Bar Questions in Negotiable Instrument P10,000.00. JR though of converting the note into cash by 12.
ing the note into cash by 12. Explain whether or not the following instrument is
Summary of Bar Examination Cases
MERCANTILE LAW REVIEW
Negotiable Instruments Law
GENERAL PRINCIPLES
A. THEORY
01. What are the requisites of a negotiable instruments? [1953,
1954, 1964, 1968, 1989, 1991, 1996, Bar Examinations].
02. What constitutes a holder in due course? [1996, Bar
Examinations].
03. Can a bill of exchange or a promissory note qualify as a
negotiable instrument if -
a.It is not dated; or
b.The date and the month, but not the year of its maturity is
given; or
c.It is payable to cash; or
d.It names two alternative drawees [1997, Bar Examinations].
04. 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
[1966 Bar Examinations].
05. Can the payee in a promissory note be a ‘holder in due
course’ within the meaning of the Negotiable Instruments
Law? [2000 Bar Examinations].
06. How do you treat a negotiable instrument that is so
ambiguous that there is a doubt whether it is a bill or a note?
[1999, Bar Examinations].
07. When a signature is so placed upon a negotiable
instrument that it is not clear in what capacity the person
making the same intended to sign, what is his liability? [1946,
Bar Examinations].
08. When a negotiable instrument contains the words “I
promise to pay” and is signed by two or more persons, what is
their liability, joint or solidary? Explain [1946, Bar
Examinations].
B. TESTS OF NEGOTIABILITY
09. MP bought a used cellphone from JR. JR preferred cash but
MP is a friend so JR accepted MP’s promissory note for
indorsing it to his brother KR. The promissory note is a piece
of paper with the following hand-printed notation: “MP WILL
PAY JR P10,000.00 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 [2000 Bar Examinations].
10. Perla bought a motor car payable in installments from
Automotic Company for P250,000.00 with a P50,000.00
downpayment. She executed a promissory note for the balance
which reads:
For value received, I promise to pay Automotive Company or
order at its office in Legaspi 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.
SGD Perla
Manila, 21 September 2002
Automotive Company subsequently indorsed the note to
Reliable Finance Corporation which financed the purchase.
Perla defaulted in the payment of her installments. Is the
above promissory note a negotiable instrument? Explain [1992
Bar Examinations].
11. Romeo had P100,000.00 in his current account at Matatag
Banking Corporation. Romeo learned that his enemy had
hired a contract killer to liquidate him. Fearful of his life, he
mailed to his fiance, Juliet, a check for his P100,000.00 in the
bank. The check was payable to Juliet or order and was
accompanied by a letter stating that he was giving her his
money out of his great love for her and because something
would happen to him anytime now. Juliet presented the check
for payment but the bank refused to honor it. Does Juliet have
any right of action against the bank? Because of the
humiliation she suffered from the bank, Juliet broke off her
engagement with Romeo. Does Romeo have a right of action
against the bank? Explain [1986 Bar Examination].
negotiable.
P1,000.00 Manila, October 5, 1970
I acknowledge to have received from Jose Cruz one thousand
pesos (P1,000.00) which I promise to pay on demand or in five
months from date with one percent interest per month payable
within the first five days of every month. If the interest is not
paid when due, then both principal and interest shall become
due at the option of the holder.
SGD: Pedro Garcia
[1970 Bar Examination].
13. For value received, X executed a promissory note in favor
of Y for P10,000.00 agreeing to pay interest thereon but
without specifying the rate thereof. Can Y collect interest on
the note? Why? Explain [1964 Bar Examination].
DEFENSES
C. FAILURE/ABSENCE OF CONSIDERATION
14. In payment of canned goods he had purchased, Pedro
Flores of Cabanatuan drew a check upon PNB for P1,000.00
payable to the order of Veraz and Co., the seller in Manila. He
sent the check “without recourse” to Juan Santos. The latter
indorsed it in blank, for consideration, to Pablo Reyes, who, in
turn, sold it for P800.00, by delivery to Antonio Gomez. The
canned goods were never forwarded to Flores. Gomez
presented the check to the bank, but payment was refused
because Reyes had not put his name on it. Is the bank right in
so refusing? Why? If Gomez gave due notice to Veraz and Co.,
may he recover from the latter? May Gomez recover from
Santos? Why? May he recover from Reyes? Why? [1968 Bar
Examination].
15. Eva issued to Imelda a check in the amount of P50,000.00
post-dated September 19, as security for a diamond ring to be
sold on commission. On September 15, Imelda negotiated the
check to MT Investment which paid the amount of P40,000.00
to her. Eva failed to sell the ring, so she returned it to Imelda
on September 19. Unable to retrieve her check, Eva withdrew
her funds from the drawee bank. Thus, when MT Investment
presented the check for payment, the drawee bank dishonored
it. Later on, when MT Investment sued her, Eva raised the
defense of absence of consideration, the check having been
issued merely as security for the ring that she could not sell.
Does Eva have a valid defense? Explain [1996, Bar
Examination].
16. A and B executed and delivered to C a promissory note
which reads: “I promise to pay C or bearer the sum of
P2,000.00 with interest at 12% per annum on or before June 30,
1960. Manila, February 1, 1969. SGD A and B. Two months
later, for value received, C delivered to D the aforesaid note
with the indorsement: “Pay to D”; and on April 15, 1969, the
said note was indorsed in blank by D and delivered to X,
without consideration. Upon A’s refusal to pay despite
demand, X filed an action to collect from A the total amount of
the promissory note, with 12% interest per annum from
February 1, 1969, and the costs. A’s defenses are that the note
is null and void because the same was issued to pay a
gambling debt and that in any event, his liability cannot
exceed more than one-half of the amount due. Are A’s
defenses valid? Is X entitled to the whole amount of the note?
