Review Questions on Negotiable Instruments Law

1. What is a Negotiable Instrument?

2. What are the requisites for the negotiability of the
instrument? WUPOA
3. What does negotiation means? P6
4. When Negotiability Ends? P6
5. What LAW governs the Negotiability of the instrument?
6. What LAW that will govern if the instrument is not
negotiable?
7. What countries in which the judicial decisions of their
courts can be applied in the Philippines in so far as it
concerns on NIL?
8. What are the functions of the Negotiable Instrument?
OMFI
1. It operates as the substitute for money;
2. It is a means creating and transferring credit;
3. It facilitates the sale of goods;
4. It increases the purchasing medium in circulation.
9. Is Negotiable Instrument a Legal Tender?
10. What is a Legal Tender? It a currency that is valid for the
payment of a debt which must accepted by the creditor.
11. Under Philippine Law, what are valid legal tenders?
12. Give the corresponding amount of the coins that are
considered legal tender in the Philippines.
13. What are the 2 important features of a Negotiable
instrument? P8
14. What are the kinds of Negotiable Instruments?
15. What is a BILL OF EXCHANGE?
16. What is a PROMISORY NOTE?
17. What are the kinds of Bills of Exchange?

a. Draft-is synonymously refers to a Bill of Exchange,

although, it normally refers to a Bill of Exchange used in
documentary exchange like Letters of Credit transactions.
b. Inland and Foreign Billc. Time draftd. Sight or Demand Draft- is a Bill payable upon
presentment.
e. Trade Acceptance- Bill that is used in contracts of sale
where the seller as a drawer orders the buyer (as drawee)
to pay a sum certain to said seller.
. Bankers Acceptance- a time draft which across the face
thereof, the word accepted is written by the bank.
g. Check18. What are the kinds of Promissory Notes?
a. Certificate of Deposit-a form of promissory note which a
written acknowledgment of a bank of its receipt of certain
sum with a promise to repay the same.
b. Bonds- is a certificate of indebtedness whereby the
company or the government body promises to pay the
bondholders a specified amount of interest for specified
length of time, and to repay the loan at the expiration
date.
c. Debenture- is a promissory note or bond backed by the
general credit of a corporation and usually not secured by
a mortgage or lien on any specific property
19. What are the instances when a bill maybe regarded as a
promissory note? DDDI
20. Distinguish Promissory note from a Bill of Exchange.
A;what contains, b; number of parties c; who is primarily
liable d; number of presentment

21. Distinguish Bill of Exchange from a Check. A; where it is

drawn or funds to the drawee b; In a Bill of Exchange
Death of the drawer of a bill with knowledge of the bank,
does not revoke the authority of the banker to pay
whereas a in a check, Death of the drawer, with
knowledge to the bank revokes the authority of the banker
to pay c; when maybe presented?
22. Are the following commercial papers Negotiable?
a. Crossed Check;
b. Trade acceptance;
c. Money Order;-an order for specific sum of money, usually
purchased with cash at a bank or post office that can be
used for payment.
d. A warehouse receipt;
e. A pawn ticket-represent an article
. Treasury warrant; payable out of a particular fund.
g. Bill of lading;
h. Trust receipt; evidenced of ownership of goods
23. Who are the persons involved,
a. For Promissory Note;
b. For Bill of exchange.
24. Who is a referee? A Person who may be designated in
the instrument as the person who may be resorted to by
the parties in case of dispute.
25. Distinguish Negotiable Instrument from Non-Negotiable
Instrument, as to;
a. What law govern?
b. As to the manner of transfer;
c. Rule on assignee/holder;
26. Distinguish Negotiability from Assignability.

