount to
subsequent to him, are thereby relieved from liability on the instrument. ratification that may be express or implied)
f. In case of constructive acceptance (Sec. 137)
(36) Material alteration is a real defence which can be raised against any holder g. Indorsers who sign on a separate piece of paper known as an allonge
h. Persons who negotiate by mere delivery. They are liable for breach of warranty
TRUE although they did not sign (Sec. 65)
Sec. 124 of the NIL provides that an instrument which is materially altered without the assent of
all parties thereon, it is avoided. However, material alteration is only a partial real defence (39) If the instrument is not dated and the date is necessary to compute the maturity date
because the holder in due course can still enforce it according to its original tenor. The defence of the instrument, the instrument is not negotiable
also excepts parties who have made, authorised, or assented to the alteration and subsequent
indorsers. FALSE
Sec. 13 of the NIL provides that there are cases where the date of the instrument is necessary,
(37) M makes a note for P10,000 payable to the order of P. P negotiates it to C who, with e.g. when an instrument is expressed to be payable at a fixed period after date or sight an the
the consent of P, alters the amount to P110,000. C thereafter negotiates the altered note to same is undated, the holder may insert therein the true date of issue or acceptance, and the
D, D to E, and E to F, a holder in due course. F can enforce payment of P110,000 against M instrument is payable accordingly. Further, Sec.14 provides that the person in possession of an
because he is a holder in due course instrument that is lacking a material particular has a prima facie authority to provide the same.
The moment the instrument is completed, the presumption is that the instrument was completed
FALSE with prior authority from the maker or drawer and that the person who completed the instrument
As a holder in due course, F can enforce payment against M but only up to the extent of the did not exceed his authority.
original tenor of the instrument, that is P10,000. If M pays, the instrument is discharged only
with respect to the amount and the person who made the alteration, C,; the person who assented Sec. 14 applies to an incomplete but delivered instrument.
to the alteration, P; and the subsequent indorsers D and E are liable for the balance. Even if
assuming arguendo that M’s payment is in due course, the parties stated in the preceding Material particulars are those matters mentioned in Sec. 1 of the NIL, as well as any important
sentence are still liable because they are indorsers who warrant that the instrument is genuine detail that affects the tenor of the instrument or the rights of the parties. Sec. 125 states that
and in all respects what it purports to be (Sec. 66). Sec. 124 likewise provides that the altered material alteration includes changes in:
instrument is not avoided “as against a party who has himself made, authorised, or assented to a. Date
the alteration and subsequent holders.” b. Sum payable, either for principal or interest
(38) A person whose signature does not appear on the instrument is not a party to the c. Time and place of payment
instrument and is never liable. d. Number or the relations of the parties
e. Medium or currency in which payment is to be made
FALSE f. Or which adds a place of payment where no place of payment is specified, or any other
Ordinarily, a person must sign the negotiable instrument before he can be made liable under the changes or addition which alters the effect of the instrument in any respect, is a material
same instrument, as provided in Sec. 18 of the NIL. However, the following persons are held alteration
liable albeit their signatures not appearing on the instrument:
a. One who signs in trade of assumed name (Sec. 18)
b. One who signs through an agent or an authorised representative (Sec. 19)

