LAW ON NEGOTIABLE INSTRUMENTS

Daerylle G. Joseco
BSA V-3
Negotiable Instruments Law Assignment Chapters 1-5
CHAPTER I Form and Interpretation
Study Guide:
I. Definitions
1. Negotiable promissory note Sec. 184 defines a negotiable promissory note as an
unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand or at a fixed r determinable future time, a sum certain in
money to order or to bearer.
2. Negotiable bill of exchange Sec. 126 defines a negotiable bill of exchange as an
unconditional order in writing addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order to bearer.
3. Legal tender it refers to coins and bank notes that must be accepted when issued in
payment of debt.
4. Procuration an act of giving power to another to act as an agent or a proxy on ones
behalf.
5. Non-negotiable instrument these are commercial papers that does not have the
characteristics and does not conform to the requisites of a negotiable instrument as stated
in Section 1 of the Law on Negotiable Instruments.
6. Fictitious person people who are not existing but are used falsely in documents or in any
other similar form.
7. Immediate parties these are people, firms or entities who have close relationships that
are involved through contracts or agreements or joint signatories thereof.
8. Remote parties these are the persons who are not familiar with the circumstances related
with the negotiation of an instrument.

II. Discussions
1. Enumerate the requirements as to form and content of an instrument in order that it will be
negotiable under the law.
- Under Sec. 1, the requisites are:
o it must be in writing and signed by the maker
o must contain an unconditional promise or order to pay a sum certain in money
o must be payable on demand, or at a fixed determinable future time
o must be payable to order or bearer; and
o Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

2. The drawee of a bill of exchange: dishonors or refuses to pay it. Will he be liable (a) to
payee; (b) to the drawer? Explain.
a. Yes, he is liable to the payee because he is primarily liable to the holder upon
acceptance of the instrument but if he did not accept the instrument, he would not be
liable.
b. It depends, he is liable to the drawer if he has funds of the drawer in his hands or there
is an agreement obligating the drawee to honor the drawers order and dishonoring the
instrument means non-compliance of the drawees obligation to the drawer.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
3. Is ante-dating or post-dating an instrument illegal? Explain and illustrate.
- Section 12 of NIL generally states that ante-dating and post-dating is valid as long as it is
not negotiated after its maturity except when it is done for an illegal or fraudulent
purpose. The title is acquired as of the date the instrument is delivered.
Example: Post-dated instruments contain a date later than the date of the issuance and
used illegally if intended to cover insufficient funds without informing the payee while
Ante-dated instruments contain a date earlier than the date of the issuance and used
illegally to cover the charging of unreasonable high rate of interest.

4. What is the effect of the insertion of a wrong date in an undated instrument by the holder:
(a) as to him? (b) With respect to a holder in due course?
a. The effect to him is void because the one who made possible the commission of the
wrong bears the loss therefore the holder inserting the wrong date will avoid the
instrument as to him.
b. With respect to a holder in due course, he may enforce it because the date written is to
be regarded as the true date with respect to him who acquired it in good faith.

5. May a person be held liable on an instrument although his signature does not appear
thereon? Explain.
- According to Section 18, the general rule is that only persons whose signatures appear on
the instrument are liable except:
o when they sign in a trade or assumed name
o when a duly authorized agent signs in behalf of a principal who is liable to the payee
o a forger is liable in case of forgery
o when an acceptor accepted a bill on a separate paper known as an allonge
o Or when a person who makes a written promise to accept a bill before it was drawn
according to Section 135.

6. In case of forged instruments, who are not allowed by law to set up the defense of forgery,
and are, therefore made liable to the holder?
- Those who are estopped by their acts, silence and negligence from setting up the defense
of forgery
- And indorsers, acceptors and persons negotiating by delivery who warrants or admit to
the genuineness of the signatures in question.

7. When is a promise or order to pay unconditional? Give two examples of terms appearing
in an instrument which will not make the promise or order conditional.
- According to Section 3, a promise is unconditional when it contains an unconditional
promise or order to pay a sum certain in money.
- Example: Reimburse yourself from the rentals of my car, Received goods purchased
in exchange

8. Suppose an instrument contains a promise or order to do an act in addition to the payment

of money. Will it render the instrument non-negotiable? Explain.
- Yes because according to Section 5 an instrument containing a promise or order to do
any act in addition to the payment of money is not negotiable unless it gives the holder
an election to require something to be done in lieu of payment of money.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
9. When is an instrument payable to bearer? Give the reason why an instrument payable to a
fictitious person is treated as a bearer instrument.
- Section 9 states that the instrument is payable to bearer:
o When it is expressed to be so payable
o When it is payable to a person named therein or bearer
o When it is payable to the order of a fictitious or non-existing person, and such fact
was known to the person making it so payable; or
o When the name of the payee does not purport to be the name of any person; or
o When the only or last indorsement is an indorsement in blank.
- An instrument payable to a fictitious person is treated as a bearer instrument because a
fictitious person is incapable of indorsing and has no right to the instrument because
the person never existed and the maker or drawer has knowledge thereof.