a. In assignment, the transferee can have no better right

than his transferor simply because he merely steps into
the shoes of the latter, while in negotiation, the transferee
may have a better right than the transferor especially if he
is a holder in due course.
b. In assignment, the transferee has no right of recourse
against intermediate parties while in negotiation, the
holder can hold the drawer and the indorsers liable if the
party primarily liable does not pay.
27. Distinguish Negotiable Document of Title from Negotiable
Document. As to subject matter, as the property itself, as
to existence of the requisites enunciated in Sec.1, NIL, as
to liability of intermediate/secondary party, as to the
nature of holder.
28. Give the form of Negotiable Instrument. Sec. 1 NIL
29. What is the rule on signature? The signature need not be
the usual signature of the maker/drawer/indorser, but
enough if the letter or symbol is intended by the latter to
authenticate the instrument.
30. What are the words equivalent to promise or order?
a. payable on demand
b. due .
c. I acknowledge myself to be indebted to the order of Juan
the amount ___ to be paid on demand.
31. As a rule, the order or promise must be unconditional.
What are the instances when the same is
CONDITIONAL?
When payable out of a particular fund;
When payable upon a contingency.

32. What are those instances that although, they are present,
but the instrument remains to be unconditional?
When there is an indication of a particular fund, out of
which a reimbursement is made.
A statement of transaction which gives rise to the
instrument.
33. Distinguish indication of a particular fund for payment
against Fund for reimbursement

FUND
FOR INDICATING
REIMBURSEMENT
PARTICULAR FUND
A. (1) The drawee pays There is only one actthe payee from his own the drawee pays directly
funds afterwards the from the particular fund
drawee pays himself indicated.
from the particular fund
B. Particular
fund The particular fund
indicated is not the indicated is the direct
direct
source
of source of payment.
payment
34. What are the instances that although there are additional
provisions inserted in the instrument but still it retains the
negotiability of the instrument and the sum remains to be
certain in money? Sec. 5, NIL
a. Authorizes the sale of collateral securities in case the
instrument is not paid upon maturity
b. Authorizes a confession of judgment in case the
instrument be not paid at maturity;

c. Waives the benefit of any law intended for the advantage

or protection of the obligor; or
d. Gives the holder an election to require something to be
done in lieu of the payment of money.
35. What are the instances that although there are additional
undertakings or words inserted but the instrument
remains to be payable in the sum certain in money? Sec.
2, NIL
a. with interest
b. by Stated instalment
c. by stated instalment, with the provision that upon default
in payment of instalment or interest, the whole amount
shall become due (acceleration clause);
d. With exchange, whether fixed rate or a the current rate;
e. With costs of collection or an attorneys fee in case
payment is not made at maturity.
36. What is meant by stated instalment?
37. When may an instrument payable on demand?Sec. 7, NIL
When it is so expressed to be payable on demand or at
sight, or on presentation; or
When no time of payment is expressed;
Where the instrument is issued, accepted, or indorsed
when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.
38. When is an instrument payable at a fixed or determinable
future time?Sec. 4, NIL
a. At a fixed period after date or sight;
b. On or before a fixed or determinable future time specified
therein;

c. On or at a fixed period after the happening of the

specified event which is certain to happen, although the
time of happening be uncertain.
39. What are acceleration, insecurity and extension clauses?
What happen to the instrument if they are inserted
thereto?
Acceleration clause- when there is stated instalment and
there is additional provision that provides that in case of
default for the payment of instalment or interest, the whole
amount shall be deemed due.the instrument remains to
be negotiable
Insecurity clause- is an additional provision that allows the
holder to accelerate payment on the instrument if he
deems himself insecure.the instrument is rendered nonnegotiable.
Extension clause-the instrument is payable at a definite
time subject to extension at the option of the maker or
acceptor.the instrument is still negotiable
40. What is the effect if the instrument is payable to specified
person or entity?
41. When is the instrument payable to Bearer? Sec.9, NIL
a. When it is expressed to be so payable to bearer;
b. When it is payable to person named therein or bearer;
c. When it is payable to the order of a fictitious or nonexisting person;
d. When the name of the payee does not purport to be the
name of a person;
e. When only or the last indorsement is an indorsement in
blank.

