2B Group 1 Assign1

PROBLEM 1:

Maria wrote of a check containing the amount of P100,000.00 which is made payable to the order of
Perla. Maria issued this check to Perla with the understanding that Perla will deliver 20 boxes of selected
premium used clothes to Maria. Perla indorsed the check to Inday who is a holder in due course (HIDC).
However, the drawee bank PNB did not pay the check upon presentment by Inday.

QUESTIONS: (assume that in Q1 and Q2 no boxes of clothes were delivered)

1) Can Inday require Maria to pay P100,000.00?

Yes, Inday can require Maria to pay P100,000.00 on the ground of presumption of consideration.

Sec. 24 of the Negotiable Instruments law provides that, 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.

Moreover, the Supreme Court ruled in Cayanan vs. North Star International Travel, Inc. that, upon
issuance of a negotiable check, in the absence of evidence to the contrary, it is presumed that the same
was issued for valuable consideration which may consist either in some right, interest, profit or benefit
accruing to the party who makes the contract, or some forbearance, detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the other side. In other words,
convincing evidence must be presented to overthrow the presumption and prove the checks were in fact
issued without valuable consideration.

In the instant case, since Inday is a holder in due course, she may require Maria to pay P100,000.00
unless Maria can overcome the presumption of consideration by presenting clear and convincing
evidence.

OR

Yes, Inday can require Maria to pay P100,000.00.

Under Sec. 28 of the Negotiable Instruments Law, absence of consideration is a matter of

defense against any person who is not a holder in due course. A holder in due course, on the other hand
can assert all his rights afforded to him under Sec. 57 of the same law, and can even enforce the
instrument for the full amount thereof against all parties liable. Thus, a party invoking a personal defense
will not hold water against a holder in due course because a holder in due course is free from personal
defenses.

In the present case, it turns out that no boxes were delivered by Perla, hence, the absence of
consideration. As Inday, who is a holder in due course, she can still recover from Maria P100,000.00.

2) Suppose Inday is not a HIDC, is Maria liable to pay?

No. Maria is not liable to pay Inday.

Absence of consideration, pursuant to Sec. 28 of the Negotiable Instruments Law is a personal

defense such that it canbe asserted only against a transferee who is not a holder in due course.

In the instant case, there was absence of consideration as it turns out that no boxes of used
clothes were delivered. When Perla indorsed the check to Inday who is not a holder in due course, Inday
cannot collect from Maria because the latter can invoke the defense of absence of consideration.
3-a) Suppose only 6 boxes of selected premium used clothes equivalent to P30K were delivered
by Perla to Maria, can Inday who is not a HIDC require Maria to pay P100,000.00?

No. Inday cannot require Maria to pay the full amount of P100,000.00.

Under Sec. 28 of the Negotiable Instruments Law, a partial consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise. This is only a defense as
against an immediate party or as against a remote party who is not a holder in due course.

In this case, only 6 boxes amounting to P30,000.00 were delivered by Perla to Maria, a clear
case of partial consideration. As such, Inday cannot require Maria to pay the full amount of P100,000.00.

3-b) How much could Maria be made liable in 3-a, if any?

Maria is liable to pay Inday P30,000.00.

Partial failure of consideration may be asserted as a defense pro tanto, as against anyone not a
holder in due course.

In this case, the check contains P100,000.00 as payment of the premium used clothes, but what
was delivered was only worth P30,000.00. As such, Marias liability to Inday is only limited to P30,000.00.

PROBLEM 2 - ON PARTIES AND CONSIDERATION

To start-up his business, Borromeo (B) borrowed from Manny (M) P1million pesos payable in stated
installments with 12% interest. The contract of loan contained an acceleration clause. As payment, B
issued 10 post-dated BPI checks in favor M. M, the brave and creative businessman that he is, had the
checks discounted with Indio. M, upon conversion of the checks to cash, used the proceeds to lend it to
other borrowers also for an interest.

a. Where the post-dated checks issued for value? Explain.

Yes, the post-dated checks were issued for value.

Under the Negotiable Instruments Law, particularly section 25 thereof, value has been
defined as any consideration sufficient to support a simple contract. An antecedent or pre-
existing debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time.