10. Who are the original parties to a :

(a) Promissory note maker and payee
(b) Bill of exchange drawer, drawee and payee.

11. Is the sum payable certain although the instrument is to be paid with costs incurred in
collecting the same plus attorneys fees? Why?
- Yes. Section 2 states that a sum payable is a sum certain even if paid with costs of
collection or an attorneys fee because it does not affect the certainty of the amount
payable at maturity.

12. Will the doing of an act in addition to the payment of money, make and instrument non-
negotiable? Explain.
- Yes because according to Section 5 an instrument containing a promise or order to do any
act in addition to the payment of money is not negotiable unless it gives the holder an
election to require something to be done in lieu of payment of money.

13. When is an instrument payable to order? To whose order may an instrument be made
payable?
- Section 8 states that an instrument is payable to order when it is drawn payable to the
order of a specified person or to him or his order and the payee must be named or
otherwise indicated therein with reasonable certainty. It may be drawn payable to the
order of:
o A payee who is not maker, drawer, or drawee; or
o The drawer or maker; or
o The drawee; or
o Two or more payees jointly; or
o One or some of several payees; or
o The holder of an office for the time being.

14. Will the failure to name the payee affect the negotiability of an instrument? Explain.
- It depends because according to Section 8, when an instrument is payable to order, the
name of the payee must be stated or described with reasonable certainty otherwise the
instrument is deemed non-negotiable but when it is payable to bearer, the name of the
payee may not be written as long as the instrument is expressed to be so payable to
bearer.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
15. Give the requisites in order that an agent who signs a negotiable instrument on behalf of a
principal may not be held personally liable to the payee or holder.
- According to section 20 the requisites for an agent to not be held personally liable are:
o He is duly authorized
o He adds to his signature words indicating thathe signs for or on behalf of a
principal or in a representative capacity and
o He discloses or indicates the name of his principal.

III. Problems
Explain or state briefly the rule or reason for your answers.

1. A bill of exchange signed by W addressed to X states: Please pay Y or order P10,000.

Is the bill negotiable?
- Yes, because it complies with the requisites of a bill of exchange stated in Section 1
(b) of NIL.

2. I promise to pay X P10,000 within 10 days before I retire from government service. Is
the note negotiable?
- No, the promise is conditional on an event which is not certain in contrast with what is
stated in Section 4 (c). Hence, it is not a negotiable instrument.

3. An instrument signed by W payable to X was indorsed by blank by X by simply writing

his name on the back thereof. The instrument was given by X to Y in payment for goods
sold by Y. Is the note negotiable in the hands of Y?
- No, because the instrument is not negotiable because W wrote it as payable to X not
including his order therefore it cannot be indorsed after X.

4. A promissory note signed by W with the amount and payee in blank, was stolen by X
who put the amount of P10,000 and his name as payee, and indorsed the note to Y, then
Y to Z. Has Z have the right to enforce against W? X? Y?
- Z has no right to enforce it against W because according to section 15, an incomplete
and undelivered instrument if completed and negotiated without authority will not be a
valid contract in the hands of any holder as against any person whose signature was
placed thereon before delivery.
- Z has a right to enforce it against X and Y because they are parties whose signatures
appear after the delivery and are general indorsers that warrant the genuineness of the
instrument.

5. W signs a promissory note payable to X, indicating that he signs as agent. It is true that
he is acting for Y, His principal. May X hold W personally liable?
- It depends whether W disclosed his principal because Section 20 clearly states that
mere addition of words describing him as an agent without disclosing his principal
does not exempt him from personal liability.