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(40) Consideration is any value sufficient to support a simple contract (46) The authority to sell collateral securities in case the instrument is not paid at maturity
impairs the negotiability of the instrument
FALSE
Sec. 25 of the NIL provides that a value is any consideration sufficient to support a simple FALSE
contract. Sec. 5 (a) of the NIL provides that a provision which authorises the sale of collateral securities
in case the instrument be not paid at maturity does not affect the negotiable character of an
(41) An incomplete instrument but delivered is a defence which can be raised against a instrument otherwise negotiable.
holder in due course
(47) An instrument which is payable to order may be negotiated by mere delivery
FALSE
An incomplete instrument but delivered is merely a personal defence which is available against FALSE
a holder who is not a holder in due course (Sec. 14). Sec. 30 of the NIL provides that an instrument payable to order is negotiated by the indorsement
of the holder and completed by delivery.
(42) An order or promise to pay out of a particular fund is conditional
(48) An instrument payable 15 days after the death of a certain person is still payable at a
TRUE determinable future time even if that person is only 2 years old and very healthy.
Sec. 3 (b) of the NIL provides that an order or promise to pay out of a particular fund is not
unconditional. TRUE
Sec. 4(c) of the NIL, in relation to Art. 1193 of the Civil Code, specifies that on or at a fixed
(43) An unconditional promise to pay in instalments does not make the sum payable period after the occurrence of a specified event which is certain to happen, though the time of
uncertain happening be uncertain, constitutes a determinable future time. A day certain is understood to be
that which must necessarily come, although it may not be known when.
FALSE
Sec. 2(b) of the NIL provides that a sum certain is one that is to be paid by stated instalments. (49) “I promise to pay P or bearer the amount of P100,000 from the proceeds of my loan
This means that the dates of each instalment must be fixed or atleast determinable; and the from ABC Bank which will be released on Oct. 31, 2020. (Sgd.) M” is not negotiable
amount to be paid for each instalment. because it is not payable on demand or at a fixed or determinable future time
(44) An unconditional promise to pay a sum certain in money 1 month after the end of FALSE
wold war 3 is determinable future time The instrument is not negotiable but not for the reasons stated above. Sec. 1 (b) of the NIL
provides that an instrument must contain an unconditional promise or order to pay a sum certain
FALSE in money. In relation to this, Sec. 3(b) provides that an order or promise to pay out of a
Sec. 4 (c) of the NIL provides that an instrument must be payable at a day that which must particular fund is not unconditional. In the case above, the maker promises to pay from the
necessarily come although it may be unknown when. It is not certain that World War 3 will proceeds of his loan, which is a particular fund.
happen, but even if it is, the end of it is also unascertainable.
(50) A minor who indorses a negotiable promissory note and parties prior to the minors
(45) An instrument payable upon a contingency which eventually happens is negotiable cannot be held liable on the note because of want of capacity of the minor.
FALSE FALSE
The last paragraph of Sec. 4 of the NIL provides that an instrument payable upon a contingent is Sec. 22 of the NIL provides that the indorsement or assignment of the instrument by a
not negotiable, and the happening of the event does not cure the defect. corporation or by an infant passes the property therein, notwithstanding that from want of
capacity, the corporation or infant may incur no liability thereon. Minority is a real defence that
is only available to the minor. If the minor negotiates the instrument to other capacitated person,
the same capacitated person or previous parties (who are equally capacitated persons) cannot
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NEGOTIABLE INSTRUMENTS LAW | ATTY. CABOCHAN

raise the defence of minority. The maker, drawer, and acceptor, by making, drawing, and fraudulent or illegal purpose. It is only rendered invalid, and such invalidity only affects holders
accepting the instrument admit the capacity of the payee to indorse (Sec. 60, 61, 62). It is for not in due course.
this reason that they cannot raise this defence.
(55) Indorsement is the first delivery of the instrument complete in form to a person who
(51) A holder for value is always a holder in due course. takes it as a holder

FALSE FALSE
A holder in due course is one who has taken the instrument under the conditions of Sec. 52 of Sec. 191 of the NIL provides that “issue” mens the first delivery of the instrument complete in
the NIL and holds the instrument free from personal defences available to prior parties. form to a person who takes it as a holder.