Explain. [1969 Bar Examination].
17. For the purpose of lending his name without receiving
value therefor, Pedro makes a note for P20,000.00 payable to
the order of X who in turn negotiates it to Y, the latter
knowing that Pedro is not a party for value. May Y recover
from Pedro if the latter imterposes absence of consideration?
Supposing under the same facts, Pedro pays the said
P20,000.00, may he recover the same amount from X? Explain
[1998 Bar Examination].
18. Nora applied for a loan of P100,000.00 with BUR Bank. By
way of accommodation, Nora’s sister, Vilma, executed a
promissory note in favor of BUR Bank. When Nora defaulted,
BUR Bank sued Vilma, despite its knowledge that Vilma
received no part of the loan. May Vilma be held liable?
Explain [1996 Bar Examination].
19. Santos purchased Vera’s car for P50,000.00. Not having
enough cash on hand, Santos offered to pay in check. Vera
refused to accept the check unless it is indorsed by Reyes, their
mutual friend. Reyes indorsed Santos’ check and Vera,
knowing that Reyes had not received any value for indorsing
the check, accepted it. The next day, Vera presented the check
to the drawee bank for payment. Payment was refused for lack
of funds. Vera gave notice of dishonor to Reyes, but Reyes
refused to pay, saying that he indorsed merely as a friend. Is
Reyes liable to Vera? In the event Reyes voluntarily pays Vera,
does Reyes have the right to recover from Santos? Explain
[1985 Bar Examination].
D. INCOMPLETE DELIVERED INSTRUMENT
20. 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. Can Devi enforce
the note against Larry, and if she can, for how much?
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 [1993 Bar Examination].
21. Maria issued a negotiable promissory note and authorized
Pilar to fill-up the amount in blank up to P2,000.00. However,
Pilar filled it up to P4,000.00 and negotiated the note to Pepe.
For what amounts are Maria and Pilar liable to Pepe? Explain
[1972 Bar Examinations].
E. INCOMPLETE UNDELIVERED INSTRUMENT
22. 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? [2000 Bar Examination].
23. Jose makes a negotiable note payable to bearer with the
amount in blank and delivers it to Karen for safekeeping.
Marina fills up the note for P20,000.00 and negotiates it to
Adriano, a holder in due course. If you were Jose and Adriano
presented to you the note for payment, what defense or
defenses are you going to interpose to negate liability on the
instrument? Explain [1981 Bar Examinations].
24. 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? Reason [1971 Bar Examinations].
25. Jose Reyes signed a blank check, and in his hasted to
attend a party, left the check on top of his executive desk in his
office. Later, Nazareno forced the door to Reyes’ office and
stole the blank check. Nazareno immediately filled in the
amount of P50,000.00 and a fictitious name as payee on the
said check. Nazareno then endorsed the check in the payee’s
name and passed it to Roldan. Thereafter, Roldan endorsed
the check to Dantes. Can Dantes enforce the check against Jose
Reyes? If Dantes is a holder in due course, will your answer be
the same? [1985 Bar Examinations].
26. A signed a blank check which he inadvertently left at his
desk at his Escolta Office. The same was later stolen by B, who
filled in the amount of P22,300.00 and a fictitious name as
payee. B then endorsed the check in the payee’s name and
passed the check to C; thereafter C passed it to D; then D to E;
and E to F. Can F enforce the instrument against A? Suppose
that F is a holder in due course, what will be your answer?
Can F enforce the instrument against B? Against C. Give
reasons [1978 Bar Examinations].
F. FORGERY
27. 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. If, for any reason, the drawee bank
refuses to honor the check, can F enforce the instrument
against the drawer? 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? [1997 Bar Examinations].
28. Juan makes a promissory note payable to his order, signing
Pedro’s name thereon as maker without Pedro’s knowledge
and consent. Juan then indorses the note to Jose, who, in turn,
indorses it to Carlos under circumstances which make Carlos a
holder in due course. May Carlos enforce the note against
Pedro? And if the note is dishonored by Pedro, may Carlos
hold Juan and Jose liable on their respective indorsements?
Reason out your answers [1989 Bar Examinations].
29. Juan makes a promissory note payable to the order of
Pedro, who indorses it to Jose. Somehow, Roberto obtains
possession of the note and, forging the signature of Jose,
indorses it to Amado. Amado then indorses the note to Nilo,
the holder. State the rights and liabilities of the parties [1984
Bar Examinations].
30. A makes a negotiable promissory note payable to B or
bearer. A delivers the note to B. B indorses the note to C. C
places the note in his wallet, which was stolen by X, who,
finding the note, indorses it to D by forcing C’s signature. D
indorses the note to E, who in turn, delivers the note to F, a
holder in due course, without indorsement. What are the
liabilities of A, B and C to F. Explain briefly [1981 Bar
Examinations].
31. Juan de la Cruz signs a promissory note payable to Pedro
Lim or bearer, and delivers it personally to Pedro Lim. The
latter somehow misplaces the said note and Carlos Ros finds
the note lying around the corridor of the building. Carlos Ros
endorses the promissory note to Juana Bond, for value, by
forging the signature of Pedro Lim. May Juana Bond hold Juan
de la Cruz liable on the note? Explain [1980 Bar
Examinations].
32. Fernando forged the name of Daniel, manager of a Trading
Company, as the drawer of a check. The Bank of Philippine
Islands, the drawee bank, did not detect the forgery and paid
the amount. May the bank charge the amount paid against the
account of the alleged drawer? Explain [1977 Bar
Examinations].
G. FRAUD
33. A succeeded in making B affix his signature on a check
without B’s knowing that it was a check. At the time of
signing, the check was complete in all respects. A intended to
cash the check the following morning, but that night, it was
stolen by C who succeeded in negotiating the same to D, a
holder in due course. D cashed the check the following
morning. B refused to have the amount of the check deducted
from his bank deposit. Who may properly be charged with the
amount of the check? Explain your answer [1961 Bar
Examinations].