6. W, maker of a promissory note, payable to order of X who indorses it to Y whose

signature is forged by Z, who, in turn, indorses it to A. State the right of A assuming he
acted in good faith.
- A cannot enforce the instrument against W and X because his rights was cut off by the
forged signature of Y and neither can he enforce the note against Y because Ys
signature is wholly inoperative under section 23. A has a right of recourse against Z.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3

7. In the same problem, suppose the note is payable to bearer, and A indorses the note to B
who, in turn, delivers without indorsement to C who acted in good faith. Give the rights
of C.
- C acting in good faith makes him a holder in due course and has the right to enforce it
to W, the maker, X and Y, parties prior to the forged signature and A and B who are
parties after the forged signature because the instrument is originally payable to bearer
and can be negotiated by mere delivery disregarding the forged indorsement.

8. W, maker of a promissory note payable to order of X, a minor, was indorsed by X to Y.

Is X liable to Y if W cannot pay?
- No, because as a general rule, contracts entered by a minor are voidable. X may raise
the defense of minority to escape liablity.

9. I promise to pay X P10,000 or if he wants a brand new six (6) cubic feet refrigerator. Is
the promissory note negotiable?
- Yes, because under section 5, giving the holder an election to require something to be
done in lieu of payment of money does not affect the negotiability of an instrument.

10. X obtains Ws signature for autograph purposes. Then X writes a negotiable instrument
over it and indorses it to Y, then Y to Z, then Z to A. Can the instrument be enforced by
against W?
- No, because under Section 15, the instrument is not a valid contract against any person
whose signature was placed thereon before delivery which was completed and
delivered without his authority.

11. W prepares a promissory note payable to order of X, his nephew, who steals the same and
indorses it to Y, then Y to Z, from Z to A who as unaware of the theft. May A recover
from W?
- Yes, because under Section 16, there is a prima facie presumption that delivery has
been made but is subject to rebuttal by W.

12. W, a retiree, issued a promissory note, to wit: I promise to pay X or order the sum of
P50,000 out of the retirement pay which I will receive from the government. Actually,
W will get more than P200,000 as retirement benefits. Is the note negotiable?
- No, because the indication of the fund or account out of which the payment shall be
made makes the promise conditional.

13. I promise to pay X or order P10,000 on or before September 20, 2012, following the
terms and conditions of the contract executed by W this date. Is the note negotiable?
- Yes, Section 3 (b) states that an unqualified order or promise to pay is unconditional
even if coupled with a statement of the transaction which gives rise to the instrument.

14. W, maker, of a promissory note which reads. I promise to pay X or order P50,000 after I
sell my car. The following day, W was able to sell his car. Is the note a negotiable
instrument?
- No, because the payment is made to depend upon a contingent act.

15. W signs an instrument as follows. I promise to pay X or order P10,000. The instrument
is addressed to Y. Is the instrument a promissory note or a bill of exchange?
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
- According to Section 17 (e) where the instrument is so ambigupus that there is doubt
whether it is a bill or note, the holder may treat it as either at his election

CHAPTER II Consideration
Study Guide:
I. Definitions
1. Consideration it is the essential cause or reason why parties enter into a contract.
2. Holder for value the person whom the instrument is negotiated because of a valuable
consideration given by him.
3. Accommodation party one who purposely lends his name to another without
receiving any value through the act of signing an instrument as the maker, drawer,
acceptor or indorser.
4. Failure of consideration it is the non-compliance of a party by failing or refusing to
the consideration agreed upon.

II. Discussions
1. State the liability of an accommodation party on an instrument.
- Under Section 29, an accommodation party is liable on the instrument even in the
absence of consideration between him and the accommodated party even though the
holder of the instrument knew him to be only an accommodation party.

2. Give the two (2) presumptions that under the law arise from the issue of a negotiable
instrument.
- Under section 24, every negotiable instrument is deemed (1) prima facie to have been
issued for a valuable consideration and (2) that every person whose signature appears
thereon has become a party thereto for value.

3. State the liability of a maker of a promissory note when there is:

(a) Absence of consideration The note would not be recovered between the maker
and the payee but the maker will be liable between him and a holder in due course
because absence of consideration is not a personal defense against the latter.

