Nego Final Exam Questions 315i5y

1.

What is Red Light Doctrine? Red light doctrine refers to the rule that a holder cannot qualify as a holder in due course if he or she has notice that the instrument contains an unauthorized signature or has been altered or that there is any adverse claim against or defense to its payment

2.

How is Negotiable Instrument Discharge? A negotiable instrument is discharged as provided for under 119, and 119(d)  leads to the instances enumerated under 1231 on extinguishment of obligations

A) If a NI is payable to BEARER and indorsed in BLANK section 9(a-e ) , section 65 and 66 B) If a NI is payable to ORDER and indorse in BLANK, what is the applicable rule?—section 9(e ), section 34, 65, 66 C) If a NI is payable ORDER and indorse Specially—sectio 8, 34,65,66 D) Payable to BEARER, Indorse SPECIALY—section 9(a-d), 40, 65,66 E) NI payable to BEARER and delivered without indorsement. [OK, as required by SEC. 30] F) NI payable to ORDER and delivered without indorsement. [Sec. 49] BPI vs. CA Jan. 25, 2007—quoted verbatim section 49 3.

What are the kinds of Holder? a. Simple holder—section 51 b. Holder for value—seciton 26 c. Holder in due course—section 52 and 58

4.

What is the nature of collecting bank? a. Legal answer-- indorser with liabilities (associated bank v. ca, allied bank v. lim sio wan) b. Academic answer—holder with rights, PCHC rules section 17 c. Atty. V answer—neither a holder nor an indorser but a MERE AGENT for purposes of collection (section 4-205 of the UCC and far east bank v. gold palace jewellery)

5.

What is a crossed check? As defined in the case of METROBANK V. PBCOM, a crossed check is a check with 2 parallel lines on the upper left hand corner which means that it could only be deposited and not converted to cash. The crossing of a check with a phrase ―payee’s only‖ is a warning tht the check should be deposited in the of the payee alone. Jurisprudence has pronounced that crossing of a check should have the following effects: 1. The check may not be encashed but only deposited int eh bank 2. The check may be negotiated only once—to one who has an with the bank and 3. The act of crossing the checks serves as warning to the holder that the check has been issued for a definite prupose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. 4.

Drawee is not liable if do not accept. How is it justified? GR: A drawee who did not accept is not liable and may not be sued(Villanueva vs. Nite). EXCEPTIONS: A) In a suit initiated by the DRAWER. (Solid Bank vs. Arieta Feb. 17, 2005) B) In a suit initiated by the PAYEE or HOLDER based on Art. 19 of the Civil Code (HSBC vs. Catalan, Oct. 18, 2004) C) Where the instrument involved is a manager’s or certified check (E-PCI vs. Ong, Sept. 15, 2004)

5.

RULE # 3 AND 4 RULE 3: in BEARER instruments, the signature of the PAYEE/HOLDER is unnecessary to title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. RULE 4: in ORDER instruments, the signature of its holder is essential to transfer title. If the holder’s indrosement is forged, all parties prior to the forger may raise the real defense of forgery against all parties subsequent thereto. An indorser cannot allege that prior signatures are forged.

6.

What is the Difference of signature under Rule 1and Rule 3 and 4 of Sec. 23?

7.

What is the Fictitious Payee Rule (PNB vs. SPS. Rodriguez)? This rule deals with a instrument issued in the name of a payee with intention that the payee have no interest in the instrument. The payee need nto be fictitutous (that is, payee may be a real person). Th determining factor is that he maker or drawer, or another party who has supplied the payee’s name to the maker or drawer, intends that the payee not be the party to receive the proceeds when payment is made on the instrument. A drawer or maker is liable on a forged or unauthorized indorsement under the fictitious payee rule. This rule applies whena person g as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or the person identified as the payee is a fictitious person. An unauthorized indorsemetnn will also be effective when a person causes an instrument to be used to a payee who will have no interest in the instrument. In this situation, the payee is referred to as fictitious payee.

8.

What is the COMMERCIAL BAD FAITH EXCEPTION to the FPR A showing of commercial bad faith on the party of the drawee bank, or any transferee of the check for that matter , will work to strip it of of this defesne. Commercial bad faith is present if the transferr of the check acts dishonestly, and is a party to the fraudulent scheme.

9.

Define a Promissory Note under Sec. 1 only

10. Define a Bill of Exchange under Sec. 1 only 11. Differentiate Material Alteration from forgerySBHSP

12. Comparison of the warranties under Sec. 65 and Sec. 66. 3 SIMMILARITIES: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract;

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

DISIMMILARITIES ©Which carries a HEAVIER WARRANTY [Sec. 65 (d) ] ,[Sec. 66 (b)] ©Sec. 66 (b) That the instrument is, at the time of his indorsement, valid and subsisting; Sec. 51 SIMPLE HOLDER Accomodation Party Sec. 40 Payable to BEARER—Sec. 9 (a-d) [Sec. 31] NOT INCLUDED [(e) When the only or last indorsement is an indorsement in blank.] (Agent) in order not to be liable Coupon Bond Manager’s Check considered as Promissory Note. Disclosure requirement in interest(bank) ---#28New Sampaguita Builders vs. PNB (July 30, 2004) Sec. 185. Check, defined. – Sec. 126. Bill of exchange, defined. – Sec. 124. Alteration of instrument; effect of. – Sec. 9 all types payable to BEARER