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Summary of Bar Examination Cases and Answers based on Answers to Bar

Examination Questions in Mercantile Law (1987- 2010) of the UP Law Complex,
and sound logic.

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].

SUGGESTED ANSWER:

An instrument to be negotiable must conform to the following requirements/the requisites of a
negotiable instrument are as follows:

a. It must be in writing and signed by the maker or drawer;

b. It must contain an unconditional promise or order to pay a sum certain in money;

c. It must be payable on demand or at a fixed or determinable future time;

d. It must be payable to order or bearer;

e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty. (Section 1, Negotiable Instruments Law)

02. What constitutes a holder in due course? [QUESTION NO. 1, 1996, Bar Examinations].

SUGGESTED ANSWER:

A HIDC is one who has taken the instrument under the following conditions:

a. That it is complete and regular upon its FACE;

b. That he became the holder of it before it was OVERDUE and without notice that it had been
previously dishonored, if such was the fact;

c. That he took it in good faith and for value;

d. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it. (Section 52, Negotiable Instruments Law)

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 [QUESTION NO. 10, 1997, Bar Examinations].

SUGGESTED ANSWER:

a. YES. Date is NOT a material particular required by Section 1 of NIL for the negotiability of an
instrument.

b. NO. The time for payment is NOT determinable in this case. The year is NOT stated.

c. YES. Section 9(d), NIL makes the instrument payable to bearer because the name of the payee
does NOT purport to be the name of any person. In Ang Tek Lian vs. CA [L-2516, September 25,
1950)], the Supreme Court reasoned that “Under the Negotiable Instruments Law (sec. 9 [d], a
check drawn payable to the order of "cash" is a check payable to bearer, and the bank may pay it
to the person presenting it for payment without the drawer's indorsement.”

d. A bill may NOT be addressed to two or more drawees (Ws) in the alternative or in succession, to
be negotiable (Section 128, NIL). To do so makes the order conditional.

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].

SUGGESTED ANSWER: The PN is NOT negotiable because (1) it contains a condition in its
stipulation to pay Gabriela Silangan after the unconditional withdrawal of the US of its military bases in
the Philippines, and (2) it is not made payable to order or bearer. Section 1 of the NIL suggests that an
instrument to be negotiable must conform to the following requirements:

a. It must be in writing and signed by the maker or drawer;

b. It must contain an unconditional promise or order to pay a sum certain in money;

c. It must be payable on demand or at a fixed or determinable future time;

d. It must be payable to order or bearer;

e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty. (Section 1, Negotiable Instruments Law)

CAVEAT: I could not find an answer to this question so I answered it myself. Answer at your own risk.

05. (a) 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

or both. he engages that. Before X. available to the (M) of the promissory note. As general indorser. (b) that he has a GOOD title to it. he warrants that (a) the instrument is GENUINE and in all respects what it purports to be. real or personal. the holder may treat it as either at his election. NIL) 06. SUGGESTED ANSWER: Section 17 (e) of the NIL provides that where the instrument is so ambiguous that there is doubt whether it is a bill or a note. it shall be accepted or paid. SUGGESTED ANSWER: When a signature is so placed upon the instrument that it is NOT clear in what capacity the person making the same intended to sign. (b) A payee (P) in a promissory note CANNOT be a HOLDER IN DUE COURSE (HIDC) within the meaning of the NIL because a (P) is an immediate party in relation to the maker (M). on due presentment. Bar Examinations].turned up later when X presented it to PN for payment. and that . the pilferage and alteration of the note and therefore he enjoys the rights of a holder in due course under the Negotiable Instruments Law. 2000 Bar Examinations]. 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. It did NOT create any contract that would bind PN to an obligation to pay the amount thereof. 07. In addition. who turned out to have filched the note from PN’s office. according to the tenor. T. But X said he had no participation in. VI (b). Bar Examinations]. Who is correct and why? [INCOMPLETE AND UNDELIVERED INSTRUMENT TOPIC] (b) Can the payee in a promissory note be a ‘holder in due course’ within the meaning of the Negotiable Instruments Law? [Question No. as the case may be. 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. The instrument is incomplete and undelivered. and (d) that the instrument is. at the time of his indorsement. had endorsed the note after inserting his own name in the blank space as the payee. what is his liability? [1946. he is chargable only after presentment and notice of dishonor. (c) that all prior parties had CAPACITY to contract. PN dishonored the note. SUGGESTED ANSWER: (a) PN is correct. ALTERNATIVE ANSWER: (b) A (P) can be a HIDC. Every holder is deemed prima facie to be HIDC (Section 59. NIL]. If treated as an indorser of the instrument. VALID and SUBSISTING. The (P) is subjected to whatever defenses. or knowledge about. A HIDC is defined as the (P) or Indorsee (Ie) of the instrument who is in possession of it. contending that he did not authorize its completion and delivery. he is to be deemed an indorser [Section 17 (f).