42. What are the two (2) ways by which the instrument can be
payable to order? Sec. 8, NIL
When the instrument is payable to the order of the
specified person; or
When the instrument is payable to the specified person or
his order
43. When the instrument is payable to cash or order, what
does it connotes? The instrument is payable to bearer.
44. If there are 2 or more drawees, what should be done in
order that the instrument remains to be negotiable? The
bill should be addressed to them jointly not as in
alternative.
45. What are the omissions and provisions that do not affect
the negotiability of the instrument? Sec. 6, NIL .DVPBDA
The validity and negotiable character of the instrument
are not affected by the fact that;
1. It is not dated;
2. Does not specify the value given;
3. Does not specify the place where it is drawn or the place
where it is payable;
4. Bears a seal;
5. Designates a particular kind of current money in which
payment is to be made;
6. Addressed to more than one drawee jointly
46. What is an instance when date should be inserted by the
holder? P.24
47. What are the two ways to transfer a negotiable
instrument?

48. In what manner a non-negotiable instrument maybe

transferred?
49. What is the effect if the instrument is merely assigned?
The transferee does not become a holder thereof, but he
merely steps into the shoes of the transferor, henceforth,
any defense available to the transferor is available to the
transferee.
50. What is issue or issuance? Sec. 191, NIL.It is the
first delivery of the instrument complete in form to the
person who takes it as a holder.
51. What signifies the issuance of the instrument to the
payee? It is negotiation because the transfer constitutes
the payee the holder of the instrument. When can he be
considered a holder in due course?
52. What is meant by delivery? The transfer of possession of
the instrument by the maker or drawer with the intention
of transferring the title to the payee and recognize him as
the holder thereof.
53. What is negotiation? It is the transfer of the instrument
form one person to another in such a manner to make the
transferee the holder thereof.
54. How to effect negotiation if the instrument is;
a. Payable to Bearer; or
b. Payable to Order. (Indorsement plus delivery)
55. What is the nature of a bearer instrument? A bearer
instrument always a bearer instrument.it may, however
be negotiated by special indorsement, but it may
nevertheless be further negotiated by delivery. Any person
indorsing the same specially is liable as indorser to only

such holders who derived their title through such

indorsement.
56. What is the effect if an order instrument is negotiated
without
indorsing
the
same
(INCOMPLETE
NEGOTIATION)? Sec. 49, NIL.The transfer vests in the
transferee such title as the transferor had therein (same
as assignment), and the transferee acquires in addition,
the right to have the indorsement of the transferor.
57. Where should indorsement be placed? Sec. 31, NIL
a. On the instrument itself; or
b. On separate piece of paper attached to the instrument
called allonge
58. What is the manner of indorsing an instrument? The
indorsement must be the entire instrument, except when
there was previous payment.
59. What are the kinds of indorsement?
60. What is a qualified indorsement?
61. Give the instances when indorsement is restrictive?
62. What are the rights of the restrictive indorsee? RBT
63. What is the effect if the instrument is negotiated back to a
prior party? Sec. 50, NIL
a. Such party may reissue and further negotiate the
instrument;
b. But he is not allowed to enforce payment from the
intervening parties, to whom he was personally liable;
c. He is allowed to strike out the intervening indorsement
because they are not necessary to his title, and he is
liable to them because of his initial indorsement.
64. Who is a holder of an instrument? Sec. 191, NIL

The payee or indorsee of a bill or a note who is in

possession of it or the bearer thereof.
65. Give the requisites of a Holder in due course. Sec. 52,
NIL
66. What is the effect if an instrument payable on demand is
negotiated after unreasonable length of time? The holder
is not deemed the holder in due course. Sec. 53, NIL.
67. What is unreasonable time with regard to negotiation of
the instrument? It is a question of fact, which should be
interpreted with due regard to the usage of trade or
business with respect to the instrument.
68. What is meant by infirmities in the instrument?
69. Give the instances where there are defects in the
instrument.
Where there is notice of alteration in the instrument which
is apparent;
Notice of forgery in the maker or the drawers signature.
70. When is there defective title in the instrument?
71. What is the rule on good faith in taking the instrument?
Good faith is presumed. It is destroyed when the holder
acquires it under circumstances that would put him to
inquiry as to the title of the transferor.
72. What is value, with regard to the instrument? It is a
consideration sufficient to support a simple contract.
These include antecedent debts and lien on the
instrument.
73. Who is a holder for value? One who holds the instrument
in exchange of valuable consideration sufficient to support
the execution of the instrument.
74. What are the rights of the HOLDER IN DUE COURSE?

