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CMLAW

The document discusses several cases involving promissory notes and their negotiability. It addresses whether various notes meet the requirements to be considered negotiable instruments under the Negotiable Instruments Law, and which parties may be able to enforce payment or be held liable. Key requirements for negotiability include being payable to order or bearer for a fixed amount, and not containing additional conditions.

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173 views

CMLAW

The document discusses several cases involving promissory notes and their negotiability. It addresses whether various notes meet the requirements to be considered negotiable instruments under the Negotiable Instruments Law, and which parties may be able to enforce payment or be held liable. Key requirements for negotiability include being payable to order or bearer for a fixed amount, and not containing additional conditions.

Uploaded by

Maya
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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COMLAW

1. A promissory note reads as follows: “I promise to pay Gabriela Silangan


P1,000.00 three years after the unconditional withdrawal of the U.S. of its
military bases in the Philippines.” Discuss the negotiability or
non-negotiability of the note above.

The promissory note above is non-negotiable. It does not conform with the
Section 1 of the Negotiable Instruments Law. First, it contains a condition
which is to pay Gabriela Silangan after the unconditional withdrawal of the
U.S of its military bases in the Philippines. Second, it is not made payable to
order or bearer. It does not indicate any words equivalent to order or bearer. It
is only payable to a specified person. It ceases to be negotiable since the
indorsement prohibits the further negation of the instrument.

Bare acknowledgment of indebtedness. It does not constitute a negotiable


instrument. It contains no express promissory words.

2. MP bought a used cell phone from JR. JR preferred cash but MP is a


friend so JR accepted MP’s promissory note for P10,000.00. JR thought
of converting the note into cash by endorsing it to his brother KR.

The promissory note is a piece of paper with the following hand-printed


notation: “MP WILL PAY JR TEN THOUSAND PESOS IN PAYMENT FOR
HIS CELLPHONE ONE WEEK FROM TODAY”. Below this notation is
MP’s signature with “8/1/00 next to it, indicating the date of the
promissory note.

When JR presented MP’s note to KR, the latter said it was not a
negotiable instrument under the law and so could not be a valid cash
substitute. JR took the opposite view, insisting on the note’s
negotiability. You are asked to referee . Which of the opposing views is
correct? Explain.

KR is correct. The promissory note is non-negotiable. It is not issued to order


or to bearer. It is only issued payable to JR that the 10,000 pesos payment for
the cell phone will only be payable to JR one week from the signed date by
MP. According to the Section 1 of the Negotiable Instruments Law, an
negotiable instrument must be payable to order or to bearer. There are no
words from the note indicating it to be negotiable.
3. Perla bought a motor car payable in installments from Automatic
Company for P250,000.00 with a P50,000.00 down payment. She
executed a promissory note for the balance which reads:

For value received, I promise to pay the Automotive Company or order


at its office in Legazpi City, the sum of P200,000.00 with interest at 12%
per annum, payable in equal installments of P20,000.00 for ten (10)
months starting 21 October 2002.

Manila, 21 September 2002

SGD Perla

Pay to the order of Reliable Finance Corp. Automotive Company

By: (Sgd.) Manager

Because Perla defaulted in the payment of her installments, RFC


initiated a case against her for the sum of money. Perla argued that the
promissory note is merely an assignment of credit, a non-negotiable
instrument open to all defenses available to the assignor and, therefore,
RFC is NOT a holder in due course.

Is the promissory note a mere assignment of credit? Or a negotiable


instrument? Why?

In accordance with the provisions in the Section 1 of the Negotiable


Instruments Law, the promissory note issued by Perla is negotiable. And
according to the Section 2, even with the payable sum to be paid with interest
nor the stated installments upon default of a payment rendering the amount
payable uncertain.

4. Larry issued a negotiable promissory note to Evelyn and authorized the


latter to fill up the amount in blank with his loan account in the sum of
P1,000.00. However, Evelyn inserted P5,000.00 in violation of the
instruction. She negotiated the note to Julie who had knowledge of the
infirmity. Julie, in turn, negotiated said note to Devi for value and who
had no knowledge of the infirmity.

(a) Can Devi enforce the note against Larry, and if she can, for how
much?