Sec. 52 C specifies that a holder in due course is a holder that took the instrument in good faith (56)Negotiation and assignment are the same
and for value. Sec. 26 provides that 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 FALSE
time. Sec. 30 of the NIL provides that a negotiation is a transfer to one person or another in such a
manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by
(52) The presumption that a negotiable instrument is issued for a valuable consideration is delivery. If payable to order, it is negotiated by indorsement completed by delivery. Assignment
only prima facie. It can be rebutted by proof to the contrary is the transfer of rights, by a person to another, for the purpose of receiving payment. In the
latter, the transferee is an assignee who merely steps into the shoes of the transferor. The
TRUE transferee cannot be a holder in due course and he is therefore subject to the defences of prior
Sec. 24 of the NIL provides that “every negotiable instrument is deemed prima facie to have parties.
been issued for a valuable consideration; and every person whose signature appears therein to
have become a party thereto for value. Therefore, it is up to the party who alleges that there was (57) Delivery of a negotiable instrument is always equivalent to negotiation
absence of consideration to prove such fact. The presumption will operate only if there was
negotiation. Consideration is not presumed if there was transfer without indorsement. FALSE
Sec. 30 of the NIL specifies ways in which negotiable instruments are to be negotiated based on
(53) If there are two (2) or more drawees jointly in a bill of exchange, the bill is not their type; for bearer instruments, negotiation is effected by delivery; for order instruments, it is
negotiable negotiated by indorsement completed by delivery.

FALSE (58) The person who issues a negotiable instrument is always primarily liable
Sec. 68 of the NIL allows two or more persons to simultaneously indorse an instrument,
provided that they will be deemed to indorse jointly and severally. Hence, they are solidarity FALSE
liable to the holder. Note that as per Sec. 63, a person—who is otherwise a maker, drawer, or Sec. 192 of the NIL provides that persons who are primarily liable are ones who, by the terms of
acceptor—placing his signature upon an instrument shall be considered as an indorser unless he the instrument, are absolutely required to pay the same. All other parties are secondarily liable.
clearly indicates by appropriate words his intention to be bound in some other capacity. Hence, it is not an absolute rule that a person who issues a negotiable instrument is always
primarily liable. For example, Sec. 61 states that a drawer of a bill of exchange is only
(54) An instrument is ante-dated if the date appearing on the instrument is earlier than the secondarily liable on an instrument.
true date
(59) A holder who has a lien on the instrument arising from a contract is a holder in due
TRUE course of the whole instrument
An ante-dated instrument is now which indicates a date that is earlier than the true date. Sec. 12
of the NIL provides that the instrument is not invalid for the reason only that it is ante-dated or FALSE
post-dated, prodded this is not done for an illegal or fraudulent purpose. However, it must be Sec. 27 of the NIL provides that a holder who has a lien on the instrument arising from a
emphasised that the negotiability of an instrument is not affected by ante-/post-dating done for contract is a holder for value to the extent of his lien.