34. A induces B by fraud to make a promissory note payable
on demand to the order of A in the sum of P5,000.00. Can A
file an action successfully against the maker B for the amount
of the note? Reasons. Going further, A transfers the note to C
who pays P5,000.00 therefor and acquires the note under
circumstances that make him (C) as holder in due course. Can
C file an action successfully against B, the maker of the note,
for the amount of the note? What defense/defenses can B
interpose? Explain [1978 Bar Examinations].
H. MATERIAL ALTERATION
35. A check for P50,000.00 was drawn against drawee bank
and made payable to XYZ Marketing or order. The check was
deposited with payee’s account at ABC Bank which then sent
the check for clearing to drawee bank. Drawee bank refused to
honor the check on the ground that the serial number thereof
had been altered. XYZ Marketing sued drawee bank. Is it
proper for the drawee bank to dishonor the check for the
reason that it had been altered? In instant suit, drawee bank
contended that XYZ Marketing as payee could not sue the
drawee bank as there was no privity between them. Drawee
theorized that there was no basis to make it liable for the
check. Is this contention correct? Explain [1999 Bar
Examinations].
36. William issued to Albert a check for P10,000.00 drawn on
XM Bank. Albert altered the amount of the check to
P210,000.00 and deposited the check to his account with ND
Bank. When ND Bank presented the check for payment
through the Clearing House, XM Bank honored it. Thereafter,
Albert withdrew the amount of P210,000.00 and closed his
account. When the check was returned to him after a month,
William discovered the alteration. XM Bank recredited
P210,000.00 to William’s current account and sought
reimbursement from ND Bank. ND Bank refused, claiming
that XM Bank failed to return the altered check within the 24
hour clearing period. Who, as between XM Bank and ND
Bank, should bear the loss? Explain [1996 Bar Examinations].
37. In consideration of some goods he bought, A issued to B a
personal check in the amount of P280.00 which B altered to
P2,800.00 without the knowledge of A. The alteration is not
apparent to the naked eye. B then deposited the altered check
in his account with PNB, which released it for clearing. The
BPI, the drawee bank, did not notice the alteration and the
check therefore cleared. B was able to withdraw the P2,800.00,
after which, he closed his account. When A received his bank
statement and cancelled checks, he noticed the discrepancy in
the amount when he compared the altered check with his
check stub. He immediately notified BPI and demanded a
recredit. BPI, in turn, demanded recredit from PNB which
cannot now locate B. Can A compel BPI to recredit his
account? If so, how much? Can PNB be compelled to
reimburse BPI of the amount the latter may have recredit to
the account of A? Explain [1986 Bar Examinations].
38. Pedro writes out a check for P1,000.00 in favor of Jose or
order against his current account with the Bank of America.
Juan steals the check, erases the name of Jose and
superimposes his own name. Juan deposits the check at
Citibank and after clearing, Juan withdraws the amount and
absconds. Upon discovery by Pedro of the material alteration,
he lodged a complaint at the Bank of America, who debited
the amount to Pedro. Bank of America demands
reimbursement for Citibank which refuses on the ground that
it only acted as an agent for collection. Who bears the loss?
Why? [1977 Bar Examinations].
39. Maria issued a negotiable promissory note and authorized
Pilar to fill up the amount in blank up to P2,000.00 only.
However, Pilar filled it up to P4,000.00 and negotiated the note
to Pepe. For what amount are Maria and Pilar liable to Pepe?
Explain [1972 Bar Examinations].
40. A executed a bill of exchange for P500.00 in favor of B, who
altered the amount to P5,000.00 and presented the bill to the
drawee for acceptance. The drawee, not knowing of the
alteration which was neatly done, accepted the bill. Thereafter,
N negotiated the bill to C, who now seeks to hold the drawee
liable for P5,000.00. The drawee contends that under the rule
on alteration, he can only be liable up to P500.00. Is the
drawee’s contention tenable? Can the drawee debit the
amount of A, and if so, to what extent? Reasons [1971 Bar
Examinations].
I. MINORITY
41. X makes a promissory note for P10,000.00 payable to A, a
minor, to help him to buy school books. A endorses the note to
B for value, who in turn endorses the note to C. C knows A is
a minor. If C sues X on the note, can X set up the defenses of
minority and lack of consideration? Explain [1998 Bar
Examinations].
42. X, without receiving consideration therefor, makes a
promissory note for P500.00 payable to A, a minor, to help him
buy school books. A indorses the note to B, who, in turn,
indorses the note to C. C knows A’s minority. If C presents the
note to X for payment, what are the possible defenses to be
interposed by X? If C sues X on the note, can X set up the
defense of minority and lack of consideration? Explain [1989
Bar Examinations].
WARRANTIES/LIABILITIES
J. ACCEPTOR
43. X draws a check against his current account with Ortigas
Branch of Bonifacio Bank in favor of B. Although X does not
have sufficient funds, the bank honors the check when it was
presented to payment. Apparently, X has conspired with the
bank’s bookkeeper so that his ledger card would show that he
still has sufficient funds. The bank files an action for recovery
of the amount paid to B because the check presented has no
sufficient funds. Decide the case [1998 Bar Examinations].
K. NEGOTIATOR BY DELIVERY
44. Anna makes a promissory note payable to bearer and
delivers it to Bing. In turn, Bing negotiates it by mere delivery
to Carmen, who indorses it specially to Dong. Dong negotiates
it by special indorsement to Emma, who negotiates it to Fe by
mere delivery. Anna did not pay. To whom are Bing and
Carmen liable? To whom are Dong and Emma liable? Explain
[1988 Bar Examinations].