2000 Bar Examinations]. 000. that TH is NOT a holder in due course (HIDC) under Section 52 of the NIL and therefore does NOT enjoy the rights and protection under the statute. they are deemed to be jointly and severally liable thereon. TESTS OF NEGOTIABILITY 09. Which of the opposing views is correct? Explain [Question No. and no consideration mentioned. 08. The promissory note is a piece of paper with the following hand-printed notation: “MP WILL PAY JR TENTHOUSAND PESOS IN PAYMENT FOR HIS CELLPHONE ONE WEEK FROM TODAY”. NIL]. NIL). A Bar reviewee had told TH.00. NIL] B.” The note has no date. Below this notation is MP’s signature with “8/1/00 next to it.000.000. no place of payment. The fact that no mention is made of any consideration is NOT material. the latter said it was not a negotiable instrument under the law and so could not be a valid cash substitute. what is their liability. V. (c). joint or solidary? Explain [1946. 10. It is not issued to the order or bearer. JR though of converting the note into cash by indorsing it to his brother KR. What would your advice be? SUGGESTED ANSWERS: (a) KR is correct. The date and place of payment are NOT material particulars required to make an instrument NEGOTIABLE [Section 6. It is NOT issued in accordance with Section 1 of the NIL.00 with a P50. who in turn receive the note from JUAN TAN as payment for a prepaid cellphone card worth 450 pesos. JR preferred cash but MP is a friend so JR accepted MP’s promissory note for P10. (g). The payee acknowledged having received the note on August 1. Bar Examinations]. Consideration is presumed [Section 24. insisting on the note’s negotiability. (a) MP bought a used cellphone from JR. Perla bought a motor car payable in installments from Automatic Company for P250. It was signed by MK and written under his letterhead specifying the address. JR took the opposite view.if it be dishonored and the necessary to proceedings on dishonor be duly taken or to any subsequent indorser who may be compelled to pay it (Section 66. (b) TH is an indorsee of a promissory note that simply states: “PAY TO JUAN TAN OR ORDER 400 PESOS. 2000. There are no words of negotiability contained therein. When JR presented MP’s note to KR.00 down payment. NIL]. indicating the date of the promissory note. TH accepted the promissory note as payment for service he rendered to SH. SUGGESTED ANSWER: Where an instrument containing the words “I promise to pay” is signed by two or more persons. [Section 17. When a negotiable instrument contains the words “I promise to pay” and is signed by two or more persons. She executed a promissory note for the balance which reads: . TH asks for your advice specifically in connection with the note being undated and not mentioning the place of payment and any consideration. The promissory note is NOT negotiable. which happens to be his residence. who happens to be your friend. (b) The fact that the instrument is undated and does NOT mention the place of payment does NOT militate against its being negotiable. You are asked to referee .

a check for his P100. and there are no indications that it acquired it in bad faith [Section 52. of the NIL.00 Manila. Does Juliet have any right of action against the bank? Because of the humiliation she suffered from 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. RFC initiated a case against her for the sum of money.00 in his current account at Matatag Banking Corporation. he mailed to his fiance. 11. (a) Is the promissory note a mere assignment of credit? Or a negotiable instrument? Why? [1992 Bar Examinations] (b) Is Reliable Finance Corp. Explain whether or not the following instrument is negotiable. Reliable Finance Corporation is a HIDC given the factual settings. Neither the fact that the payable sum is to be paid with interest nor that the maturities are in stated installment renders uncertain the amount payable.000.000. 181 SCRA 296].000.000. therefore.) Manager Because Perla defaulted in the payment of her installments. Juliet broke off her engagement with Romeo. October 5. RFC is NOT a holder in due course. 1970 I acknowledge to have received from Jose Cruz one thousand pesos (P1. Juliet. See Salas vs. then both principal and . P1. a non- negotiable instrument open to all defenses available to the assignor and.For value received.00 in the bank.000. Said Corporation apparently took the promissory note for value. NIL) (b) YES.000. payable in equal installments of P20. Does Romeo have a right of action against the bank? Explain [1986 Bar Examination]. Manila. a HIDC? Explain briefly. If the interest is not paid when due. Juliet presented the check for payment but the bank refused to honor it. SUGGESTED ANSWER: (a) The PN in the problem is a negotiable instrument being in compliance with the provisions of Section 1. the sum of P200. Automotive Company By: (Sgd. 12. 21 September 2002 SGD Perla Pay to the order of Reliable Finance Corp.00 for ten (10) months starting 21 October 2002. I promise to pay Automotive Company or order at its office in Legaspi City. Perla argued that the promissory note is merely an assignment of credit. Romeo had P100. Fearful of his life. (Section 2.00 with interest at 12% per annum. Court of Appeals. Romeo learned that his enemy had hired a contract killer to liquidate him.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.

the law provides a legal rate of 6% per annum which may be applied on the note to fulfill the obligation specified.interest shall become due at the option of the holder. If there is no rate specified. DEFENSES C. 13. a mere acknowledgment of indebtedness does NOT constitute a promise to pay required by Section 1 of the NIL. who. Is the bank right in so refusing? Why? If Gomez gave due notice to Veraz and Co.00. SUGGESTED ANSWER: (Made-up answer lang) YES.000. sold it for P800.000. may he recover from the latter? May Gomez recover from Santos? Why? May he recover from Reyes? Why? [1968 Bar Examination]. SUGGESTED ANSWER: (Own answer) The instrument is NOT negotiable. For value received.00 payable to the order of Veraz and Co. SGD: Pedro Garcia [1970 Bar Examination]. X executed a promissory note in favor of Y for P10. in turn. Y can still collect interest on the note despite failure to specify the specific rate to apply on the note.00 agreeing to pay interest thereon but without specifying the rate thereof. by delivery to Antonio Gomez. for consideration. FAILURE/ABSENCE OF CONSIDERATION 14. NIL]. The canned goods were never forwarded to Flores. the seller in Manila. that is to pay the amount of the note with interest... to Pablo Reyes. The instrument provides an acceleration clause at the option of the holder [Section 2. Pedro Flores of Cabanatuan drew a check upon PNB for P1. Furthermore. Gomez presented the check to the bank. but payment was refused because Reyes had not put his name on it. SUGGESTED ANSWER: . Can Y collect interest on the note? Why? Explain [1964 Bar Examination]. He sent the check “without recourse” to Juan Santos. In payment of canned goods he had purchased. The latter indorsed it in blank.

