ASSIGNMENT 1
Used as a medium of exchange in most commercial
1. What are negotiable instruments?
Negotiable instruments are written contracts for
payment as substitute for money with the intention of
passing it from hand to hand, and to give the holder in
due course the right to hold the same and collect the
sum due.
2. What are its primary characteristics? What is its
most important feature?
The following are the primary characteristics of a
negotiable instrument:
a. Negotiability – the right of the transferee to hold the
instrument and collect the sum due; and
b. Accumulation of secondary contracts – this is the most
important feature of negotiable instruments as this
makes the negotiable instrument accumulate secondary
contracts as they are transferred from one person to
another.
3. What is the significance of negotiable instruments
in commerce? / What is the main purpose of the law
in creating “negotiable instruments”?
In commerce, negotiable instruments are important for
the following reasons:
a. Used as substitute for money. However, unlike money
they do not constitute a legal tender, they are merely
substitutes.
b.
transaction. They are circulated as purchasing medium
due to the convenience it can offer, i.e. checks in lieu of
numerous currency coins and bills.
c. Used as medium of credit transactions. This enables
anybody to conduct credit transactions by indicating in
the negotiable instrument which property or property
right he can use as means of payment.
4. What are the requisites for negotiability? Discuss.
The requisites for negotiability of a negotiable
instrument are as follows:
a. The instrument must be in writing or in any tangible
form signed by the maker or drawer - this will serve as
prima facie evidence of his intention to be bound as
either maker or drawer;
b. Must contain an unconditional promise or order to pay
a certain sum – this makes negotiable instruments
acquire a uniform standard of value which enables the
holder to use it in lieu of money;
c. Must be payable on demand, or at a fixed or
determinable future time – this enables the payee or
holder know upon when he is to call for acceptance of
service or receipt of payment from the maker or drawer;
d. Must be payable to order or to bearer – this gives
effect to the indorsement for payment of the negotiable
instrument, either by “order” of the name indicated or to
the “bearer” of the instrument.
5. A promissory note is not dated. How does it affect
its negotiability?
 As a general rule an undated negotiable instrument does
not affect its negotiability as provided in Section 6 of The
Negotiable Instruments Law. However, the same is
subject to certain presumptions, i.e. where a negotiable
instrument is not dated, it will be considered to be dated
as of the time it was issued. Since a promissory note is a
form of negotiable instrument, abovementioned is also
applicable to it.
6. Who are the parties to a negotiable instrument?
The parties to a negotiable instrument are the following:
a. Drawer – the person who makes or writes the
negotiable instrument
b. Payee – the person to whom the promise is made or to
whom it is payable
c. Drawee or Acceptor – the person who is directed by
the negotiable instrument to pay the stated amount to
the payee
7. When is an instrument considered payable to
bearer?
An instrument is considered payable to bearer if:
a. When it is expressed to be so payable;
b. When payable to the person named or bearer;
c. Payable to order of fictitious or non-existent person
and this fact was known to the drawer;
d. Name of payee not name of any person; and
e. Only and last indorsement is an indorsement in blank
as indicated in Section 9 of the Negotiable Instruments
Law.
8. Differentiate an obligation with condition versus
one with a period?
a. In terms of fulfilment – a condition is an uncertain
event, while a period is a future and certain event.
b. In terms of time – a condition may refer to the past,
present or future, while a period only refers to the
future.
c. In terms of influence on the obligation – a condition
causes the existence or the extinguishment of an
obligation, while a period fixes the time for the
performance of an obligation.
d. In terms of validity - Both condition and period are
required to be legally and physically possible.
9. Define “consideration” in relation to negotiable
instruments.
Consideration is an indispensable requirement in the
issuance of a negotiable instrument. The value of the
consideration entitles every person whose signature
appears on the instrument to have become a party there
to claim it.
10. What constitute a “holder for value”? Explain the
significance of the concept of a “holder for value” in
relation to negotiable instruments.
The holder of a negotiable instrument where the value
has at any time been given, such holder is called a holder
 for value in respect to all parties who become such prior
to that time as provided in Section 26 of the Negotiable