L. INDORSERS
45. Alex issued a negotiable promissory note (PN) payable to
Benito or order in payment of certain goods. Benito indorsed
the PN to Celso in payment of an existing obligation. Later,
Alex found the goods to be defective. While in Celso’s
possession, the PN was stolen by Dennis who forged Celso’s
signature and discounted it with Edgar, a money lender who
did not make inquiries about the PN. Edgar indorsed the PN
to Felix, a holder in due course. When Felix demanded
payment of the PN from Alex, the latter refused to pay. Dennis
could no longer be located. What are the rights of Felix, if any,
against Alex, Benito, Celso and Edgar? Explain. Does Celso
have any right of action against Alex, Benito and Felix?
Explain [1995 Bar Examinations].
46. A drew a check for P1,000.00 on B, the Bank payable to the
order of C and delivered the check to the latter for value. C
indorsed the check in blank and negotiated it to D, who lost it.
At D’s request, A ordered payment stopped by notifying B.
The stop payment order was overlooked and the check was
paid to E, who had taken the check, without actual knowledge
of the loss, in payment of merchandise sold to a stranger
whom he thought owned the check. D now sues the bank.
Decide the case with brief reasons [1979 Bar Examinations].
INCIDENTS
M. NEGOTIATION
47. Richard Clinton makes a promissory note payable to
bearer and deliverrs the same to Autora Page. The latter,
however, endorses it to X in this manner: “Payable to X,
Signed: Aurora Page”. Later, X, without endorsing the
promissory note, transfers and delivers the same to Napoleon.
The note is subsequently dishonored by Richard Clinton. May
Napoleon proceed against Richard Clinton for the note? [1998
Bar Examinations].
48. On November 3, as payment for goods received, A gave to
B his check drawn on PNB, Manila. B thereafter negotiated the
check to C. On November 10, C could not encash the check
because the Bangko Sentral had forbidden PNB to do business
on grounds of insolvency. Can C hold A liable on the
uncashed check? Can C hold B liable instead on the uncashed
check? Explain. If you were B, how would you negotiate the
check to negate future liability thereon? Explain [1987 Bar
Examinations].
N. DISHONOR
49. When is notice of dishonor not required to be given to the
drawer? [1996, Bar Examinations].
50. A issued a promissory note to B dated January 1, 2002, in
the following tenor: “I promise to pay to the order of B
P1,000.00 sixty days after date. (Sgd.) A”. The note was
subsequently negotiated with proper indorsement by B to C, C
to D, and D to E, the holder. When E presented the note for
payment to A, the latter refused to pay. E then gave a notice of
dishonor to C only. May E immediately proceed against B, C
or D? What should C do to protect his rights, if any, against A,
B and D? Explain [1984 Bar Examinations].
51. X draws a bill of exchange against Y in favor of W for
P1,000.00, requesting the drawee to pay on December 24, 1962.
W indorses the instrument to P on September 1 and on
September 15 presents it for acceptance. The bill is dishonored.
P promptly sues W for payment. Will the case prosper? Give
reasons for your answer [1963 Bar Examinations].
Checks; Liability; Drawee Bank (1995)
Mario Guzman issued to Honesto Santos a check for P50th
aspayment for a 2nd hand car. Without the knowledge of
Mario,Honesto changed the amount to P150th which
alteration couldnot be detected by the naked eye. Honesto
deposited thealtered check with Shure Bank which forwarded
the same toProgressive Bank for payment. Progressive Bank
without noticingthe alteration paid the check, debiting P150th
from the accountof Mario. Honesto withdrew the amount of
P15th from Shure Bank and disappeared. After receiving his
bank statement, Mariodiscovered the alteration and
demanded restitution fromProgressive Bank. Discuss fully the
rights and the liabilities of theparties concerned.
SUGGESTED ANSWER:
The demand of Mario for restitution of the amount of P150,000
tohis account is tenable. Progressive Bank has no right to
deduct
said amount from Mario‘s account since the order of Mario is
different. Moreover, Progressive Bank is liable for the
negligenceof its employees in not noticing the alteration
which, though itcannot be detected by the naked eye, could be
detected by amagnifying instrument used by tellers.As
between Progressive Bank and Shure Bank, it is the former
thatshould bear the loss. Progressive Bank failed to notify
Shure Bank that there was something wrong with the check
within theclearing hour rule of 24 hours.
Checks; Material Alterations; Liability (1999)
A check for P50,000.00 was drawn against drawee bank
andmade payable to XYZ Marketing or order. The check was
deposited with payee‘s account at ABC Bank which then sent
the check for clearing to drawee bank. Drawee bank refused
tohonor the check on ground that the serial number thereof
hadbeen altered. XYZ marketing sueddrawee bank.A.
Is it proper for the drawee bank to dishonor the check for the
reason that it had been altered? Explain (2%)B.
In instant suit, drawee bank contended that XYZMarketing as
payee could not sue the drawee bank asthere was no privity
between then. Drawee theorizedthat there was no basis to
make it liable for the check.Is this contention correct? Explain.
(3%)
SUGGESTED ANSWER:
A.
No. The serial number is not a material particular of thecheck.
Its alteration does not constitute materialalteration of the
instrument. The serial number is notmaterial to the
negotiability of the instrument.B.
Yes. As a general rule, the drawee is not liable under the check
because there is no privity of contractbetween XYZ Marketing,
as payee, and ABC Bank asthe drawee bank. However, if the
action taken by thebank is an abuse of right which caused
damage notonly to the issuer of the check but also to the
payee,the payee has a cause of action under quasi-delict.