Second. C delivered to D the aforesaid note with the indorsement: “Pay to D”. MT Investment is a HIDC. as security for a diamond ring to be sold on commission. SUGGESTED ANSWER: (Sa tingin ko…) NO.000. by A. and the costs. Later on.. holds the post-dated check free from any defect of title of prior parties and from defense available to prior parties among themselves. EVA issued to IMELDA a check in the amount of P50. or that the consideration is ILLEGAL. January 11. when MT Investment sued her. 1995. Unable to retrieve her check. 217 SCRA 32] 16. and on April 15. [See State Investment vs CA. Upon A’s refusal to pay despite demand. SGD A and B. the check having been issued merely as security for the ring that she could not sell.00 post-dated September 30. 1995. First. [1969 Bar Examination]. Bar Examination]. GR 101163. the said note was indorsed in blank by D and delivered to X. 1993. X filed an action to collect from A the total amount of the promissory note. A and B executed and delivered to C a promissory note which reads: “I promise to pay C or bearer the sum of P2. EVA failed to sell the ring. 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. Are A’s defenses valid? Is X entitled to the whole amount of the note? Explain. 1969. Does EVA have a valid defense? Explain [1996. and. so she returned it to Imelda on September 19. et al. in this case. 1969. the drawee bank dishonored it. Two months later. Thus. Suggested Answer: NO. Want of consideration may be invoked as a personal defense. 1995. therefore. IMELDA negotiated the check to MT Investment which paid the amount of P40.00 with interest at 12% per annum on or before June 30. it is NOT a ground for the discharge of the post-dated checks as against a HIDC that it was issued merely as security. EVA withdrew her funds from the drawee bank.000. with 12% interest per annum from February 1. 1960. NOT a HIDC. for value received. without consideration. The latter may NOT unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. EVA does NOT have a valid defense.000. when MT Investment presented the check for payment. EVA can invoke the defense of absence of consideration against MT Investment ONLY IF the latter was privy to the purpose for which the checks were issued and. 1969. EVA raised the defense of absence of consideration. The ONLY grounds for the discharge of negotiable instruments are those set forth in Section 119 of the NIL and none of those grounds are available to EVA. There is absence of consideration if there is NO consideration given.15. not unless X . Manila. as such. On September 15.00 to her. his liability cannot exceed more than one-half of the amount due. February 1.

Such a person is liable on the instrument to a holder for value. VII. YES.00 payable to the order of X who in turn negotiates it to Y. absence of consideration between the accommodation party and accommodated party does NOT of itself constitute a valid defense against a holder for value even though he know of it when he became a holder. the latter knowing that Pedro is not a party for value.is a HIDC. In Republic Planters Bank vs. unless the contrary is proved [Section 59.000. Furthermore. NIL]. Republic Bank vs. makes them solidarily liable. an instrument which begins with “I”. PEDRO is ONLY an accommodation party. For the purpose of lending his name without receiving value therefor. PEDRO can recover the amount from X. in effect. “WE” or “Either of us” promise to pay. Pedro pays the said P20.000. Court of Appeals [ 216 SCRA 738.00 to Y. which in effect will not be considered as a defense available against him. SUGGESTED ANSWER: (a) YES. Llamas. But since the instrument is a bearer instrument. may he recover the same amount from X? Explain [Question No. X enjoys the prima facie presumption that he is a HIDC. that of a principal debtor and surety. Absence of consideration is in the nature of an accommodation party. notwithstanding such holder at the time of taking the instrument knew him to be ONLY an accommodation party [Section 29. acceptor or indorser. Ebrada. the accommodation party in lending his name. and for the purpose of lending his name to some other person. Y can recover from PEDRO. Otherwise. PEDRO is an accommodation party. The relation between them is. 417 SCRA 292 (2003)] . 22 SCRA 713. 1998 Bar Examination]. without receiving for value therefor. 744 (1992)]. drawer. it would be unjust enrichment on the party of X if he is NOT to pay PEDRO. (b) If PEDRO pays the said P20. being the surety for the accommodated party. when signed by two or more persons. 000. (a) May Y recover from Pedro if the latter interposes absence of consideration? (b) Supposing under the same facts. An accommodation party is one who has signed the instrument as maker. SUGGESTED ANSWER (2): (a) YES. he then becomes entitled to be reimbursed by the accommodated party.[Garcia vs. 65 SCRA 680) (b) Supposed Pedro pays as AP. Defense of absence of consideration CANNOT be validly interposed by accommodation party against a HIDC. NIL]. Lorenzo Ting. they are deemed to be jointly and severally liable. 17. (See Ang Tiong v. X is the accommodated party or the party ultimately liable for the instrument. X is entitled to the whole amount of the note.00. Section 17 (g) of the NIL also provides that when an instrument containing words “I promise to pay” is signed by two or more persons. Y can recover from PEDRO. Pedro makes a note for P20.