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(64) Certification by the bank of a check is equivalent to acceptance and makes the drawee
(60) “I promise to pay P or order P20,000 or 10 cavans of premium rice worth P20,000 bank liable
(sgd) M” is not negotiable
TRUE
TRUE Check PNB vs National City Bank of New York
As per, Sec. 5(d) that a provision that gives the holder an election to require something to be
done in lieu of payment of money does not affect the negotiability of an instrument. Under said (65) The general rule is that the drawer or indorsers are discharged from the secondary
provision, an instrument that gives the option to offer an alternative to the payment of money liability if the bill is not presented for acceptance or for payment
makes the instrument non-negotiable.
TRUE
(61) In an instrument payable to order, the payee must be named otherwise the instrument Sec. 150 of the NIL provides that where a bill is duly presented fro acceptance and is not
will be non-negotiable accepted within the prescribed time, the person presenting it must treat the bill as disjoined by
non-acceptance or he loses the right of recourse against the drawer and indorsers.
FALSE
Sec. 8 of the NIL provides that in an order instrument, the payee must be named or otherwise (66) M, maker, dishonours the note he issued in favour of P, payee, when it was presented
indicated therein with reasonable certainty. Under said provision, if a payee is not named in an to him for payment. To make M liable, P must send a notice of dishonour to M within a
instrument payable to order, the instrument will remain negotiable so long as he is indicated reasonable time
therein with reasonable certainty.
FALSE
(62) An instrument payable to the order of a payee whose name does not purport to be the Sec. 70 of the NIL provides that presentment for payment is not necessary order to charge the
name of any person is an instrument payable to order person primarily liable on the instrument. Presentment for payment, however, is necessary to
charge the drawer and indorsers. Since M is a maker, no notice of dishonour is needed to
FALSE enforce liability.
Sec. 9(d) provides that an instrument is a bearer instrument when the name of the payee does
not purport to be the name of any person. (67) A issued a check against his US dollar account in the United States to the order of B in
Manila. B deposited the check to his US dollar account in a bank in Makati. After a few
(63) “Due to P or order P50,0000 on Dec. 15, 2020 (sgd) M” is negotiable because it days, his bank informed him that said check was dishonoured. B informed A that the
complies with all the requisites of negotiability check was dishonoured and will sue him for violation of B.P. 22. A claims that he is not
covered by B.P. 22. A is correct
TRUE
Sec. 1 of the NIL provides that an instrument, to be negotiable, must conform to the following FALSE
requirements: B.P. 22 covers even foreign checks provided that they are drawn and issued in the Philippines
a. It must be in writing signed by the maker or drawer though payable outside thereof, or made payable and dishonoured in the Philippines though
b. Must contain and unconditional promise or order to pay a sum certain in money drawn and issued outside thereof.
c. Must be payable on demand, or at a fixed or determinable future time
d. Must be payable to order or to bearer (68) A holder is the payee or indorsee of a bill or note who is in possession of it, or a bearer
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated thereof
therein with reasonable certainty
TRUE
Sec. 191 of the NIL provides that a holder means the payee or indorsee of a bill or note who is
in possession of it or the bearer thereof.

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(69) “Thirty (30) days after date, I promise to pay Faye Yee or order the sum of TEN (73) A holder who is not a holder in due course does not have the right to sue in his own
THOUSAND PESOS (10,000) with interest” is not negotiable because it does not comply name
with Sec. 1 NIL, since it is not payable at a determinable future time and the sum payable
is not certain since the interest rate was not indicated FALSE
Sec. 51 of the NIL provides that the holder of a negotiable instrument may sue thereon in his
FALSE own name; and payment to him in due course discharges the instrument.
The instrument above is a negotiable instrument because it complies with all the requirements
specified under Sec. 1 of the NIL; “thirty days after date” is a determinable future time; and an (74) Payment in due course by a party secondarily liable discharges the instrument
interest need not be specified for an instrument to be negotiable. The sum payable is still certain
and the negotiability of the instrument is not affected whether or not the stipulation in the FALSE
interest is a fixed rate or no rate of interest is fixed. An agreement may just state that interest is Sec. 121 of the NIL provides that where the instrument is paid by a party secondarily liable
due from a certain time. In which case, legal interest shall be imposed. Under present thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard
regulations, the legal interest is now uniforms the interest for loan or forbearance of money, all prior parties, and he may strike out his own and all subsequent endorsements and again
goods, or credit, is now 6%. negotiate the instrument, except: (a) where it is payable to the order of a third person and has
been paid by the drawer; and (b) where its as made or accepted for accommodation and has
(70) On the date of maturity of the instrument, it is already overdue, and a holder who been paid by the party accommodated.
acquires the instrument on that date is not a holder in due course
(75) A postal money order is a negotiable instrument
FALSE
Sec. 88 of the NIL provides that payment is made in due course when it is made at or after the A postal money order is not negotiable. It does not contain an unconditional promise or order to
maturity of the payment to the holder thereof in good faith and without notice that the title is pay required in Sec. 1(b) of the NIL. Regulations or restrictions are imposed on postal money
defective orders which are inconsistent with the character of negotiable instruments. For instance, the
rules and regulations on postal money orders usually provide for not more than one
(71) “Nov. 25, 2020 indorsement. They also provide that payment may be withheld under a variety of circumstances
I promise to pay P or order P20,000 or 10 cavans of rice at his option on or before (Philippine Education Company Inc. vs Soriano).
Christmas. (sgd) M” is negotiable because the option is with P, the payee, thus, the
promise is unconditional. (76) A bill of lading is a negotiable instrument