Defenses; Forgery (2004)
CX maintained a checking account with UBANK, Makati
Branch.One of his checks in a stub of fifty was missing. Later,
hediscovered that Ms. DY forged his signature and succeeded
toencash P15,000 from another branch of the bank. DY was
ableto encash the check when ET, a friend, guaranteed
dueexecution, saying that she was a holder in due course. Can
CXrecover the money from the bank? Reason briefly. (5%)
SUGGESTED ANSWER:
Yes, CX can recover from the bank. Under Section 23 of
theNegotiable Instruments Law, forgery is a real defense.
The forgedcheck is wholly inoperative in relation to CX. CX
cannot be heldliable thereon by anyone, not even by a holder
in due course.Under a forged signature of the drawer, there is
no validinstrument that would give rise to a contract which
can be thebasis or source of liability on the part of the drawer.
The draweebank has no right or authority to touch the
drawer's fundsdeposited with the drawee bank.
Forgery; Liabilities; Prior & Subsequent Parties (1990)
Jose loaned Mario some money and, to evidence
hisindebtedness, Mario executed and delivered to Jose
apromissory note payable to his order. Jose endorsed the note
toPablo. Bert fraudulently obtained the note from Pablo and
endorsed it to Julian by forging Pablo‘s signature. Julian
endorsed the note to Camilo.a.
May Camilo enforce the said promissory noteagainst Mario
and Jose?b.
May Camilo go against Pablo?c.
May Camilo enforce said note against Julian?d.
Against whom can Julian have the right ofrecourse?
SUGGESTED ANSWER:
A.
Camilo may not enforce said promissory note againstMario
and Jose. The promissory note at the time offorgery being
payable to order, the signature of Pablowas essential for the
instrument to pass title tosubsequent parties. A forged
signature was inoperative(Sec 23 NIL).Accordingly, the parties
before the forgeryare not juridically related to parties after the
forgery toallow such enforcement.B.
Camilo may not go against Pablo, the latter not
havingindorsed the instrument.C.
Camilo may enforce the instrument against Julianbecause of
his special indorsement to Camilo, therebymaking him
secondarily liable, both being parties after the forgery.D.
Julian, in turn, may enforce the instrument against Bertwho,
by his forgery, has rendered himself primarilyliable.E.
Pablo preserves his right to recover from either Mario or Jose
who remain parties juridically related to him. Mariois still
considered primarily liable to Pablo. Pablo may, incase of
dishonor, go after Jose who, by his specialindorsement, is
secondarily liable.
Forgery; Liabilities; Prior & Subsequent Parties (1995)
Alex issued a negotiable PN (promissory note) payable to
Benitoor order in payment of certain goods. Benito indorsed
the PN toCelso in payment of an existing obligation. Later
Alex found the
goods to be defective. While in Celso‘s possession the PN
wasstolen by Dennis who forged Celso‘s signature and
discounted it
with Edgar, a money lender who did not make inquiries
aboutthe PN. Edgar indorsed the PN to Felix, a holder in due
course.When Felix demanded payment of the PN from Alex
the latter refused to pay. Dennis could no longer be located.A.
What are the rights of Felix, if any, against Alex, Benito,Celso
and Edgar? ExplainB.
Does Celso have any right against Alex, Benito andFelix?
Explain.
SUGGESTED ANSWER:
A.
Felix has no right to claim against Alex, Benito and
Celso who are parties prior to the forgery of Celso‘s
signature by Dennis. Parties to an instrument who aresuch
prior to the forgery cannot be held liable by anyparty who
became such at or subsequent to theforgery. However, Edgar,
who became a party to theinstrument subsequent to the
forgery and who indorsedthe same to Felix, can be held liable
by the latter.
B.
Celso has the right to collect from Alex and Benito.Celso is a
party subsequent to the two. However, Celsohas no right to
claim against Felix who is a partysubsequent to Celso (Sec 60
and 66 NIL)
Incomplete & Delivered (2004)
AX, a businessman, was preparing for a business trip abroad.
Ashe usually did in the past, he signed several checks in blank
andentrusted them to his secretary with instruction to
safeguardthem and fill them out only when required to pay
accountsduring his absence. OB, his secretary, filled out one of
the checksby placing her name as the payee. She filled out the
amount,endorsed and delivered the check to KC, who
accepted it ingood faith for payment of gems that KC sold to
OB. Later, OBtold AX of what she did with regrets. AX timely
directed the bank to dishonor the check.Could AX be held
liable to KC? Answer and reason briefly. (5%)
SUGGESTED ANSWER:
Yes. AX could be held liable to KC. This is a case of
anincomplete check, which has been delivered. Under Section
14 of the Negotiable Instruments Law, KC, as a holder indue
course, can enforce payment of the check as if it had beenfilled
up strictly in accordance with the authority given by AX toOB
and within a reasonable time.
Incomplete and Delivered (2005)
Brad was in desperate need of money to pay his debt to Pete,
aloan shark. Pet
e threatened to take Brad‘s life if he failed to pay.Brad and
Pete went to see Señorita Isobel, Brad‘s rich cousin,
and asked her if she could sign a promissory note in his favor
inthe amount of P10,000.00 to pay Pete. Fearing that Pete
wouldkill Brad, SeñoritaIsobel acceded to the request. She
affixed her signature on apiece of paper with the assurance of
Brad that he will just fill it uplater. Brad then filled up the
blank paper, making a promissorynote for the amount of
P100,000.00. He then indorsed anddelivered the same to Pete,
who accepted the note aspayment of the debt.What defense or
defenses can Señorita Isobel set up againstPete? Explain. (3%)
SUGGESTED ANSWER:
The defense (personal defense) which Señorita Isobel can set
upagainst Pete is that the amount of P100,000.00 is not
inaccordance with the authority given to her to Brad (in
thepresence of Pete) and that Pete was not a holder in due
coursefor acting in bad faith when accepted the note as
paymentdespite his knowledge that it was only 10,000.00 that
wasallowed by Señorita Isobel during their meeting with
Brad.