 He holds the instrument free defect of title of prior parties;

He holds the instrument free from personal defences of
prior parties;
He can enforce the instrument up to its full amount
against all parties liable thereto.
75. May one who fails to inquire as to an infirmity in a
negotiable instrument and defect in the holders title, be a
holder in due course?
76. Enumerate the Real and Personal defences in the
instrument.
REAL DEFENSES
1. Minority (available only 1.to
the minor)
2. Forgery
3. Incomplete Undelivered
instrument
4. Material Alteration

PERSONAL DEFENSES
Failure or absence of
consideration
2.Illegal Consideration
3.Complete
undelivered
instrument
4.Conditional delivery of
complete instrument
of 5.Fraud in inducement

5. Ultra Vires Act

Corporation
6. Fraud in factum or esse
contractus
7. Illegality-if declared void
for any purpose
8. Vicious force or violence
9. Want of authority

6. Filling up blank not within

authority
7. Duress or intimidation
8. Filling up blank beyond
reasonable time
9. Transfer in breach of
faith

10. Prescription
10. Mistake
11. Discharge in insolvency 11. Insertion of wrong date
12. Ante-dating or Postdating for illegal or
fraudulent purpose.
77. Distinguish real defense from personal defense.
78. When is there forgery?
79. Give the effect in case of forgery in the signature of the
maker or indorser of the instrument.
80. What are the rules with respect to forgery of instrument?
Only the forged signature is wholly inoperative, not the
instrument itself and not the genuine signatures
Parties prior to forgery can also avail the real defense of
forgery;
Despite of forgery, the following parties are precluded
from setting up the real defense of forgery;
a. Those who warrant the instrument;
b. Those who ratify the forgery;
c. Those who are negligent.
81. Discuss the meat of Section 14 of NIL.
a. The person who holds the instrument wanting in material
particular has the prima facie authority to complete it;
b. The person who is in possession of a paper containing a
blank signature delivered by the person making such
signature with the intention of converting it to a NI, has the
prima facie authority to fill it up for any amount;
c. In both of the foregoing, in order that the instrument
maybe enforced against parties prior to the completion
must be filled up strictly in accordance with the authority
given.

d. Persons who became parties to the instrument after the

completion is liable to the instrument of his warranty.
82. What is the effect if the instrument is not dated?
83. What is Section 13 of NIL?
The insertion of a wrong date will not avoid the instrument
in the hands of the subsequent holder in due course, but
as to him the date so inserted is to be regarded as the
true date.
84. What is Material alteration?
85. When is there Material alteration? DST-NMAA
Any alteration which changes the following:
a. Date;
b. Sum payable;
c. Time and place of payment;
d. Number or relation of parties;
e. Medium or currency of payment;
. Adds a place of payment where non is specified
g. Alters the effect of the instrument.
86. What is the effect if there is material alteration?
Material alteration is a real defense;
It avoids the instrument except as against the party who
made, authorized, or assented to the alteration and
subsequent indorsers.
87. What is Fraud in Factum or Esse contractus?
Literarily means FRAUD IN EXECUTION. This is
present if the person is induced to sign an instrument not
knowing its character as a note or a bill. The person
signing the instrument does not know that he is signing a
negotiable instrument. This is a REAL DEFENSE.

88. What is Fraud in inducement? The person who signed

the instrument knows that it is a negotiable instrument,
only that, he was induced to sign it through fraud. In
otherwords, his consent to sign the NI was vitiated by
fraud. THIS IS A PERSONAL DEFENSE only.
89. NOTE: Absence or failure of consideration is only a
personal defense while illegal consideration is a real
defense if the statute declares the instrument void for any
purpose
90. What is the effect to the instrument if there is failure,
absence or illicit/illegal consideration?
If there is absence of consideration in the instrument
issued, the same would avoid the instrument, however, it
is only a personal defense. With respect to illegality of
consideration, it is a real defense if the statute would
declare the instrument illegal or void for any purpose.
91. What is the effect, in case of minority, incapacity or want
of authority?
Minority or incapacity is a real defense, but only minors
and incapacitated person can avail said defense.
Capacitated persons cannot invoke the defense of
minority or incapacity because such defense is personal
to minors and incapacitated persons.
Instruments issued as an ultra vires act of the
corporation is a real defense.
92. What kind of defense is the Statute of
limitations/prescription? When does the right to file claim
arising from the instrument prescribed?