Instruments Law.
11. What is the effect of failure of consideration?
Does this affect negotiability?
The effects of failure of consideration are the following:
1. As a personal defence, absence or failure of
consideration may be set up against the holder who is
not a holder in due course;
2. Partial failure of consideration is a defence pro tanto;
and
3. The validity of negotiability is not affected by failure of
consideration.
12. Who is an accommodation party? What are his
obligations?
An accommodation party is one who has signed the
instrument as maker, drawer, indorser, acceptor, without
receiving any value therefore and for the purpose of
lending his name to some other person.
Generally, an accommodation party is regarded as a
surety for the party accommodated.
13. What is/are the requirement/s for the agent to be
considered properly authorized to sign a negotiable
instrument in behalf of his principal?
An agent must meet the following requirements in order
to be considered a duly authorized agent to sign a
negotiable instrument in behalf of his principal:
a. That the party may sign personally or through an
agent;
b. That the agency may be written or oral; and
c. That no particular form is required by law and the
agency may be proved through oral or written evidence,
unless specific provision of law, such as the Statute of
Frauds, require otherwise.
14. What are the requisites in order for an agent to
escape personal liability on a negotiable instrument?
The requisite in order for an agent to escape personal
liability on a negotiable instrument are:
a. Be duly authorized;
b. Add words to his signature which indicate his role as
an agent, or that he acts in representation or on behalf of
a principal; and
c. Disclose his principal in the instrument.
15. What is meant by “negotiation” (sec. 30)?
Compare this with ordinary transfer/assignment?
Generally, negotiation is the transfer of a negotiable
instrument from one person to another. Negotiation
ordinarily involves indorsement which makes it possible
for the transferee to acquire a better right to a
negotiable instrument that the transferor had. While an
ordinary transfer or assignment may or may not involve
an indorsement.
16. How is a promissory note negotiated (sec. 30)?
 A promissory note is negotiated on the following cases:
a. An instrument payable to order – First, an
indorsement by the payee of the present holder. Second,
its delivery to the next holder.
b. An instrument payable to bearer – mere delivery
without indorsement.
17. Who is a holder in due course (sec. 52)? What is
the importance of determining whether or not a
holder is one in due course or not?
A holder in due course is a holder who has taken the
instrument under the following conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue,
and without notice that it had been previously
dishonoured, if such was the fact;
c. That he took it in good faith and for value; and
d. That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
18. Differentiate real vs personal defences.
Real defences are those available against all parties,
both immediate and remote, including holders in due
course or holders through the latter. While personal
defences are those which grow out of the agreement or
conduct of a particular person in regard to the
instrument which renders it inequitable for him, and are
available only against that person or subsequent holder
who stands in privity with him.
19. What is the effect if an instrument is incomplete
but delivered (e.g. amount was left blank)? Is the
instrument and its transfer valid?
Where an instrument is wanting any material particular,
the Holder has prima facie authority to fill up the blanks
therein. It must be filled-up strictly in accordance with
the authority given and within reasonable time. If
negotiated to a holder in due course, it is valid and
effectual for all purpose as though it was filled up strictly
in accordance with the authority given and within
reasonable time.
Where only a signature on a blank paper was delivered,
it is deemed delivered by the person making it in order
that it may be converted into a negotiable instrument.
And the holder has prima facie authority to fill it up as
such for any amount.
20. How about an instrument that is complete but
undelivered, but somehow came to the possession of a
holder in due course? What are its effects? What are
the rights of the holder in due course, if any?
Generally, where an incomplete instrument had not been
delivered, it will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder
against any person who signed before its delivery.
Since this is a real defence, it can be interposed against
a holder in due course. The delivery is not conclusively
presumed where the instrument is incomplete. And the
 defence of the maker is to prove the non-delivery of the An indorsement where no particular indorsee is
incomplete instrument. specified, and is usually so indorsed as payable to bearer.