Incomplete Instruments; Incomplete DeliveredInstruments
vs. Incomplete Undelivered Instrument (2006)
Jun was about to leave for a business trip. As his usual
practice,he signed several blank checks. He instructed Ruth,
his secretary,to fill them as payment for his obligations. Ruth
filled one check with her name as payee, placed P30,000.00
thereon, endorsedand delivered it to Marie. She accepted the
check in good faithas payment for goods she delivered to
Ruth. Eventually, Ruthregretted what she did and apologized
to Jun. Immediately hedirected the drawee bank to dishonor
the check. When Marieencashed the check, it
was dishonored.A.
Is Jun liable to Marie? (5%)B.
Supposing the check was stolen while in Ruth'spossession and
a thief filled the blank check, endorsedand delivered it to
Marie in payment for the goods hepurchased from her, is Jun
liable to Marie if the check isdishonored? (5%)
SUGGESTED ANSWER
A.
Yes. This covers the delivery of an incompleteinstrument,
under Section 14 of the NegotiableInstruments Law, which
provides that there was primafacie authority on the part of
Ruth to fill-up any of thematerial particulars thereof. Having
done so, and whenit is first completed before it is negotiated
to a holder indue course like Marie, it is valid for all purposes,
andMarie may enforce it within a reasonable time, as if ithad
been filled up strictly in accordance with theauthority given.B.
No. Even though Marie is a holder in due course, this isan
incomplete and undelivered instrument, covered bySection 15
of the Negotiable Instruments Law. Wherean incomplete
instrument has not been delivered, it willnot, if completed and
negotiated without authority, bea valid contract in the hands
of any holder, as againstany person, including Jun, whose
signature was placedthereon before delivery. Such defense is a
real defenseeven against a holder in due course, available to
aparty like Jun whose signature appeared prior todelivery.
Negotiability; Holder in Due Course (1992)
Perla brought a motor car payable on installments
fromAutomotive Company for P250th. She made a down
payment ofP50th and executed a promissory note for the
balance. Thecompany subsequently indorsed the note to
Reliable FinanceCorporation which financed the purchase.
The promissory note
read: ―For value received, I promised to pay Automotive
Company or order at its office in Legaspi City, the sum
ofP200,000.00 with interest at twelve (12%) percent per
annum,payable in equal installments of P20,000.00 monthly
for ten (10)months starting October 21, 1991.Manila September
21, 1991.(sgd) PerlaPay to the order of Reliable Finance
Corporation. AutomotiveCompanyBy: (Sgd) Manager Because
Perla defaulted in the payment of her installments,Reliable
Finance Corporation initiated a case against her for asum of
money. Perla argued that the promissory note is merelyan
assignment of credit, a non-negotiable instrument open to
alldefenses available to the assignor and, therefore,
ReliableFinance Corporation is not a holder in due course.a.
Is the promissory note a mere assignment ofcredit or a
negotiable instrument? Why?b.
Is Reliable Finance Corp a holder in duecourse? Explain
briefly.
SUGGESTED ANSWER:
a.
The promissory note in the problem is anegotiable instrument,
being in compliancewith the provisions of Sec 1 NIL. Neither
thefact that the payable sum is to be paid withinterest nor that
the maturities are in statedinstallments renders uncertain the
amountpayable (Sec 2 NIL).b.
Yes, Reliable Finance Corporation is a holder in due course
given the factual settings. Saidcorporation apparently took the
promissorynote for value, and there are no indicationsthat it
acquired it in bad faith.
Negotiability; Requisites (2000)
1.
MP bought a used cell phone from JR. JR preferred
cash but MP is a friend so JR accepted MR‘s promissory
note for P10,000. JR thought of converting the note intocash by
endorsing it to his brother KR. The promissorynote is a piece
of paper with the following hand-
printed notation: ―MP WILL PAY JR TEN THOUSAND
PESOS IN PAYMENT FOR HIS CELLPHONE 1 WEEK
FROMTODAY.
‖ ―negotiating
Below this notation MP‘s signature with ―8/1/00
‖ value.a.
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 lawand so
could not be a valid substitute for cash. JR took
the opposite view, insisting on the note‘s negotiability.
You are asked to referee. Which of the opposing viewsis
correct?
SUGGESTED ANSWER:
KR is right. The promissory note is not negotiable. It is
notissued to order or bearer. There is no word ofnegotiability
containing therein. It is not issued inaccordance with Section 1
of the NegotiableInstruments Law.2.
TH is an indorsee of a promissory note that simply states:
―PAY TO JUAN TAN OR ORDER 400 PESOS.
‖
The note hasno date, no place of payment and no
considerationmentioned. It was signed by MK and written
under hisletterhead specifying the address, which happens
tobe his residence. TH accepted the promissory note
aspayment for services rendered to SH, who in turnreceived
the note from Juan Tan as payment for aprepaid cell phone
card worth 450 pesos. The payeeacknowledged having
received the note on August 1,2000. A Bar reviewee had told
TH, who happens to beyour friend, that TH is not a holder in
due course under Article 52 of the Negotiable Instruments
Law (Act 2031)and therefore does not enjoy the rights and
protectionunder the statute. TH asks for our advice
specifically inconnection with the note being undated and
notmentioning a place of payment and anyconsideration.
What would your advice be? (2%).
SUGGESTED ANSWER:
The fact that the instrument is undated and does notmention
the place of payment does not militateagainst its being
negotiable. The date and place ofpayment are not material
particulars required to makean instrument negotiable.The fact
that no mention is made of any considerationis not material.
Consideration is presumed.