SUGGESTED ANSWER: YES.000. he affirms the genuineness of the negotiable instrument. drawer. VILMA may be held liable as an accommodation party. Such a person is liable on the instrument to a holder for value. Reyes is liable to Vera. Not having enough cash on hand. their mutual friend. (a) May Vilma be held liable? Explain [1996 Bar Examination]. Payment was refused for lack of funds. (Solutio Indebiti?) D. Vera refused to accept the check unless it is indorsed by Reyes. The next day. 19. Santos offered to pay in check.00. (a) Can Devi enforce the note against Larry. in turn. negotiated said note to Devi for value and who had no knowledge of the infirmity. drawer. Julie. (b) YES. Vera presented the check to the drawee bank for payment.000. acceptor or indorser. subject to her right to be reimbursed from NORA. BUR Bank sued Vilma.18.00 in violation of the instruction. for how much? . Nora applied for a loan of P100. INCOMPLETE DELIVERED INSTRUMENT 20. notwithstanding such holder at the time of taking the instrument knew him to be ONLY an accommodation party [Section 29. By way of accommodation. NIL]. does Reyes have the right to recover from Santos? Explain [1985 Bar Examination].000. (a) Is Reyes liable to Vera? (b) In the event Reyes voluntarily pays Vera. executed a promissory note in favor of BUR Bank.000.00 with BUR Bank. without receiving for value therefor. As an acceptor. Such a person is liable on the instrument to a holder for value. Hence. despite its knowledge that Vilma received no part of the loan. and for the purpose of lending his name to some other person. Nora’s sister. NIL]. Reyes may recover from the accommodated party for reimbursement. but Reyes refused to pay. Evelyn inserted P5. 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. accepted it. notwithstanding such holder at the time of taking the instrument knew him to be ONLY an accommodation party [Section 29. An accommodation party is one who has signed the instrument as maker. knowing that Reyes had not received any value for indorsing the check. she may be held liable. the accommodated party. Reyes indorsed Santos’ check and Vera. She negotiated the note to Julie who had knowledge of the infirmity. and for the purpose of lending his name to some other person. saying that he indorsed merely as a friend. subject to her right to recover from the accommodated party for reimbursement. without receiving for value therefor.00. Vera gave notice of dishonor to Reyes. acceptor or indorser. However. Santos purchased Vera’s car for P50. and if she can. An accommodation party is one who has signed the instrument as maker. When Nora defaulted. SUGGESTED ANSWERS: (a) YES. Vilma.

the person in possession thereof has the prima facie authority to complete it by filling up the blanks therein. may be enforced against any person who became a party thereto prior to its completion.000. DEVI is a HIDC and the breach of trust committed by EVELYN cannot be set up by LARRY against DEVI because it is a personal defense. PN makes a promissory note for P5. T. Pilar filled it up to P4. Maria and Pilar is liable for P4. can the latter enforce the note against Larry? Explain [1993 Bar Examination].000.00.000. BABY has ALL the rights of a HIDC. As HIDC. BABY is NOT a HIDC because she had knowledge of the breach of trust committed by Evelyn against LARRY which is just a personal defense. It turned up later when X presented it to PN for payment. Maria issued a negotiable promissory note and authorized Pilar to fill-up the amount in blank up to P2. If not. He mindlessly left the note on top of his desk at the end of the workday. But having taken the instrument from DEVI. is negotiated to a HIDC. (Section 14. [Section 58. it must be filled up strictly in accordance with the authority given and within reasonable time. When he returned the following morning. INCOMPLETE UNDELIVERED INSTRUMENT 22. DEVI can enforce the Negotiable PN against LARRY in the amount of P5. who turned out to have filched the note from PN’s office. DEVI is NOT subject to such personal defense. (b) YES.00. NIL) If Pepe is a HIDC. the note was missing. AFTER completion.00. In order.00 and negotiated the note to Pepe. Ad a signature on the blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. contending that he did not authorize its completion and delivery. it is valid and effectual for all purposes in his hands. which is for P2. a HIDC. when completed. and he may enforce it AS IF it had been filled up strictly in accordance with the authority given and within a reasonable time. NIL] 21. However.000. Before X. had endorsed the note after inserting his own name in the blank space as the payee. BABY did NOT participate in the breach of trust committed by Evelyn who filled the blank but filled up the instrument with P5. that any such instrument.000. The defense that the instrument had NOT been filled up in accordance with the authority given and within a reasonable time is NOT available as defense against a HIDC. SUGGESTED ANSWER: (a) YES. the pilferage and alteration of the note .00 instead of P1. they are liable based on the authority given.(b) Supposing Devi indorses the note to Baby for value but who has knowledge of the infirmity. PN dishonored the note. But X said he had no participation in.00. however. but leaves the name of the payee in blank because he wanted to verify its correct spelling first. or knowledge about. BUT if any such instrument. (a) For what amounts are Maria and Pilar liable to Pepe? Explain [1972 Bar Examinations]. E.000.000.00.000.00 as instructed by Larry. SUGGESTED ANSWER: (a) Where the instrument is wanting in any material particularity.