(b) Failure of consideration for the note the maker is liable only to the extent of
consideration delivered to him known as partial failure of consideration otherwise
the payee could not recover if the consideration is not complied with.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. X indorses and delivers to Y as security (pledge) for Xs debt in the amount of
P10,000, a promissory note for P12,000 issued by W in favor of X. How much can Y
collect from W.
- He can collect the P12,000 and apply it to Xs debt and deliver the surplus to him
under Section 27 as Y is deemed a holder for value to the extent of his lien.
- If the note is subject to personal defenses, Y can only collect 10,000.
- If the note is subject to real defenses, Y cannot collect anything.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
2. A promissory note was issued by W without consideration to X who indorsed it to Y,
from Y to Z for value. Give the rights to Z.
- Z is deemed a holder for value in respect to all parties who become such prior to that
time because there is value given for the instrument consistent with what is stated in
Section 26. If Z is a holder in due course, he may enforce the payment in full against
W, X and Y. If Z is not a holder in due course, W can set up the defense of absence of
consideration.

3. W signs a bill of exchange in favor of X for P10,000. Give an instance when X may
enforce payment although W has not received any consideration from X for the bill.
- X may enforce payment from W if W has an antecedent or pre-existing debt. The
payment of debt is sufficient to be a valuable consideration and the debt may be that of
a third party.

CHAPTER III Negotiation

Study Guide:
I. Definitions
1. Negotiation the act of transferring a negotiable instrument from one person to
another to make the transferee the holder thereof.
2. Indorsement it is a new contract and obligation making the transferee the holder
thereof and it generates an additional contract between the indorser who warrants the
genuineness of the instrument and all subsequent holders.
3. Assignment transfer of the title to an instrument including all the defenses available
against the assignor without the need of an indorsement.
4. Issue it is the first delivery of a complete instrument to a person who take it as a
holder.
5. Restrictive indorsement an indorsement that destroys the negotiability of the
instrument because it either prohibits further negotiation, constitute that the indorsee is
an agent of the indorser or vests title to the indorsee for the benefit of a third party or
the indorser.

II. Discussions
1. Give at least four (4) distinctions between negotiation and assignment.
NEGOTIATION ASSIGNMENT
Mode of Transfer Effected by delivery or Done by writing signed by
indorsement followed by the transferor
delivery.
Terms Negotiation refers only to Assignment refers generally
negotiable instruments. to ordinary contracts
Title The transferee becomes a The assignee acquires all the
holder in due course that rights and all the defenses
takes the instrument free available against the
from defect in the title of the assignor.
transferor and subject only to
real defenses.
Liability Indorser is not liable unless Assignor is always liable
there be presentment and even if in the absence of
notice of dishonor. notice of dishonor.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3

2. What are the rights of a restrictive indorsee?

- Under Section 37, the rights of a restrictive indorsee is:
o to receive payment of the instrument;
o to bring any action thereon that the indorser could bring;
o to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.

3. Can there be a negotiation to a payee? Explain.

- Yes, there is negotiation to a payee when the first delivery of the instrument is other
than the payee such as the agent of the maker or drawer or when the instrument is
delivered back to the payee by the last holder.

4. Is indorsement necessary in the transfer of an instrument? Explain.

- Generally, an indorsement is necessary in the execution of a negotiation of an order
instrument but it is not necessary if it is only an assignment of an instrument or if the
instrument is a bearer instrument. Indorsement is also necessary for a transferee of an
instrument payable to his order be considered as a holder in due course.

5. How and for what purpose or reason is a qualified indorsement made?

- According to Section 38, a qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument and it may be made by adding to the indorsers
signature the words without recourse or any words of similar import which in effect
limits the indorsers liability to the instrument.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. X indorsed an instrument by W for P12,000 to Y, to wit: Pay to Y or order P10,000.
Is there a valid negotiation?
- It depends because generally an indorsement must be of the entire instrument under
section 32 otherwise it is not considered a valid negotiation unless the instrument is
paid in part then it may be indorsed as to the residue and be a valid negotiation.

2. X, payee of a note, indorses the same as follows: Pay to Y or order. May Y

negotiate the note by mere delivery?
- If the note is payable to order originally, it may not be negotiated by mere delivery
only unless it is an indorsement in blank or an instrument originally payable to bearer
wherein it may be negotiated by mere delivery only.

3. W, issued a promissory note in favor of X who indorsed the note as follows: Pay to
Y. May the note be negotiated by Y in the absence of words of negotiability, to wit:
or order or to the order of?
- It depends. Yes because according to Sec. 36, the mere absence of words implying
power to negotiate does not make an indorsement restrictive unless there is a
restrictive word following the statement such as only which would prevent further
negotiation and would cease the negotiability of the instrument.