Negotiable Instruments; Bearer Instruments (1997)
A delivers a bearer instrument to B. B then specially indorses
it toC and C later indorses it in blank to D. E steals the
instrumentfrom D and, forging the signature of D, succeeds in
‖
it to F who acquires the instrument in good faithand for
If, for any reason, the drawee bank refuses tohonor the check,
can F enforce theinstrument against the drawer?b.
In case of the dishonor of the check by boththe drawee and the
drawer, can F hold anyof B, C and D liable secondarily on
theinstrument?
SUUGESTED ANSWER:
a.
Yes. The instrument was payable to bearer as itwas a bearer
instrument. It could be negotiated bymere delivery despite the
presence of specialindorsements. The forged signature is
unnecessaryto presume the juridical relation between
or among the parties prior to the forgery and theparties after
the forgery. The only party who canraise the defense of
forgery against a holder indue course is the person whose
signature is forged.b.
Only B and C can be held liable by F. Theinstrument at the
time of the forgery was payableto bearer, being a bearer
instrument. Moreover,the instrument was indorsed in blank
by C to D. D,whose signature was forged by E cannot be
heldliable by F.
Negotiable Instruments; bearer instruments; liabilities
ofmaker and indorsers (2001)
A issued a promissory note payable to B or bearer. A
deliveredthe note to B. B indorsed the note to C. C placed the
note in hisdrawer, which was stolen by the janitor X. X
indorsed the note to
D by forging C‘s signature. D indorsed the note to E who in
turn
delivered the note to F, a holder in due course,
withoutindorsement. Discuss the individual liabilities to F of
A, B and C.(5%)
SUGGESTED ANSWER:A is liable to F
. As the maker of the promissory note, A is directlyor
primarily liable to F, who is a holder in due course. Despite
thepresence of the special indorsements on the note, these do
notdetract from the fact that a bearer instrument, like
thepromissory note in question, is always negotiable by mere
delivery, until it is indorsed restrictively ―For Deposit Only.
B
, as a general indorser,
is liable to F
secondarily, and warrantsthat the instrument is genuine and
in all respects what it purportsto be; that he has good title to it;
that all prior parties hadcapacity to contract; that he has no
knowledge of any factwhich would impair the validity of the
instrument or render itvalueless; that at the time of his
indorsement, the instrument isvalid and subsisting; and that
on due presentment, it shall beaccepted or paid, or both,
according to its tenor, and that if itbe dishonoured and the
necessary proceedings on dishonour beduly taken, he will pay
the amount thereof to the holder, or toany subsequent
indorser who may be compelled to pay.
C is not liable to F
since the latter cannot trace his title to theformer. The
signature of C in the supposed indorsement by himto D was
forged by X. C can raise the defense of forgery since itwas his
signature that was forged.
Negotiable Instruments; incomplete and
undeliveredinstruments; holder in due course (2000)
PN makes a promissory note for P5,000.00, but leaves the
nameof the payee in blank because he wanted to verify its
correctspelling first. He mindlessly left the note on top of his
desk at theend of the workday. When he returned the
following morning,the note was missing. It turned up later
when X presented it to PNfor payment. Before X, T, who
turned out to have filched thenot
e from PN‘s office, had endorsed the note after inserting his
own name in the blank space as the payee. PN dishonored
thenote, contending that he did not authorize its completion
anddelivery. But X said he had no participation in, or
knowledgeabout, the pilferage and alteration of the note and
therefore heenjoys the rights of a holder in due course under
the NegotiableInstruments Law.a.
Who is correct and why? (3%)
An accommodation party may hold the party
accommodated liable to him, even if thep a r t y
accommodated is a subsequent party. The
r e l a t i o n b e t w e e n t h e m i s t h a t o f a principal and a
surety (Philippine National Bank v Maza (1925). For the same
reason,
ana c c e p t o r f o r h o n o r m a y h o l d t h e p a r t y
for whose honor he has accepted a bill o
f exchange liable to him (Sec. 161, NIL). A prayer for honor is
subrogated to the rights of the holder as regards the
party for whose honor he paid and all parties liable
to thelatter (Sec. 175, NIL)
QUESTION:
How does the “shelter principle” embodied in the Negotiable
Instruments Law operate togive the rights of a holder-in-due
course to a holder who does not have the status of aholder-in-
due course? Briefly explain. (2%)
SUGGESTED ANSWER:
The “shelter principle” provides that in the hands of a holder
other than a holder in
duec o u r s e , a n e g o t i a b l e i n s t r u m e n t i s s u b j e c t t
o t h e s a m e d e f e n s e a s i f i t w e r e n o n - negotiable.
This principle is extended to a holder who is not
himself a holder in duecourse but derives his title
from a holder in due course, provided, he himself is
not aparty to any fraud or illegality affecting the instrument.
(See Sec. 58, NIL)
QUESTION:
AB Corporation drew a check for payment to XY Bank. The
check was given to an officero f A B C o r p o r a t i o n w h o
was instructed to deliver it to XY Bank.
I n s t e a d , t h e o f f i c e r , intending to defraud the
Corporation, filled up the check by making himself as the
payeeand delivered it to XY bank for deposit to his
personal account. XY Bank debited ABCorporation’s
account. AB Corporation came to know of the officer’s
fraudulent act afterhe absconded. AB Corporation asked XY
Bank to credit its amount. XY Bank refused.a) If you were the
judge, what issues would you consider relevant to resolve the
case?Explain. (3%)
SUGGESTED ANSWER:
If I were the judge, I will consider the ff issues: (1) Whether the
check was a completeinstrument; (2) whether the check has
been delivered; and (3) whether AB Corporationcan be held
liable for the amount of the check.b) How would you
decide the case? (2%)
SUGGESTED ANSWER:
The check was an incomplete instrument in as much as the
name of the payee was notwritten by the drawer, AB
Corp. However, the same instrument has been
delivered byAB to its officer. Thus, the check became
binding on AB Corp as drawer thereof. Anincomplete
instrument, if delivered, as in this case, creates a
liability on the part of adrawer. Therefore, AB
Corporation cannot ask XY Bank to recredit the
amount of thecheck to his account.
