NEGOTIABLE INSTRUMENTS LAW

(Examination)

GRACILLA, ANA MAE S.

BSAIS 2A

I.
A.
1. Who are the parties in a check? (2%)
The parties in a check are the payee, the drawer and the
drawee.

2. Define each of them as provided in the negotiable

instruments law. (3%)

Payee is the obligee, that is, the person who, by the terms of the
note or the bill, is to receive payment. The Drawer is the person
who withdraws the bill of exchange and orders the drawee to pay a
sum certain in money. The Drawee is the person to whom the
order to pay is addressed in a bill of exchange.

3. Once a party accepts an instrument, what is his liability under

NIL?
(5%)
Once a party accepts an instrument there no liability under
the Negotiable instruments law. No person is liable on the
instrument whose signature does not appear thereon, except as
herein otherwise expressly provided. But one who signs in a trade
or assumed name will be liable to the same extent as if he had
signed in his own name.is

B.
1. Who are the parties in a bill of exchange? (2%)
The parties in a bill of exchange are the drawee, the payee
and the drawer.

2. Define each of them as provided in the negotiable

instruments law.
(3%)
The drawee is the party that pays the sum specified by the
bill of exchange. The payee in the bill of exchange is the one who
receives that sum. The drawer is the party that obliges that drawee
to pay the payee.

C.
1. Who are the parties in a promissory note? (5%)
The parties in a promissory note are the maker, the payee
and the holder.

2. Define each of them as provided in the negotiable

instruments law.
 (5%)

The maker in the promissory note is the person who makes or

executes a promissory note and pays the amount therein. The
payee in the party is the person to whom a note is payable. Lastly,
the holder is basically the person who holds the notes.

II.
1. When an instrument is ambiguous, what rules of construction
apply? (5%)

Ambiguous Instruments is defined in Section 17 of Negotiable

instruments Act, 1881. Ambiguous Instrument is an instrument,
which in form is such that it may either be treated by holder as a
note or as a bill. When an instrument is ambiguous the rules of
construction to apply are; Words prevail over figures and Interest
runs from the date of the instrument, if date from which interest is
to run is unspecified; if undated, from the issue. Then, if undated,
deemed dated on the date of issue. The Written provisions prevail
over printed. If there is doubt whether it is a bill or note, the holder
may treat it as either at his election. When not clear in what
capacity it was signed, deemed signed as an indorser. Lastly, if "I
promise to pay" but signed by two or more persons, jointly and
severally liable.

2. State the liability of person who signs in his trade or assumed

name, provide the general and exceptions to the rule. (5%)

Sec. 18. Liability of person signing in trade or assumed name.

- No person is liable on the instrument whose signature does
not appear thereon, except as herein otherwise expressly
provided. But one who signs in a trade or assumed name will
be liable to the same extent as if he had signed in his own
name.

GENERAL RULE AS TO LIABILITY OF PERSON WHOSE

SIGNATURE IS
NOT ON INSTRUMENT

A person whose signature doesn’t appear on the

instrument is not liable.

EXCEPTIONS TO THE GENERAL RULE

1. Where a duly authorized agent signs for a person, the
person is liable
2. Where a person sought to be charged forges the
signature of another person, the forger is liable even if his
signature doesn’t appear thereon
 3. Where a person sought to be charged signs on a paper
separate from the instrument itself, as in an allonge,
although the allonge may be considered a part of the
instrument, or where an acceptance is written on a paper
other than the bill itself
4. Where the person uses an assumed name or trade
name—one may become a party to a negotiable instrument
by any designation he desires.

III.
State the incidents in the life if a negotiable instrument and define
each according to the provisions of the negotiable instruments law.
(20%)

1. Preparation and signing

- A negotiable instrument is a written document, signed by the
maker or drawer that contains an unconditional promise to pay a
certain sum of money on delivery or at a definite time to the
bearer. Because of this feature, negotiable instruments are highly
trusted and are used daily by millions of people. 2. Issue
- Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for
value. Sec.
3. Negotiation
- An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee
the holder thereof. If payable to bearer, it is negotiated by delivery;
if payable to order, it is negotiated by the indorsement of the
holder and completed by delivery. 4. Presentment for acceptance,
in certain kinds of bills of exchange

a) WHEN MANDATORY (Sec. 143, NIL)

Presentment for acceptance is required in the
following cases:
1) Where the bill is payable within a fixed rood after sight, or in
any pe- other case, where presentment for acceptance is order
to necessary in fix the maturity of the instrument; or
2) Where the bill expressly stipulates that it shall be presented for
acceptance; or
3) Where the bill drawn is payable elsewhere than at the residence
or place of business of the drawee.
Note: It is not necessary to present a check for acceptance
because it is not one of those required to be presented for
acceptance under Section143.
 b) WHEN EXCUSED OR DISPENSED WITH
1) Delay is excused -A bill drawn payable elsewhere than at the
place of business or the residence of the drawee and the
holder, with the exercise of reasonable diligence, failed to
present the bill for acceptance. What is excused is the delay in
presenting it for payment caused by presentment for
acceptance (Sec. 147, NIL).
2) Where the drawee is dead, or has abscond- ed, or is a fictitious
person or a person not having capacity to contract by bill.
3) Where, after the exercise of reasonable diligence, presentment
cannot be made.
4) Where, although presentment has been irregular, acceptance
has been refused on some other ground (Sec. 149, NIL).
5. Acceptance
- The signification by the drawee of his assent to the order of the
drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his
promise by any other means than the payment of money.