(Associated Bank vs. as the DRAWEE bank in this case. NIL) I will allege that the instrument was delivered to Karen for safekeeping. SUGGESTED ANSWER: NO. as against any person whose signature was placed thereon before delivery [Section 15. even if completed and negotiated without authority. In breach of trust. (Section 15 and 23. Court of Appeals. Where an instrument has NOT been delivered. SUGGESTED ANSWER: (See previous answers) PN is correct. 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. Before E could encash the check.00 on the check and delivered the same to E. An incomplete and undelivered instrument will not. SUGGESTED ANSWER: (If I were to answer this question…) If I were Jose. Who is correct and why? [2000 Bar Examination]. 107612.000. Hon. A DRAWEE is NOT liable until and unless he accepts the instrument in which case. X bank becomes an acceptor [Section 187. 1996) He cannot also hold A liable because Section 15 provides that an incomplete and undelivered instrument will not. . January 31. be a VALID CONTRACT in the hands of ANY HOLDER.and therefore he enjoys the rights of a holder in due course under the Negotiable Instruments Law.000. 23. NIL]. Marina fills up the note for P20. with instructions to fill up the check in favor of D for the amount of P1. NIL]. even if completed and negotiated without authority. signed by him. his secretary. A entrusted to B. be a valid contract in the hands of ANY HOLDER. and the amount of P2. is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. what defense or defenses are you going to interpose to negate liability on the instrument? Explain [1981 Bar Examinations]. NIL]. If you were Jose and Adriano presented to you the note for payment. and was completed and negotiated by Marina without authority to do so.00 and negotiates it to Adriano. GR No. I will invoke a real defense for want of authority which renders the instrument invalid in the hands of ANY HOLDER.00 and to thereafter deliver the said check to D. be a valid contract in the hands of ANY HOLDER. Can E now hold X bank and A liable? Reason [1971 Bar Examinations]. a blank check drawn on X bank. rendering the instrument as one that is undelivered. 24. B filled up the check by writing the name of E. including a HIDC. who accepted it in payment of certain goods sold by E to B.000. Jose makes a negotiable note payable to bearer with the amount in blank and delivers it to Karen for safekeeping. it will NOT. X Bank’s duty. even against a HIDC. Province of Tarlac and Philippine National Bank. a holder in due course. if completed and negotiated WITHOUT AUTHORITY. This is a defense even against a HIDC. E cannot hold X bank liable. A real defense exists and PN may treat the instrument as a forgery [Section 23.

The same was later stolen by B. Nazareno immediately filled in the amount of P50.00 and a fictitious name as payee. Jose Reyes signed a blank check. The forged signature is NOT necessary to presume the juridical relation between and among the parties PRIOR to the forgery and parties AFTER the forgery. NIL] (b) Section 15 which provides for an incomplete and undelivered instrument that is completed and negotiated without authority effects as a real defense even against a HIDC. Roldan endorsed the check to Dantes. succeeds in “negotiating” it to F who acquires the instrument in good faith and for value. forging the signature of D. It could be negotiated by mere delivery despite the presence of special indorsements. F. B then specially indorses it to C. it will NOT. (a) If. A signed a blank check which he inadvertently left at his desk at his Escolta Office.25. who filled in the amount of P22. Give reasons [1978 Bar Examinations]. for any reason. 26. [Apply Section 16 of the NIL in this case since the cut-off rule will NOT apply in case of a bearer instrument]. and E to F. SUGGESTED ANSWER: (a) NO. Thereafter. The instrument was payable to bearer as it was a bearer instrument. the drawee bank refuses to honor the check. what will be your answer? Can F enforce the instrument against B? Against C.00 and a fictitious name as payee on the said check. FORGERY 27. as against any person whose signature was placed thereon BEFORE delivery. thereafter C passed it to D. Can F enforce the instrument against A? Suppose that F is a holder in due course. can F enforce the instrument against the drawer? (b) In case of the dishonor of the check by both the drawee and the drawer. left the check on top of his executive desk in his office. Nazareno then endorsed the check in the payee’s name and passed it to Roldan. be a valid contract in the hands of ANY HOLDER. A delivers a bearer instrument to B. C and D liable secondarily on the instrument? [1997 Bar Examinations]. and in his hasted to attend a party. Nazareno forced the door to Reyes’ office and stole the blank check. Where an incomplete instrument has NOT been delivered. if completed and negotiated without authority. can F hold any of B. The ONLY party who can raise the defense of forgery against a HIDC is the person whose signature is forged. [Section 15. SUGGESTED ANSWER: (a) YES.300. then D to E. will your answer be the same? [1985 Bar Examinations]. B then endorsed the check in the payee’s name and passed the check to C. E steals the instrument from D and. (a) Can Dantes enforce the check against Jose Reyes? (b) If Dantes is a holder in due course. and C later indorses it in blank to D. Later. .000.