4. A promissory note by W payable to X or his order is indorsed by X to Y payment of

which is subject to fulfillment by Y of a condition. W paid Y knowing that Y has not
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
yet complied with the condition. Has X have the right to recover from W the amount
paid to Y?
- No but he has the right on the proceeds from Y who woud not become the owner
thereof until the condition is fulfilled as stated in Section 39 wherein the party
required to pay may disregard the condition and make the payment to the indorsee or
his transferee even if the condition is not fulfilled but any person to whom an
instrument so indorsed is negotiated will hold the proceeds thereof subject to the rights
of the person indorsing conditionally.

5. Same problem as above. The note is indorsed successively by X to Z, then Z to A, A

to B, B to C, and C to X. On maturity, X claims payment from C. Has C have the
right to refuse payment from X?
- No because under Section 50, an instrument negotiated back to a prior party, he is not
entitle to enforce payment thereof against all intervening party to whom he was
personally liable.

CHAPTER IV Rights of the Holder

Study Guide:
I. Definitions
1. Personal defenses these are defenses available between original parties or immediate
parties but not against a holder in due course.
2. Real defenses these are defenses available against all parties including holders in
due course, immediate and remote parties.
3. Fraud in factum it is a type of fraud where there is misrepresentation to deceive one
and causes him to enter without negligence into a transaction without accurately
realizing the true character of the instrument and the risk, duties and obligations
incurred by him.
4. Notice of infirmity or defect Under section 56, to constitute notice of defect or
infirmity, the transferee must have actual knowledge, either of the defect or infirmity,
or of such facts that his action in taking the instrument amounts to bad faith.

II. Discussions
1. What are the right of a holder in due course?
- Section 57 states the rights of holder in due course:
o holds the instrument free from any defect of title of prior parties
o free from defenses available to prior parties among themselves, and
o May enforce payment of the instrument for the full amount thereof against all
parties liable thereon.
- In Section 51, it is also stated that a holder in due course may sue in his own name and
payment to him in due course discharges the instrument.

2. Enumerate the conditions to qualify one a holder in due course.

- Under Section 52, a holder qualifies as a holder in due course if he has taken the
instrument under the following conditions:
o That it is complete and regular upon its face;
o That he became the holder of it before it was overdue, and without notice that
it has been previously dishonored, if such was the fact;
o That he took it in good faith and for value;
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
o 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.

3. When is the title of one who negotiates an instrument defective under the law?
- Under Section 55, the title who negotiates an instrument is defective when he obtained
the instrument or any signature thereto by:
o fraud
o duress
o force and fear
o other unlawful means
o illegal consideration
o he negotiates in breach of faith; or
o other circumstances as to amount to a fraud

4. When is the date of maternity of an instrument?

- The date of maturity of an instrument is the time fixed therein.
- If payable on demand, it is determined by the date of presentment.
- If payable on occurrence of a specified event which is certain to happen, the date of
maturity is the date when the event actually happened.

5. Illustrate a situation where, in relation to an instrument, there are immediate, remote,

and prior parties.
- D makes and delivers a promissory note to J and J indorses to P, and P to B.
- D-J, J-P and P-B are immediate parties while D and B are remote parties and D, J and
P are prior parties with respect to B.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, a maker of a promissory note; X, payee, increased the amount and indorsed the
note to Y, a holder in due course, and from Y to Z who had notice of the fraud by X,
and from Z to A who had also notice of the defect.
Decide the rights of Z with respect to W, X, and Y, and the rights of A with
respect to all prior parties.
- Z has all the rights of such holder in respect of W, X and Y having derived his title
from Y who was a holder in due course therefore he is a holder through a holder in
due course and he was not a party to the fraud.
- A cannot recover from W because he did not acquire his title from a holder in due
course and is not free from personal defenses.

2. X secured without consideration in breach of faith the promissory note of W, and

indorsed it to Y, from Y to Z, from Z to A, the present holder.
(a) Is A required to show that he is a holder in due course?
- It depends because under Section 59, every holder is deemed prima facie to be a
holder in due course but when it is shown that the title of any person who has
negotiated the instrument was defective, the holder has the burden to prove that he is
actually a holder in due course or he acquired title from a holder in due course.