6. Dishonor by non-acceptance
- The holder may refuse to take a qualified acceptance and if he
does not obtain an unqualified acceptance, he may treat the bill as
dishonored by nonacceptance. Where a qualified acceptance is
taken, the drawer and indorsers are discharged from liability on the
bill unless they have expressly or impliedly authorized the holder to
take a qualified acceptance, or subsequently assent thereto. When
the drawer or an indorser receives notice of a qualified acceptance,
he must, within a reasonable time, express his dissent to the holder
or he will be deemed to have assented thereto. However,
acceptance is presumed to be qualified or absolute.
7. Presentment for payment
-Presentment for payment is not necessary to charge persons
primarily liable. But it is necessary to charge persons secondarily
liable except:
1) As to 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, where 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: (1) where,
after the exercise of reasonable diligence, presentment
cannot be made; (i) where the drawee is a fictitious person;
and (in) by waiver of
presentment, express or implied; and
4) when the instrument has been dishonored by non-
acceptance.
b) REQUISITES
1) Presentment must be by the holder, or by some person
authorized to receive pay- ment on his behalf;
 2) It must be made at a reasonable hour on a business day on
the proper date;
3) Presentment must be at the proper place;
4) Presentment must be to the person primarily liable on the
instrument, or if he is absent or inaccessible, to any person
found at the place where the presentment is made; and
5) The person entitled to present the instrument for payment
must exhibit the instrument to the person from whom the
payment is demanded and upon payment must be delivered
to the person paying it. If the instrument is not surrendered
and cancelled, there is a danger that it may fall in the hands
of other persons who might claim rights over the instrument.
8. Notice of dishonor
a) Who should give (1) holder; (2) agent or: representative of a
holder; (3) any party who may be compelled to pay like
indorsers; and (4) agent of any party who may be compelled
(Sec. 90, NIL).
b) Who will benefit: 1) Given by or on behalf of the holder

IV.
1. When is presentment for payment excused? (5%)

Presentment for payment or acceptance of an instrument is

excused if (i) the person entitled to present the instrument cannot
with reasonable diligence make presentment, (ii) the maker or
acceptor has repudiated an obligation to pay the instrument or is
dead or in insolvency proceedings, (iii) by the terms of the
instrument presentment is not necessary to enforce the obligation
of indorsers or the drawer, (iv) the drawer or indorser whose
obligation is being enforced has waived presentment or otherwise
has no reason to expect or right to require that the instrument be
paid or accepted, or (v) the drawer instructed the drawee not to
pay or accept the draft or the drawee was not obligated to the
drawer to pay the draft.

2. State the purpose of exhibiting an instrument when

presented for payment. (5%)

Exhibition of Negotiable Instruments for Payment. Sec. 74.

Instrument must be exhibited. - The instrument must be exhibited
to the person from whom payment is demanded, and when it is
paid, must be delivered up to the party paying it.

NECESSITY OF EXHIBITION OF INSTRUMENT

• Presentment includes not only demand for payment but also
the exhibition of the instrument
• Purpose is to enable the debtor to determine the genuineness
of the instrument and the right of the holder to receive payment
and to enable him to retain possession upon payment
3. When is an instrument dishonored by non-payment? (5%)
A promissory note, bill of exchange or cheque is said to be
dishonored by nonpayment when the maker of the note, acceptor
of the bill or drawee of the cheque makes default in payment upon
being duly required to pay the same.

V.
1. State the rights of a holder in due course. (5%)

A holder in due course holds the negotiable instrument free from

any defect of title of prior parties, and free from defences available
to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof against all parties liable
thereon

2. How can a holder be constituted as one in due course? (2%)

To become a holder in due course of a negotiable instrument, a

party must first qualify as a “holder” of the instrument. This means
that the person must have possession of the instrument, and the
instrument must be payable to that person or payable to bearer

3. State the rule when a holder cannot avail of original

defenses. (3%)

Sec. 58. When subject to original defense. In the hands of any

holder in due course, a negotiable instrument is subject to the
same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the instruments,
has all the rights of such former holder in respect of all parties prior
to the latter.

VI.

1. To whom should a notice of dishonor be given? (5%)

To whom notice of dishonor must be given. - Except as herein

otherwise provided, when a negotiable instrument has been
dishonored by nonacceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer
or indorser to whom such notice is not given is discharged.

2. When is a notice of dishonor deemed sufficient? (5%)

Sec. 112. When notice is dispensed with. - Notice of dishonor is

dispensed with when, after the exercise of reasonable diligence, it
cannot be given to or does not reach the parties sought to be
charged.
 3. Where should a notice of dishonor be sent? (5%)
To whom notice of dishonor must be given. - Except as herein
otherwise provided, when a negotiable instrument has been
dishonored by nonacceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer
or indorser to whom such notice is not given is discharged.

4. When should a notice of dishonor need be given an

indorser? (5%)
To whom notice of dishonor must be given. - Except as herein
otherwise provided, when a negotiable instrument has been
dishonored by nonacceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer
or indorser to whom such notice is not given is discharged.