Prescription is a real defense, that is, available even to

holder in due course. The prescriptive period to file claims
arising from the negotiable instrument is the (10) from the
cause of action accrues.

PERSONS
primarily
and
SECONDARILY
LIABLE
TO
THE
INSTRUMENT
93. Give the classification of the parties according to their
liabilities:
PRIMARILY LIABLE:
a.The maker of the promissory note;
b.The acceptor of a bill;
c. The certifier of a check
SECONDARILY LIABLE
a.The drawer of a bill;
b.The indorser of a note or bill.
NOT LIABLE:
-THE DRAWEE UNTIL HE ACCEPTS THE
INSTRUMENT IN WHICH CASE HE BECOMES AN
ACCEPTOR.
94. What is the liability of the maker?
Primarily liable;
1.Engages to pay according to the tenor of the
instrument;
2.Admits the existence of the payee and his
capacity to indorse.
95. What is the liability of the ACCEPTOR (and the drawee
that pays the instrument without accepting it)?
Primarily liable:

1.Engages to pay according to the tenor of his

acceptance;
2.Admits the existence of the drawer, the
genuineness of his signature and his capacity
and authority to draw the instrument;
3.Admits the existence of the payee and his
capacity to indorse
96. What is the liability of the drawer?
SECONDARILY LIABLE:
1.Admits the existence of the payee and his
capacity to indorse;
2.Engages that the instrument will be
accepted or paid by the party primarily
liable;
3.Engages that if in case dishonoured and
proper proceedings are brought, he will to
the party entitled to be paid.
Warranties

97. What are the warranties of a qualified indorser and

persons negotiating by delivery?
1.That the instrument is genuine and in all respects
what it purports to be;
2.that he has a good title to it;
3.That all prior parties had capacity to contract;
4.That he has no knowledge of any fact which would
impair the validity of instrument or render it
valueless;

98. What are the warranties of General Indorser?

1.That the instrument is genuine and in all respects

what it purports to be;
2.that he has a good title to it;
3.That all prior parties had capacity to contract;
4.That the instrument is, at the time of the
endorsement, valid and subsisting.
99. Define accommodation and accommodated party and
give the liability of the accommodation party?
An ACCOMMODATION PARY is one who signed the
instrument as maker, drawer, acceptor, or indoser
without receiving any consideration and for the
purpose of lending his to another party.
An ACCOMMODATED PARTY is a party in whose
favour the instrument is issued

An
ACCOMMODATION PARTY is liable to holder for
value, even if such holder knew that the party was
an accommodation party when he took the
instrument.
How to enforce liability:

100. When is the maker or drawer liable to the

instrument?
The maker is liable to the instrument the moment is
makes the same, because Sec. 60 provides that the
maker by making the promissory note engages to pay
the instrument according to its tenor.
The DRAWEE becomes liable the moment he accepts
the instrument. Section 62 provides that the acceptor,
by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance.
101. State the instance when the indorser or person
secondarily liable to the negotiable promissory note
becomes liable.
The party secondarily liable becomes liable under
the following:
1.Presentment for payment must be made within the
required period to the maker;
2.Notice of dishonor should be given, if promissory
note is dishonored by non-payment of the maker.
102. Give the steps in charging the secondary party in
Bill of Exchange.
1.Presentment for acceptance or negotiation within
a reasonable time after it was acquired however
presentment for acceptance is necessary only in
the following instances: (SEC. 143, NIL)

(a.) Where the bill is payable after sight, or in

any other case, where presentment for
acceptance is necessary in order to fix the
maturity of the instrument or,
(b.) When the bill expressly stipulates that it shall
be presented for acceptance; or
(c.) When the bill is drawn payable elsewhere
than at the residence or place of business of
the drawee.
2.If dishonored by non-acceptance, the following
shall be observed:
(i) Notice of dishonor should be given to the
indorsers and drawer;
(ii) If the bill is a foreign bill, there must be
protest for dishonor by non-acceptance.
3.If the bill is accepted:
(i) Presentment for payment to the acceptor
should be made:
a.If the bill is dishonored upon presentment
for payment.
b. Notice of dishonor should be given to
party/parties secondarily liable.
c.If the bill is a foreign bill, protest for
dishonor by non-payment must made.
103. When to charge the acceptor for honor and
referee in case of need?
-Protest for non-payment by the drawee.
Sec. 165. Agreement of acceptor for honor.