“(Date)

ASSIGNMENT 2 Pay to Cash for the amount of P1,000.00

1. How is Indorsement generally made? (Name and Signature of

Indorser)”
Indorsement is when a Payee writes his name on the
negotiable instrument with his intent either to transfer the B. As to the kind of title transferred:
title to the same, or to strengthen the security of the Holder
by assuming a contingent liability for its future payment, or 1. Restrictive
both. By indorsing the negotiable instrument and delivering
An indorsement so worded that it either prohibits
it to another person the payee now becomes an indorser
entirely the further negotiation of an instrument or
and the receiver becomes an indorsee. The indorsement
restricts its further negotiation to a particular person or
process is completed through the delivery of the negotiable
for a particular purpose; or modifies the rights of the
instrument.
holder or the liabilities of the indorser.
2. What are the 10 major kinds of indorsement?
“(Date)
Briefly describe and give one example for each.
Pay to the order of (Name of Payee) only for the amount
A. As to method of negotiation:
of P1,000.00
1. Special
(Name and Signature of
An indorsement where the name of the payee is specified Indorser)”
followed by the signature of the indorser.
C. As to scope of liability of indorser:
“(Date)
1. Qualified
Pay to the order of (Name of Payee) for the amount of
An indorsement which constitutes the indorser as a mere
P1,000.00
assignor of the title to the instrument. Usually it is made
(Name and Signature of so by adding the words “without recourse”, “sans
Indorser)” recourse”, “at indorsee’s own risk”, “indorser not
holder”, or other words of similar meaning.
2. Blank
 “(Date) E. Other kinds:

Pay to the order of (Name of Payee) for the amount of 1. Joint

P1,000.00 without recouse on (Name of Indorser)
An indorsement where payable to two or more persons
(Name and Signature of as payees or indorsees who are not partners, and as such
Indorser)” must be indorsed by all unless the one indorsing has the
authority to indorse for the others.
D. As to presence or absence of limitation:
“(Date)
1. Conditional
Pay to the order of (Name of Payees A and B) for the
An indorsement by which the indorser imposes some amount of P1,000.00
other conditions to his liability or on the indorsee’s right
to collect the proceeds of the instrument. (Name and Signature of
Indorser)”
“(Date)
2. Successive
Pay to (Name of Payee) for the amount of P1,000.00 upon
his delivery to me of Stephen Curry’s 2018 An indorsement where an instrument is negotiated
Championship Ring. further to another party or back to a prior party, such
party may, subject to the provisions of the Negotiable
(Name and Signature of Instruments Law, reissue and further negotiate the same.
Indorser)”
“(Date)
2. Absolute
Pay to the order of (Name of Payees A)for the amount of
An indorsement by which the indorser binds himself to P1,000.00
pay, upon no other condition than the failure of prior
parties to do so, and of due notice to him of such failure. (Name and Signature of
Indorser B)
“(Date)
Pay to the order of (Name of Payees C)for the amount of
Pay to the order of (Name of Payee) for the amount of P1,000.00
P1,000.00
(Name and Signature of
(Name and Signature of Indorser A)
Indorser)”
Pay to the order of (Name of Payees D)for the amount of 3. For what purposes of indorsing an instrument, Mr.
P1,000.00 X merely placed his signature on the instrument with
no other words. Is this valid? What is its effect on the
(Name and Signature of instrument?
Indorser C)”
Yes, this is valid. The presumption is that the signing of Mr.
3. Irregular or Anomalous X on the instrument with no other words is prima facie
evidence of his intent to indorse the instrument for
An indorsement for some purpose other than to transfer
whatever purpose he may intend, unless the contrary can
the instrument, or an indorsement by a stranger to the
be proven.
instrument or by one not in the actual or apparent chain
of title, especially an indorsement made prior to the Thus, the instrument becomes payable to bearer or
delivery of the instrument to the payee. whoever possesses it and may be negotiated by the
indorser by delivery alone regardless of whether the
“(Date)
instrument is originally payable to bearer or not.
Pay to the order of (Name of Payees A) for the amount of
4. What is the effect when an instrument is
P1,000.00
transferred/delivered without indorsement? (sec. 49)
(Name and Signature of
An instrument transferred/delivered without indorsement
Indorser B)
operates as an ordinary assignment and the assignee is
(Name and Signature of merely placed in the position of the assignor. The former
Indorser C)” acquires the instrument subject to all defences, real and
personal, available against the latter. Without the
4. Facultative indorsement, the transferee would not be the holder of the
instrument, he not being the payee, indorsee, or the bearer
An indorsement where the indorser waives presentment thereof.
and notice of dishonour, and he thereby enlarges his
liability. 5. What happens when an instrument is negotiated
back to a previous indorser?
“(Date)
If a prior party reacquires an instrument before maturity,
Pay to the order of (Name of Payees A) for the amount of he may negotiate the same further. However, after paying
P1,000.00, notice of dishonour is waived the holder, he may not claim payment from any of the
intervening parties.
(Name and Signature of
Indorser B)”
6. What happens when holder of an instrument
amounting to P50,000 indorsed P25,000 of the said
instrument to Mr. X?
The partial indorsement of the instrument will render it
non-negotiable since the balance is left unindorsed. Mr. X
will not be considered as a holder but merely an assignee
and in which case he will be subject to all defences
available between the original parties.
7. What about if he indorsed P25, 000 of the
aforementioned instrument to Mr. X and the other
P25,000 to Mr. Y, separately (sec.8e)? Would it make a
difference if he indorsed the same to both Mr. X and
Mr. Y together as a single unit (sec. 8d, sec. 41)?
The indorsement of P25,000 to Mr.X and the other P25,000
to Mr.Y separately does not operate as a negotiation of the
note. In effect, neither Mr.X nor Mr.Y can sue or further
indorse the instrument.
However, if the instrument is indorsed to both Mr. X and
Mr. Y together as a single unit, such indorsement is valid.
And in effect, either Mr.X or Mr.Y may indorse the
instrument.
8. When do instruments generally lose its negotiable
character?
As a general rule, a negotiable instrument may lose its
negotiability if: (1) it has been restrictively indorsed or (2)
when it has been discharged by payment or otherwise as
enumerated in sec. 119.
Sec. 119 Instruments; how discharged – A negotiable
instrument is discharged –
a.) By payment in due course by or on behalf of the
principal debtor;
b.) By payment in due course by the party accommodated,
where the instrument is made or accepted for
accommodation;
c.) By the intentional cancellation thereof by the holder;
d.) By any other act which will discharge simple contract
for the payment of money;
e.) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
9. Under what circumstances is a holder’s title to an
instrument considered defective?
A holder’s title to an instrument is considered defective
under the following circumstances:
a.) When the instrument is not payable to him or to bearer;
b.) Where the instrument, or any signature thereto, has
been obtained by fraud, duress, force, fear, or for any other
unlawful means, or for an illegal consideration;
c.) When the holder negotiates it in breach of faith or under
such circumstances as to amount to fraud.
10. Define bad faith.
Bad faith generally refers to dishonesty or fraud in a
transaction. It may involve an intent to deceive or mislead
others in order to gain some significant advantage.
11. What are the rights of a holder in due course?

a.) he may sue on the instrument in his own name;

b.) he may receive payment and if the payment is in due

course, the instrument is discharged;

c.) he holds the instrument free from any defect of title of

prior parties and free from defences available to prior
parties among themselves;

d.) he may enforce payment of the instrument for the full

amount thereof against all parties liable thereto.

12. Which of the following statement is true: “A

holder is presumed to be a holder in due course?” or
“A holder has the burden to prove that he is a holder
in due course”? Explain.

A holder is presumed to be a holder in due course. Whoever

claims otherwise has the burden to prove that such holder
in question is not a holder in due course.