(b) What is the rule if the breach of faith was instead committed by Y against Z?
- The presumption that A is a holder in due course is not destroyed because X became
bound on the instrument before the acquisition of the defective title by Y.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
3. M, maker of promissory note for P10,000 in favor of X who indorsed it to Y. State the
right of Y if he received notice of defect in the title of X:
(a) Before he has paid X under section 54, he is relieved from the obligation to
make payment.
(b) After he has paid X P6,000 under section 54, if he paid an amount before
discovering the infirmity, he can be considered a holder in due course only to the
extent of the amount paid by him.
(c) Y nevertheless paid X P10,000 under (a) he would not be holder in due course
of the P 10,00 because he paid it still even if he received notice.
(d) Y nevertheless paid X P9, 000 under (b). Y is a holder in due course to the
extent of P 9,000.

CHAPTER V Liabilities of Parties

Study Guide:
I. Definitions
1. Irregular or anomalous indorser - a person who is not really party to the instrument but
affixes his signature on the instrument before its delivery.
2. Party primarily liable the person absolutely required to pay by the terms of the
instrument
3. Indorser Undr section 63, an indorser is a person placing his signature upon an
instrument other than a maker, drawer or acceptor unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
4. Acceptor an acceptor is the one who accepts an instrument and will be liable for
payment thereof according to the tenor of his acceptance.
5. Maker the one who makes a negotiable instrument and engages himself to pay it
according to his tenor and admits the existence of the payee and his then capacity to
indorse.

II. Discussions
1. Give the distinctions between a maker of a promissory note and the drawer of a bill of
exchange.
Drawer Maker
Issues a bill of exchange Issues a promissory note
Secondarily liable Primarily liable
Can limit his liability Cannot limit his liability

2. Give the distinctions between a general indorser and an irregular indorser.

General Indorser Irregular Indorser
Makes either blank or special Always makes a blank indorsement
indorsement
Indorses the instrument after its delivery Indorses before its delivery to the payee
to the payee
Liable only to the parties subsequent to Liable to the payee and subsequent
him parties unless he signs for the
accommodation of the payee which
makes him liable only to all parties
subsequent to the payee.
LAW ON NEGOTIABLE INSTRUMENTS
Daerylle G. Joseco
BSA V-3
3. Give the principal distinction between a primarily liable party and a secondarily liable
party.
primarily liable party secondarily liable party
Absolutely and unconditionally required Conditionally bound to pay the
to pay by the terms of the instrument instrument upon maturity
upon maturity

4. What conditions must be complied with to make a general indorser liable under an
instrument?
- Under Section 66, a general indorser is liable when he engages on due presentment of
the instrument that it shall be accepted or paid or both according to its tenor and that if
it be dishonored and necessary proceedings are duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser who may be compelled to pay it.

III. Problems
Explain or state briefly the rule or reasons for your answer.
1. W, drawer, X, drawee of a bill of exchange payable to order of Y was indorsed
successively to, Z, A, and lastly, to B, the present holder. X publicly made it known
that he would not accept the bill. Learning this, B immediately tried to recover from
W. Decide.
- W is liable only to B and after the necessary proceedings of dishonor are taken, indorsers
Y, Z and A would also be liable to B and if A pays to B, A may recover from W, Y
and Z. W, as drawer is permitted by law to limit his own liability as inserted in the
bill.

2. Same problem above. Afer accepting the bill, X discovered that the signature of Z
was not genuine. X denies liability. Decide.
- Under section 62, an acceptor is primarily liable after he accepts it and cannot retract his
acceptance against a holder for value and an acceptor does not admit the genuiness of
the indorsers signature because he only admits to the existence and genuiness of the
drawers signature therefore in this case X may not deny liability.

3. Same problem as (1). It was established that Z signed the instrument at the instance y
os not liableand for the benefit of A for the purpose of identifying Y, the payee. For
this reason, Z denies liability as an indorser. Decide.
- If Z indicated by using appropriate words his intention to be bound in other capacity, he
may deny liability otherwise he is deemed an indorser under Section 63.

4. Suppose in the first problem, the instrument is a promisory note payable to bearer and
delivered to Y. It was negotiated by delivery by Y to Z in whose hands the note was
dishonored by W because of insolvency. Y denies liability to Z. Decide.
- Y is not liable because he does not warranty Ws solvency under Section 65.

5. Same problem. After dishonor, Z negotiated also by delivery, the note to A, a holder
in due course, concealing the lack of capacity of W to contract (not insolvency),
being a minor. Are Y and Z liable to A?
- Y is not liable but Z is. Y is not because section 65 states that when negotiation by
delivery only, the warrant extends in favor of no holder other than the immediate
transferee. Z is liable because he warrants that all prior parties had capacity to contract
when he delivered the instrument to A.