Moreover, consideration has been defined as the inducementcause or impelling

influence which induces a contracting party to enter into the contract

In this case, the checks were issued by Borromeo, the drawer, to Manny, the payee, in
order to secure the loan amounting to 1 Million Pesos. Such loan obtained by the former may be
considered as a pre-existing debt or antecedent one, as the case may be, which constitutes value
pursuant to the above cited provision.

b. Is Indio a holder for value? Why?

c. Based on the checks issued by B, when may B be held liable thereon? (sources of liability)

PROBLEM 3 - ABSENCE OR FAILURE OF CONSIDERATION AND DEFENSE PRO-TANTO

3-A Malou makes a promissory note amounting to P10,000 in favor of Pete in payment for an
invention which does not exist. Pete indorses the note to Amanda, a holder in due course. May the
PARTIES recover on the promissory note? Explain.

As between Malou and Pete, there can be no recovery on the promissory note. But, as to
Amanda, there can be a recovery as she is a holder in due course.

Absence of consideration means a total lack of any valid consideration of the contract. Sec. 28 of
the Negotiable Instruments Law postulates that absence of consideration is a matter of defense as
against any person who is not a holder in due course.

In this case, Pete cannot recover from the promissory note as there is absence of consideration,
to wit: payment for an invention which does not exist. But, since Pete indorsed the note to Amanda, who
is a holder in due course, Amanda can recover from Malou because the absence of consideration is only
a personal defense not available against a holder in due course.

3-B Same facts as in 3-A, but assume that there is really an invention owned by Pete which was sold,
but Pete failed to deliver it to Malou because the next day, Pete sold it again and simultaneously
delivered it to Xander who in good faith took the invention. May the PARTIES recover on the
promissory note? Explain.

Pete cannot recover on the promissory note from Malou because of failure of consideration, but
Xander can recover since he is in good faith.

Failure of consideration refers to the failure or refusal of one of the parties to do, perform or
comply with the consideration agreed upon. The effect of which, as provided for by Sec. 28 of the
Negotiable Instrument Law, is a matter of defense against any person not a holder in due course.

In this case, since there was really an invention owned by Pete which was sold, but he failed to
deliver it to Malou because he sold it again and simultaneously delivered it to Xander, there exist a failure
of consideration. By such failure, Pete cannot recover from Malou. As to Xander, who in good faith took
the invention, he can recover on the promissory note as the defense of failure of consideration can no
longer be availed of.

3-C Same arrangement as in 3-A only that it was in payment for a truckload of vegetables and only
3/5 was delivered. May the PARTIES recover on the promissory note? Explain.

If only 3/5 of the truckload of the vegetables was delivered, then Pete can only recover 3/5 of the
promissory note from Malou as there is partial failure of consideration.

In case of partial failure of consideration, Sec. 28 of the Negotiable Instruments Law provides that
such is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. By
pro tanto, we mean partial payment.

Here, since only 3/5 of the truckload of vegetables was delivered, Pete can recover only 3/5 of
the promissory note, which is P6,000.00. As such, Malou is not liable to the extent of 2/5 of the
undelivered portion.

PROBLEM 4 LIEN

Mandy drew a check for PI0,000.00 to the order of Paul who pledges it to Alfred to secure the payment of
Paul's debt of P7,000.00. The check is payable on demand. Pauls debt to Alfred is payable a year later.
The check is indorsed and delivered by Paul to Alfred.
a. Is Alfred a holder for value. If yes, to what extent? If no, why?
b. May Alfred enforce the check although Pauls debt is not yet due? If yes, upon whom and
for how much? If no, then when can he enforce it and against whom?
c. Supposing that the amount of the check is only P5,000, to what extent is Alfreds lien
thereon?
d. Supposing that the amount of the check is P15,000, to what extent is Alfreds lien thereon?
e. Supposing that the signature of Mandy was forged, how may Alfred recover on the check?

PROBLEM 5 TRUE OR FALSE

1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. TRUE
7.
8.
9.
10.

PROBLEM 6 on TRANSFER and NEGOTIATION of NEGOTIABLE INSTRUMENTS

PART A MULTIPLE CHOICE

1. C
2. B
3. E
4. A
5. C

PART B MODIFIED MATCHONG TYPE

1. A
2. E
3. C
4. B
5. B
6. D