(b) Supposing Devi indorses the note to Baby for value but who has
knowledge of the infirmity, can the latter enforce the note against
Larry? Explain

a. Yes. Devi can enforce the note against Larry because she is the holder
in due course and has the possession of the note in good faith.
According to the Sec 57, the rights of the holder in due course includes
being able to hold the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full
amount. The breach executed by Evelyn does not make Larry be able
to set it up to Devi because it is a personal defense. As a holder in due
course, Devi is subject to a real defense. Devi can recover up to
P5,000 amount of certain sum from Larry.
b. Yes. Baby is not the holder in due course because she/he has the
possession of the note in bad faith. It is only to the extent of having it as
personal defense. However, having the notes received from Devi, the
holder in due course, Baby has all the rights of the holder in due
course. As Baby is not part of the breach committed by Evelyn .

5. PN makes a promissory note for P5,000.00, but leaves the name of the
payee in blank because he wanted to verify its correct spelling first. He
mindlessly left the note on top of his desk at the end of the workday.
When he returned the following morning, the note was missing. It turned
up later when X presented it to PN for payment.

Before X, T, who turned out to have filched the note from PN’s office,
had endorsed the note after inserting his own name in the blank space
as the payee.

PN dishonored the note, contending that he did not authorize its


completion and delivery. But X said he had no participation in, or
knowledge about, the pilferage and alteration of the note and therefore
he enjoys the rights of a holder in due course under the Negotiable
Instruments Law. Who is correct and why?

PN is correct. According to Section 15 of Negotiable Instruments Law, any


incomplete instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of any holder. PN
did not authorize its completion and delivery. The instrument was incomplete
and undelivered. There was no contract created to bind PN with the obligation
to pay the amount of certain money of P5,000 to X.

6. A delivers a bearer instrument to B. B then specially indorses it to C,


and C later indorses it in blank to D. E steals the instrument from D and,
forging the signature of D, succeeds in “negotiating” it to F who
acquires the instrument in good faith and for value.

(a) If, for any reason, the drawee bank refuses to honor the check, can F
enforce the instrument against the drawer?
(b) In case of the dishonor of the check by both the drawee and the
drawer, can F hold any of B, C and D liable secondarily on the
instrument?

a. Yes. F can enforce the instrument against the drawer. The instrument
was a bearer instrument. It is negotiated by mere delivery only,
considering as well the special indorsements. As stipulated in Sec 23, it
becomes wholly inoperative unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of
authority. The forged signature of D is unnecessary to presume the
juridical relation among the parties prior and after the forgery. Only
signatures forged or made without authority is what stated in Section
23 as inoperative. The instrument and the genuine signatures remain
operative. Hence, D which is the one whose signature was forged, can
be the only one to raise defense against the holder in due course.

b. In compliance to the Section 23 of the Negotiable Instruments Law,


only B and C can be held liable by F. The instrument during the
occurrence of the forgery was payable to bearer, making it a bearer
instrument. According to Sections 65 and 66, B and C warrant the
instrument indorsed by them genuine and cannot intervene the defense
that signatures prior to them are forged. The instrument was indorsed
in blank by C to D, and D whose signature was forged by E cannot be
held liable by F.
7. A entrusted to B, his secretary, a blank check drawn on X bank, signed
by him, with instructions to fill up the check in favor of D for the amount
of P1,000.00 and to thereafter deliver the said check to D.

In breach of trust, B filled up the check by writing the name of E, and the
amount of P2,000.00 on the check and delivered the same to E, who
accepted it in payment of certain goods sold by E to B.

Before E could encash the check, A learned of the misdeed of B and


issued a stop-payment order to X bank as a result of which X bank
refused to honor the check presented to it by E.

Can E now hold X bank and A liable?

No. E cannot hold X bank liable. A drawee can not be held liable unless it
accepts the instrument. The drawee’s obligation is to verify the genuineness of
the drawer’s signature not of the indorsement negotiations. The bank will be
wrapped on the drawer as it's his client. The drawee in the situation is the X
bank. And according to Section 15, A can not be also held liable. It stipulates
that an incomplete instrument has not been delivered, it will not, if completed
and negotiated without authority, be a valid contract in the hands of any
holder. The instrument was not delivered to D, the one supposed to be in
favor to. With this, Even E, the holder in due course, cannot hold X bank and
A liable.

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