FALSE FALSE
Sec. 5(d) states that a provision giving the holder an election to require something to be done in A bill of lading is not a negotiable instrument. It is a form of document of title issued by the
lieu of payment of money does not impair the negotiability of the instrument. In reference to the carrier whereby receipt of goods is acknowledged and the carrier primacies to deliver the goods
said provision, such rule is only exclusive to holders. to whoever is validly holding it and who can present the bill of lading. It may be considered a
negotiable document of title under the Civil Code, but it is not a negotiable instrument under the
(72) An accommodation party is not liable to a holder for value if such holder was aware NIL.
that he is only an accommodation party
(77) Treasury warrants are not negotiable instruments
FALSE
Sec. 29 of the NIL provides that an accommodation party is liable on an instrument to a holder TRUE
for value notwithstanding that such holder, at the time of taking the instrument, knew him to be A treasury warrant is not a negotiable instrument because the promise to pay is conditional since
only an accommodation party. the sum is payable out of a particular fund. This is in contravention with Sec. 1(b) in relation to
Sec 3(b) of the NIL.

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(78) Generally, the delivery of negotiable instruments to settle financial obligations has the drawee. It must not express that the drawee will perform his promise by any other means than
effect of payment and extinguishes obligation the payment of money.

FALSE (84) There are five (5) requisites for a bill of exchange to be negotiable
Art. 1249 of the Civil Code provides that delivery of a negotiable instrument does not produce
the effect of payment unless the same is encased or the value thereof was impaired through the FALSE
fault of the obligee. Sec. 126 of the NIL provides the definition of a bill of exchange. It enumerates only four
requisites.
(79) Negotiable instruments are not only contracts but are also substitute for money
(85) The drawer who issues a promissory note is secondarily liable
TRUE
Negotiable instruments are not mere contracts but are substitutes for money. A negotiable FALSE
instrument is a medium of exchange; it is a tool that is used in commercial transactions (Lozano Sec. 184 of the NIL specifies that one who issues a promissory note is a maker, not a drawer.
vs Martinez). Sec. 60 provides that a maker is primarily liable on the instrument.

(80) Any changes made on an instrument is considered material alteration (86) In a bill of exchange, the drawer need not have funds with the drawee

FALSE TRUE
Material alterations are those listed in Sec. 125 of the NIL, and alter the effect of the instrument. The requirement of having funds with the drawee is only applicable to checks.
These are ones which changes the items required to be stated under Sec. 1. (87) In a promissory note, the death of the maker prevents the payee from collecting the
(81) A bill of exchange is an assignment of funds in the hands of the drawee amount on the note from the maker because the liability of the latter is extinguished

FALSE TRUE
Sec. 127 of the NIL provides that a bill of exchange does not operate as an assignment of the *Note: I answered FALSE on the quiz since a payee can still collect from a deceased maker by
funds in the hands of the drawee available for the payment thereof, and the drawee is not liable filing a claim against the latter’s estate. I have no idea why the correct answer is TRUE.
on the bill unless and until he accepts the same. (88) An agent who signs “Mimi Yak (sgd)” is not liable on the instrument
(82) A bill of exchange may be addressed to two or more drawees in the alternative, like
“To D1 or D2” FALSE
Sec. 69 of the NIL provides where an agent or broker negotiates an instrument without
FALSE indorsement, he incurs all the liabilities prescribed by Sec. 65 unless he discloses the name of
Sec. 128 of the NIL provides that a bill may be addressed to two or more drawees jointly, his principal and the fact that he is only acting as agent.
whether they are partners or not; but not to two or more drawees in the alternative or in (89) A signature by “procuration” operates as a notice that the agent has limited authority
succession. to sign
(83) Acceptance is the signification of the drawee of his assent to the order of the drawer
and it can be made either verbally or in writing TRUE
Sec. 21 of the NIL provides that a signature by procuration operates as notice that the agent has
FALSE but a limited authority to sign, and the principal is bound only in case the agent in so signing
Sec. 132 of the NIL provides that the acceptance of a bill is the signification by the drawee of acted within the actual limits of his authority. The words “per procuracaion” are an express
his Assent tot he order of the drawer. The acceptance must be in writing and signed by the limitation of a special or limited authority and a person taking a bill so drawn, accepted, or
indorsed, is bound to inquire into the extent of authority.