The acceptor for honor, by such acceptance

engages that he will, on due presentment, pay the
bill according to the terms of his acceptance,
provided it shall not have been paid by the drawee
and provided also that it shall have been duly
presented for payment and protested for nonpayment and notice of dishonor given to him.
104. Give the rules for presentment for payment.
GENERAL RULE: Presentment for payment is
not necessary to charge persons primarily liable.
But it is necessary to charge persons secondarily
liable, except under the following
1. As to the
drawer, under Section 79, where he has no
right to expect or require that the drawee
or acceptor will pay the instrument;
2.
As
to
indorser, under section 80 were the
instrument was made or accepted for his
accommodation and he has no reason to
expect that the instrument will be paid if
presented;

3.
When
dispensed with under section 82, such as:
(i) where, after the exercise of reasonable
diligence, presentment cannot be made;
(ii) where the drawee is a fictitious person;
(iii) by waiver of presentment, express or
implied;
4. When the
instrument has been dishonored by nonacceptance.
105. What are the requisites for a valid presentment for
payment?
a.Presentment must be made by the holder or
person authorized to receive payment on his
behalf;
b.It must be made on a reasonable hour of
business day;
c.It must be made at the proper place;
d.It must be made to the person primarily liable or
to any person found in place where the
presentment was made;
e.The instrument must exhibited and must be
delivered to the person paying the same upon
payment.

106. Presentment for payment of the instrument must

be made at a reasonable time. What is meant by
reasonable time?
REASONABLE TIME- refers to time as a
reasonable, prudent and diligent man do
conveniently , what the contact or duty requires
should be done having a regard for the rights
and possibility of loss, if any, to the other party.
CHECKS- presentment for payment must be
made within 6 months or 180 days.
107. When is presentment for acceptance mandatory?
Where the bill is payable within fixed period after
sight; or where acceptance is necessary to fix
the maturity of the instrument.
Where the bill expressly stipulates that it shall be
presented for acceptance;
Where the bill is drawn payable elsewhere than
the residence or place of business of the
drawee.
108. What are the instances when presentment for
acceptance is excused?

Where the bill is drawn payable

elsewhere than the residence or place of

business of the drawee and the holder with the

exercise of reasonable diligence failed to
present the instrument. What is excuse here is
the delay in presenting the instrument caused by
presentment for acceptance.

Where the drawee is dead, or has

absconded, or is fictitious person or a person not
having capacity to contract by bill.

Where after the exercise of

reasonable diligence, presentment cannot be
made.

Where, although presentment has

been irregular, acceptance has been refused on
some other ground.
109. What is meant by acceptance?
It is the signification of the drawee of his assent to
the order of the drawer.
110. What are the requisites of acceptance?
The acceptance must be in writing;

Signed by the drawee;

The drawee assented to the
promise to pay a sum certain in money and not
by any other means.
111. In what form should the acceptance be made?
The rule is that THE ACCEPTANCE SHOULD
BE IN THE INSTRUMENT ITSELF OR IN
SEPARATE INSTRUMENT. However, under section
133, the holder may require that the acceptance be
made on the bill itself, refusal by the drawee, the
holder may treat the bill as dishonored.
112. When is there deemed acceptance of the bill?
The drawee is deemed to have accepted the
instrument:
The bill was delivered to the drawee and
the latter destroys the same.
The bill was delivered to the drawee but
the drawee refuses within twenty four
hours or within such other period as the
holder may allow to return the bill
accepted or non-accepted.(Sec. 137,
NIL)

 NOTE: the drawee is allowed twenty-four hours

after presentment in which to decide whether or
not he will accept the bill; the acceptance, if
given, dates as of the day of presentation. (Sec.
136, NIL) Meaning the acceptance retroacts on
the day of presentation.
113.

What is the effect of an