QUESTION:
Pancho drew a check to Bong and Gerard
jointly. Bong indorsed the check and alsoforged
Gerard’s indorsement. The payor bank paid the
check and charged Pancho’saccount for the amount of the
check. Gerard received nothing from the payment.a) Pancho
asked the payor bank to credit his account. Should the bank
comply? Explainfully. (3%)
SUGGESTED ANSWER:
Yes, the bank should recredit the full amount of the
check to the account of Pancho.Considering that the
check was payable to Bong and Gerard jointly, the
indorsement of Gerard was necessary to negotiate the check
pursuant to Sec. 41,
NIL.S i n c e B o n g f o r g e d t h e s i g n a t u r e o f G e r a r d
w i t h o u t a u t h o r i t y , t h e i n d o r s e m e n t w a s wholly
inoperative.
QUESTION:
b) Based on the facts, was Pancho as
d r a w e r d i s c h a r g e d o n t h e instrument?
Why? (2%)
SUGGESTED ANSWER:
Pancho was not discharged on the instrument,
because the payment was not in duecourse. (Secs. 119
and 120, NIL)
2009 BAR EXAMINATION IN MERCANTILE LAWQUESTION:
Lorenzo drew a bill of exchange in the amount of
P100,000.00 payable to Barbara oro r d e r , w i t h h i s
wife, Diana, as drawee. At the time the bill
w a s d r a w n , D i a n a w a s unaware that Barbara
is Lorenzo’s paramour.Barbara then negotiated the
bill to her sister, Elena, who paid for it for value,
and whod i d n o t k n o w w h o L o r e n z o w a s . O n
due date, Elena presented the bill to Diana
f o r payment, but the latter promptly dishonored the
instrument because, by then, Dianahad already learned
of her husband’s dalliance.[a] Was the bill lawfully
dishonored by Diana? Explain. (3%)
SUGGESTED ANSWER:
No, the bill was not lawfully dishonored by Diana.
Elena, to whom the instrument wasnegotiated, was a
holder in due course inasmuch as she paid value
therefore in goodfaith.[b] Does the illicit cause or
consideration adversely affect the negotiability of
the bill?Explain. (3%)
SUGGESTED ANSWER:
The illicit cause or consideration does not adversely
affect the negotiability of the bill,especially in the
hands of a holder in due course. Under Sec. 1 of the
NIL< the bill of exchange is a negotiable instrument. Every
negotiable instrument is deemed prima
faciet o h a v e b e e n i s s u e d f o r v a l u a b l e c o n s i d e r a
t i o n , a n d e v e r y p e r s o n w h o s e s i g n a t u r e appears
thereon is deemed to have become a party thereto for value
(Sec. 24, NIL).
 ncio notifying him of the dishonored checks, and demanding
payment of the loan.Because Gaudencio did not pay, BFC filed
a collection suit.In his defense, Gaudencio contended that [a]
QUESTION: BFC did not give timely notice of dishonor(of the checks);
TRUE or FALSE. Answer TRUE if the statement is and [b] considering that the checks were duly
true, or FALSE if the statement isfalse. Explain your indorsed, BFC shouldproceed against the drawers and
answer in not more than two (2) sentences. the indorsers of the
(5%)xxx[ d ] A d o c u m e n t , d a t e d J u l y 1 5 , checks.Are Gaudencio’s defenses tenable? Explain. (5%)
2009, that reads: “Pay to X or order the SUGGESTED ANSWER:
sum of P5,000.00 five days after his pet No, Gaudencio’s defenses are untenable. The cause
dog, Sparky, dies. Signed Y.” is a negoti of action of BFC was really on thecontract of loan, with
a b l e instrument. the checks merely serving as collateral to secure the payment
SUGGESTED ANSWER: of the loan. By virtue of the Deed of Assignment which he
True. The document is subject to a term and not signed, Gaudencio undertook to
a condition. The dying of the dog is aday which is
certain to come. Therefore, the order to pay is unconditional;
in compliancewith Sec. 1, NIL. (Note: this answer presumes
there is a
drawee) [ e ] “ A b a n k i s b o u n d t o k n o w i t s d pay for the receivables if for any reason they can not be paid
epositor’s signature” is an inflexible rul by the obligors (Velasquezv Solidbank Corporation [2008])
e i n determining the liability of a bank in forgery cases.
SUGGESTED ANSWER:
False. In cases of forgery, the forger may not
necessarily be a depositor of the bank,especially in the
case of a drawee bank. Yet, in many cases of forgery, it is the
draweebank that is held liable for the loss.
QUESTION:
Gaudencio, a store owner, obtained a P1-million loan from
Bathala Financing Corporation( B F C ) . A s s e c u r i t y ,
Gaudencio executed a “Deed of Assignment of
R e c e i v a b l e s , ” assigning 15 checks received from various
customers who bought merchandise from hisstore. The checks
were duly indorsed by Gaudencio’s customers.The Deed of
Assignment contains the following stipulation: “If, for any
reason, the receivables or any part thereof cannot be
paid by the obligors,the ASSIGNOR unconditionally
and irrevocably agrees to pay the same, assuming
theliability to pay, by way of penalty, three percent
(3%) of the total amount unpaid, forthe period of delay
until the same is fully paid.” When the checks became due,
BFC deposited them for collection, but the drawee
banksdishonored all the checks for one of the following
reasons: “account closed,”
“payments t o p p e d , ” “ a c c o u n t u n d e r g a r n i s h m e n t
, ” o r “ i n s u f f i c i e n c y o f f u n d s . ” B F C w r o t e Gaude