(b) Only B and C can be held liable by F. or to give a discharged therefor. (c) that all prior parties had CAPACITY to contract. Somehow. on due presentment. in turn. NIL] As general indorser. Roberto obtains possession of the note and. it is wholly inoperative. forging the signature of Jose. or to enforce payment thereof. and that if it be dishonored and the necessary to proceedings on dishonor be duly taken or to any subsequent indorser who may be compelled to pay it (Section 66. or to enforce payment thereof. VALID and SUBSISTING. NIL). as the case may be. Amado then indorses the note to Nilo. JUAN AND JOSE may be held liable on the note as general indorsers for breach of warranties. Carlos may NOT enforce the note against Pedro. SUGGESTED ANSWER: (I think…) (a) NO. In addition. NIL] (b) YES. he warrants that (a) the instrument is GENUINE and in all respects what it purports to be. D. As indorsers. When a signature is forged or made without the authority of the person whose signature it purports to be. [Section 23. 29. may Carlos hold Juan and Jose liable on their respective indorsements? Reason out your answers [1989 Bar Examinations]. can be acquired through or under such signature UNLESS the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. The instrument at the time of the forgery was payable to bearer. or both. who indorses it to Jose. When a signature is forged or made without the authority of the person whose signature it purports to be. at the time of his indorsement. on due presentment. according to the tenor. [Section 23. . against any party thereto. and that if it be dishonored and the necessary to proceedings on dishonor be duly taken or to any subsequent indorser who may be compelled to pay it (Section 66. it shall be accepted or paid. or both. (a) May Carlos enforce the note against Pedro? (b) And if the note is dishonored by Pedro. or to give a discharged therefor. can be acquired through or under such signature UNLESS the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. In addition. Juan makes a promissory note payable to the order of Pedro. VALID and SUBSISTING. and NO right to retain the instrument. Juan then indorses the note to Jose. 28. the signature was indorsed in blank by C to D. and (d) that the instrument is. indorses it to Amado. Juan makes a promissory note payable to his order. at the time of his indorsement. the holder. being a bearer instrument. (c) that all prior parties had CAPACITY to contract. Moreover. it is wholly inoperative. it shall be accepted or paid. (b) that he has a GOOD title to it. who. against ANY party thereto. NIL). (b) that he has a GOOD title to it. whose signature was forged by E CANNOT be held liable by F. and NO right to retain the instrument. they warrant that (a) the instrument is GENUINE and in all respects what it purports to be. he engages that. as the case may be. he engages that. according to the tenor. signing Pedro’s name thereon as maker without Pedro’s knowledge and consent. and (d) that the instrument is. indorses it to Carlos under circumstances which make Carlos a holder in due course.

The latter somehow misplaces the said note and Carlos Ros finds the note lying around the corridor of the building. finding the note. D indorses the note to E. [Apply Section 16 of the NIL in this case since the cut-off rule will NOT apply in case of a bearer instrument]. the drawee bank. A delivers the note to B. a holder in due course. as in this case is PEDRO LIM. JUANA. A makes a negotiable promissory note payable to B or bearer. The Bank of Philippine Islands. manager of a Trading Company. by forging the signature of Pedro Lim. 32. SUGGESTED ANSWER: YES. may collect on the note. May Juana Bond hold Juan de la Cruz liable on the note? Explain [1980 Bar Examinations]. C places the note in his wallet. It could be negotiated by mere delivery despite the presence of special indorsements. and delivers it personally to Pedro Lim. JUANA BOND may hold JUAN DE LA CRUZ liable on the note. Fernando forged the name of Daniel. The instrument was payable to bearer as it was a bearer instrument. SUGGESTED ANSWER: 31. The forged signature is NOT necessary to presume the juridical relation between and among the parties PRIOR to the forgery and parties AFTER the forgery. who in turn. as a holder for value. Explain briefly [1981 Bar Examinations]. did not detect the forgery and paid the amount. without indorsement.State the rights and liabilities of the parties [1984 Bar Examinations]. which was stolen by X. as the drawer of a check. for value. SUGGESTED ANSWER: 30. B indorses the note to C. delivers the note to F. Forgery is a real defense even against a HIDC. B and C to F. indorses it to D by forcing C’s signature. . The ONLY party who can raise the defense of forgery against a HIDC is the person whose signature is forged. Carlos Ros endorses the promissory note to Juana Bond. What are the liabilities of A. Juan de la Cruz signs a promissory note payable to Pedro Lim or bearer. who.

A succeeded in making B affix his signature on a check without B’s knowing that it was a check. When the drawee bank pays a person other than the payee. GR No. FRAUD 33. B refused to have the amount of the check deducted from his bank deposit.May the bank charge the amount paid against the account of the alleged drawer? Explain [1977 Bar Examinations]. for the amount of the note? What defense/defenses can B interpose? Explain [1978 Bar Examinations]. G. Hon. Can C file an action successfully against B. No drawee bank has a right to pay a forged check. (Associated Bank vs. Province of Tarlac and Philippine National Bank. The drawers instructions are reflected on the face and by the terms of the check.00 was drawn against drawee bank and made payable to XYZ Marketing . In cases involving a forged check.000. the drawer is precluded from asserting the forgery. A check for P50. 1996) However. January 31. the check was complete in all respects. Payment under a forged indorsement is not to the drawers order. it has no right to reimbursement from the drawer. If it does.00 therefor and acquires the note under circumstances that make him (C) as holder in due course.000. 107612. Since the drawee bank did not pay a holder or other person entitled to receive payment. known as the drawee bank. the maker of the note. A transfers the note to C who pays P5. the drawer can recover from the drawee bank. 34. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. Court of Appeals. SUGGESTED ANSWER: NO. it was stolen by C who succeeded in negotiating the same to D. The risk of loss must perforce fall on the drawee bank. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. a holder in due course. if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature. At the time of signing. where the drawer's signature is forged. Can A file an action successfully against the maker B for the amount of the note? Reasons. A intended to cash the check the following morning. it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items.00. is under strict liability to pay the check to the order of the payee. D cashed the check the following morning.000. MATERIAL ALTERATION 35. but that night. Going further. H. The bank on which a check is drawn. it shall have to recredit the amount of the check to the account of the drawer. Who may properly be charged with the amount of the check? Explain your answer [1961 Bar Examinations]. A induces B by fraud to make a promissory note payable on demand to the order of A in the sum of P5.