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(90) Fraud infactum is the same as fraud in esse contractus (94) Absence or failure of consideration is a matter of defence against any person/holder

TRUE FALSE
Fraud in factum or fraud in esse contractus or fraud in execution is present when a person is Absence or failure of consideration is a matter of defence against any person not a holder in due
induced to sign an instrument not knowing its character as a note or a bill. Fraud in fact is a real course. Partial failure of consideration is a defence pro tanto, whether the failure is an
defence (p. 259, Aquino). ascertained and liquidated amount or otherwise (Sec. 29, NIL).
(91)When the signature is forged, the instrument is wholly inoperative (95) An accommodation party who did not receive any value when he signed the
instrument is not liable on the instrument
FALSE
Sec. 23 of the NIL provides when a signature is forged or made without the authority of the FALSE
person whose signature it purports to be, it is wholly inoperative, and no right to retain the Sec. 29 of the NIL provides that an accommodation party is liable on the instrument to a holder
instrument, or to give a discharge therefor, or to enforce payment thereof against any party for value, notwithstanding such holder, at the time of taking the instrument, knew him to be
thereto, can be acquired through or under such signature, unless the party against whom it is only an accommodation party.
sought to enforce such right is precluded from setting up the forgery or want of authority.
(96) In a bill of exchange, the drawee must be named otherwise the instrument is not
Sec. 23 does not avoid the instrument and only the forged signature is inoperative. Thus, the negotiable
instrument may still be negotiable. The rights of the parties will still be determined on the basis
of the NIL. FALSE
Sec. 1(e) in relation to Sec.126 provides that where the instrument is addressed to a drawee, he
(92) If the drawee accepts the bill where the signature of the drawer was forged, the must be named or otherwise indicated therein with reasonable certainty.
account of the drawer should not be charged
(97) When the signature of the maker is forged, the instrument is non-negotiable
TRUE
Where the drawer’s signature is forged, the drawer is not liable whether or not the instrument is FALSE
payable to bearer or payable to order. There is no right to enforce payment against the drawer Sec. 23 of the NIL provides when a signature is forged or made without the authority of the
under the forged signature. This is true even if the instrument is a bearer instrument because the person whose signature it purports to be, it is wholly inoperative, and no right to retain the
drawer was never a party to the instrument—he did not promise to pay anybody. instrument, or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the party against whom it is
For the same reason, the drawer’s account cannot be debited if his signature in a check was sought to enforce such right is precluded from setting up the forgery or want of authority.
forged. A drawee-bank is bound to know the signature of its clients, the drawer. Hence, the
drawee-bank is liable if it encased checks bearing the forged signature of the drawer. In such Sec. 23 does not avoid the instrument and only the forged signature is inoperative. Thus, the
cases, the drawee has no recourse against the collecting bank (Associated Bank vs CA). instrument may still be negotiable. The rights of the parties will still be determined on the basis
of the NIL.
(93) Where the consideration in issuing the instrument is illegal, the instrument becomes
non-negotiable

FALSE
Generally, illegality of the transaction that gave risotto a particular transaction is only a personal
defence. The exception to the rule is when the law which declares the transaction illegal
likewise declares that the negotiable instrument or document issued in connection thereto is
voice against any party. In the latter case, illegality is a real defence (p.283, Aquino).

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