if there is no pre-existing contractual relation between the parties.00 and deposited the check to his account with ND Bank. XM Bank recredited P210. William issued to Albert a check for P10. claiming that XM Bank failed to return the altered check within the 24 hour clearing period. is called a quasi-delict and is governed by the provisions of this Chapter. as between XM Bank and ND Bank. (1902a) 36. Is this contention correct? Explain [1999 Bar Examinations]. as PAYEE.00 and closed his account. Who. Such fault or negligence. William discovered the alteration. As a general rule. Thereafter. SUGGESTED ANSWER: (a) NO. William discovered the alteration when the altered check was returned to him after a month. should bear the loss? Explain [1996 Bar Examinations]. XM Bank honored it. SUGGESTED ANSWER: ND Bank should bear the loss if XM Bank returns the altered check to ND Bank within 24 hours after its discovery of the alteration. The serial number is NOT a material particular of the check. QUASI-DELICT: Art. When ND Bank presented the check for payment through the Clearing House.000. (b) YES.or order. Albert altered the amount of the check to P210. The serial number is NOT material to the negotiability of the instrument. and ABC Bank as the drawer bank. Whoever by act or omission causes damage to another. there being fault or negligence. the DRAWEE is NOT liable under the check because there is NO PRIVITY of contract between XYZ Marketing. Drawee bank refused to honor the check on the ground that the serial number thereof had been altered. It may safely be assumed that William immediately advised . Drawee theorized that there was no basis to make it liable for the check.000.000. Under the given facts. The check was deposited with payee’s account at ABC Bank which then sent the check for clearing to drawee bank. Albert withdrew the amount of P210. However.000. is obliged to pay for the damage done. n. the PAYEE has the cause of action under QUASI-DELICT. Its alteration does NOT constitute material alteration of the instrument. drawee bank contended that XYZ Marketing as payee could not sue the drawee bank as there was no privity between them. When the check was returned to him after a month.00 drawn on XM Bank. if the action taken by the bank is an abuse of right which caused damage NOT ONLY to the issuer of the check BUT ALSO to the PAYEE. 2176. XYZ Marketing sued drawee bank. ND Bank refused. (a) Is it proper for the drawee bank to dishonor the check for the reason that it had been altered? (b) In instant suit.00 to William’s current account and sought reimbursement from ND Bank.

800. 35 SCRA 140. 196 SCRA 100) OR More importantly. fraud or irregularity in the indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. Central Bank Circular No. the latter is absolved from liability. People’s Bank & Trust Co.00 which B altered to P2. GR No. 1996) 37. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. 1977. ALTERNATE ANSWER: XM BANK should bear the loss. as amended on which the decision of the Supreme Court in the Hongkong & Shanghai Banking Corporation vs. 1970. the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. It warrants that the instrument is genuine. As to altered checks. the prescriptive period would be 10 years. Even if the latter bank was not negligent. and Republic Bank vs.the drawee bank guarantees all prior indorsements. a collecting bank which indorses a check bearing a forged indorsement and presents it to . including the forged indorsement. CA. the collecting bank is made liable because it is privy to the depositor who negotiated the check. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. dated December 23. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. it would still be liable to the drawee bank because of its indorsement. Moreover. Hon. The bank is also in a better position to detect forgery. April 22. 107612. 1991. 580. The latter was in turn amended by Central Bank Circular No. 1970. his address and history because he is a client. 9 dated February 17. A issued to B a personal check in the amount of P280. January 31. dated September 19. Court of Appeals. also Republic Bank vs. 317.XM Bank of such fact and that the latter promptly notified ND Bank thereafter. It has taken a risk on his deposit.. GR L-28226. the new rule provides that the drawee bank can still return them even after 4:00PM of the next day provided it does so within 24 hours from the discovery of the alteration but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank against the bank sending the same. Because the indorsement is a forgery. 1949. Assuming that the relationship between the drawee bank and the collecting bank is evidenced by some written document. et al. were based was expressly cancelled and superseded by Central Bank Circular No. The alteration is not apparent . by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law.. CA. When the drawee bank (XM BANK) failed to return the altered check to the collecting bank (ND Bank) within 24 hour clearing period provided in Section 4(c) of the Central Bank Circular No. (See Hongkong & Shanghai Banking Corporation vs. and that it is valid and subsisting at the time of his indorsement. The bank knows him. (Associated Bank vs. In consideration of some goods he bought.00 without the knowledge of A. People’s Bank & Trust Co. GR 42725. Province of Tarlac and Philippine National Bank. 9. September 30. et al.

who. indorses the note to C.000. which released it for clearing. accepted the bill. Juan deposits the check at Citibank and after clearing. after which. demanded recredit from PNB which cannot now locate B. what are the possible defenses to be interposed by X? If C sues X on the note. ACCEPTOR .00 and negotiated the note to Pepe. B was able to withdraw the P2. 39. can X set up the defenses of minority and lack of consideration? Explain [1998 Bar Examinations].00 in favor of B.800.00. The drawee. If C presents the note to X for payment.000. he closed his account. he noticed the discrepancy in the amount when he compared the altered check with his check stub. and if so. not knowing of the alteration which was neatly done. MINORITY 41. When A received his bank statement and cancelled checks. N negotiated the bill to C. BPI. X makes a promissory note for P10. He immediately notified BPI and demanded a recredit. Juan steals the check.00 in favor of Jose or order against his current account with the Bank of America. Thereafter. WARRANTIES/LIABILITIES J.000.00. to help him buy school books. Pilar filled it up to P4. who in turn endorses the note to C. without receiving consideration therefor. who debited the amount to Pedro. A indorses the note to B. 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]. a minor. he lodged a complaint at the Bank of America.000. If C sues X on the note.00 payable to A. I. he can only be liable up to P500. to what extent? Reasons [1971 Bar Examinations]. 40. Is the drawee’s contention tenable? Can the drawee debit the amount of A. Maria issued a negotiable promissory note and authorized Pilar to fill up the amount in blank up to P2. Upon discovery by Pedro of the material alteration. Bank of America demands reimbursement for Citibank which refuses on the ground that it only acted as an agent for collection. in turn. Who bears the loss? Why? [1977 Bar Examinations].00. A executed a bill of exchange for P500. Juan withdraws the amount and absconds. the drawee bank. a minor. The drawee contends that under the rule on alteration.000. Pedro writes out a check for P1. Can A compel BPI to recredit his account? If so. A endorses the note to B for value. 42.00 payable to A. who altered the amount to P5. did not notice the alteration and the check therefore cleared. erases the name of Jose and superimposes his own name. can X set up the defense of minority and lack of consideration? Explain [1989 Bar Examinations].00 and presented the bill to the drawee for acceptance. X. in turn. makes a promissory note for P500. who now seeks to hold the drawee liable for P5.to the naked eye.00 only.000. to help him to buy school books. For what amount are Maria and Pilar liable to Pepe? Explain [1972 Bar Examinations]. C knows A’s minority. C knows A is a minor. The BPI. However. B then deposited the altered check in his account with PNB. 38.

Benito and Felix? Explain [1995 Bar Examinations]. against Alex. who lost it. Richard Clinton makes a promissory note payable to bearer and deliverrs the same to Autora Page. Benito. The stop payment order was overlooked and the check was paid to E. Does Celso have any right of action against Alex. INCIDENTS M. A ordered payment stopped by notifying B. NEGOTIATION 47. X. the bank honors the check when it was presented to payment. In turn. Bing negotiates it by mere delivery to Carmen. May Napoleon proceed against Richard Clinton for the note? [1998 Bar Examinations]. endorses it to X in this manner: “Payable to X.43. A drew a check for P1. without endorsing the promissory note. The bank files an action for recovery of the amount paid to B because the check presented has no sufficient funds. Later. Benito indorsed the PN to Celso in payment of an existing obligation. the PN was stolen by Dennis who forged Celso’s signature and discounted it with Edgar. Dennis could no longer be located. Anna makes a promissory note payable to bearer and delivers it to Bing. Anna did not pay. Although X does not have sufficient funds. Dong negotiates it by special indorsement to Emma. Alex found the goods to be defective. Edgar indorsed the PN to Felix. Decide the case [1998 Bar Examinations]. a money lender who did not make inquiries about the PN. Alex issued a negotiable promissory note (PN) payable to Benito or order in payment of certain goods. Celso and Edgar? Explain. What are the rights of Felix. When Felix demanded payment of the PN from Alex. X draws a check against his current account with Ortigas Branch of Bonifacio Bank in favor of B. however. At D’s request. who indorses it specially to Dong. C indorsed the check in blank and negotiated it to D. Signed: Aurora Page”. who negotiates it to Fe by mere delivery. transfers and delivers the same to Napoleon. the latter refused to pay. NEGOTIATOR BY DELIVERY 44. D now sues the bank. who had taken the check. INDORSERS 45. While in Celso’s possession.00 on B. without actual knowledge of the loss. The note is subsequently dishonored by Richard Clinton. 46.000. in payment of merchandise sold to a stranger whom he thought owned the check. To whom are Bing and Carmen liable? To whom are Dong and Emma liable? Explain [1988 Bar Examinations]. . the Bank payable to the order of C and delivered the check to the latter for value. a holder in due course. L. Later. K. if any. X has conspired with the bank’s bookkeeper so that his ledger card would show that he still has sufficient funds. Apparently. Decide the case with brief reasons [1979 Bar Examinations]. The latter.

Can C hold A liable on the uncashed check? Can C hold B liable instead on the uncashed check? Explain. d.000. DISHONOR 49. against A. When the (R) is a person to whom the instrument is presented for payment. 51. The note was subsequently negotiated with proper indorsement by B to C. N. the holder. c.48.000. X draws a bill of exchange against Y in favor of W for P1. C to D. On November 3. 1996. b.00. When is notice of dishonor not required to be given to the drawer? [QUESTION NO. Where the (R) has NO right to expect or require that the (W) or ACCEPTOR (A) will honor the instrument. A gave to B his check drawn on PNB. Where the drawer (R) and Drawee (W) are the same person. and D to E. The bill is dishonored. If you were B. E then gave a notice of dishonor to C only. 1962. 1. A issued a promissory note to B dated January 1. When the (W) is a fictitious person or a person NOT having capacity to contract. Will the case prosper? Give reasons for your answer [1963 Bar Examinations]. (Sgd. Bar Examinations]. On November 10. if any.) A”. B thereafter negotiated the check to C. 2002. C could not encash the check because the Bangko Sentral had forbidden PNB to do business on grounds of insolvency. When E presented the note for payment to A. requesting the drawee to pay on December 24. B and D? Explain [1984 Bar Examinations]. how would you negotiate the check to negate future liability thereon? Explain [1987 Bar Examinations]. P promptly sues W for payment. in the following tenor: “I promise to pay to the order of B P1. as payment for goods received. W indorses the instrument to P on September 1 and on September 15 presents it for acceptance. . Manila. the latter refused to pay.00 sixty days after date. SUGGESTED ANSWER: Notice of dishonor is NOT required to be given to the drawer in any of the following cases: a. May E immediately proceed against B. 50. C or D? What should C do to protect his rights.