Defenses; Forgery (2004) Accordingly, the parties before the forgery are not juridically related to parties

CX maintained a checking account with UBANK, Makati Branch. after the forgery to allow such enforcement.
One of his checks in a stub of fifty was missing. Later, he b) Camilo may not go against Pablo, the latter not having indorsed the
discovered that Ms. DY forged his signature and succeeded to instrument.
encash P15,000 from another branch of the bank. DY was able to
encash the check when ET, a friend, c) Camilo may enforce the instrument against Julian because of his special
guaranteed due execution, saying that she was a holder in due indorsement to Camilo, thereby making him secondarily liable, both being
parties after the
course. Can CX recover the money from the bank? Reason Forgery.
briefly. (5%)
d) Julian, in turn, may enforce the instrument against Bert who, by his forgery,
SUGGESTED ANSWER: has rendered himself primarily liable.
Yes, CX can recover from the bank. Under Section 23 of the e) Pablo preserves his right to recover from either Mario or Jose who remain
parties juridically related to him. Mario is still considered primarily liable to
Negotiable Instruments Law, forgery is a real defense. The forged Pablo. Pablo may, in
check is wholly inoperative in relation to CX. CX cannot be held case of dishonor, go after Jose who, by his special indorsement, is secondarily
liable thereon by anyone, not even by a holder in due course. liable.
Under a forged signature of the drawer, there is no valid
instrument that would give rise to a contract which can be the Note: It is possible that an answer might distinguish between blank and
special indorsements of prior parties which can thereby materially alter the
basis or source of liability on the part of the drawer. The drawee above suggested answers. The problem did not clearly indicate the kind of
bank has no right or authority to touch the drawer's funds indorsements made.
deposited with the drawee bank.

Forgery; Liabilities; Prior & Subsequent Parties (1995)

Forgery; Liabilities; Prior & Subsequent Parties (1990) Alex issued a negotiable PN (promissory note) payable to Benito or order in
Jose loaned Mario some money and, to evidence his indebtedness, Mario payment of certain goods. Benito indorsed the PN to Celso in payment of an
executed and delivered to Jose a promissory note payable to his order. Jose existing obligation. Later Alex found the goods to be defective. While in Celso‘s
endorsed the note to Pablo. Bert fraudulently obtained the note from Pablo possession the PN was stolen by Dennis who forged Celso‘s signature and
and endorsed it to Julian by forging Pablo‘s signature. Julian endorsed the discounted it with Edgar, a money lender who did not make inquiries about the
note to Camilo. PN. Edgar indorsed the PN to Felix, a holder in due course. When Felix
a) May Camilo enforce the said promissory note against Mario and Jose? demanded payment of the PN from Alex the latter refused to pay. Dennis could
b) May Camilo go against Pablo? no longer be located.
c) May Camilo enforce said note against Julian? 1. What are the rights of Felix, if any, against Alex, Benito, Celso and Edgar?
d) Against whom can Julian have the right of recourse? Explain
e) May Pablo recover from either Mario or Jose? 2. Does Celso have any right against Alex, Benito and Felix? Explain.

SUGGESTED ANSWER: SUGGESTED ANSWER:

a) Camilo may not enforce said promissory note against Mario and Jose. The 1. Felix has no right to claim against Alex, Benito and Celso who are
promissory note at the time of forgery being payable to order, the signature of parties prior to the forgery of Celso‘s signature by Dennis. Parties to
Pablo was essential an instrument who are such prior to the forgery cannot be held liable
for the instrument to pass title to subsequent parties. A forged signature was by any party who became such at or subsequent to the forgery.
inoperative (Sec 23 NIL). However, Edgar, who became a party to the instrument subsequent to the
forgery and who indorsed the same to Felix, can be held liable by the latter.
2. Celso has the right to collect from Alex and Benito. Celso is a party
subsequent to the two. However, Celso has no right to claim against Felix who
is a party subsequent to Celso (Sec 60 and 66 NIL)
Incomplete & Delivered (2004) Incomplete Instruments; Incomplete Delivered Instruments vs.
AX, a businessman, was preparing for a business trip abroad. As he usually Incomplete Undelivered Instrument (2006)
did in the past, he signed several checks in blank and entrusted them to his Jun was about to leave for a business trip. As his usual practice, he signed
secretary with instruction to safeguard them and fill them out only when several blank checks. He instructed Ruth, his secretary, to fill them as payment
required to pay accounts during his absence. OB, his secretary, filled out one for his obligations. Ruth filled one check with her name as payee, placed
of the checks by placing her name as the payee. She filled out the amount, P30,000.00 thereon, endorsed and delivered it to Marie. She accepted the
endorsed and delivered the check to KC, who accepted it in good faith for check in good faith as payment for goods she delivered to Ruth. Eventually,
payment of gems that KC sold to OB. Later, OB told AX of what she did with Ruth regretted what she did and apologized to Jun. Immediately he directed
regrets. AX timely directed the bank to dishonor the check. Could AX be held the drawee bank to dishonor the check. When Marie encashed the check, it
liable to KC? Answer and reason briefly. (5%) was dishonored.

SUGGESTED ANSWER: 1. Is Jun liable to Marie? (5%)

Yes. AX could be held liable to KC. This is a case of an incomplete check,
which has been delivered. Under Section 14 of the Negotiable Instruments SUGGESTED ANSWER:
Law, KC, as a holder in due course, can enforce payment of the check as if it Yes. This covers the delivery of an incomplete instrument, under Section 14 of
had been filled up strictly in accordance with the authority given by AX to OB the Negotiable Instruments Law, which provides that there was prima facie
and within a reasonable time. authority on the part of Ruth to fill-up any of the material particulars thereof.
Having done so, and when it is first completed before it is negotiated to a
holder in due course like Marie, it is valid for all purposes, and Marie may
enforce it withina reasonable time, as if it had been filled up strictly in
Incomplete and Delivered (2005) accordance with the authority given.
Brad was in desperate need of money to pay his debt to Pete, a loan shark.
Pete threatened to take Brad‘s life if he failed to pay. Brad and Pete went to 2. Supposing the check was stolen while in Ruth's possession and a thief filled
see Señorita Isobel, Brad‘s rich cousin, and asked her if she could sign a the blank check, endorsed and delivered it to Marie in payment for the goods
promissory note in his favor in the amount of P10,000.00 to pay Pete. Fearing he purchased from her, is Jun liable to Marie if the check is dishonored? (5%)
that Pete would kill Brad, Señorita Isobel acceded to the request. She affixed
her signature on a piece of paper with the assurance of Brad that he will just SUGGESTED ANSWER:
fill it up later. Brad then filled up the blank paper, making a promissory note for No. Even though Marie is a holder in due course, this is an incomplete and
the amount of P100,000.00. He then indorsed and delivered the same to Pete, undelivered instrument, covered by Section 15 of the Negotiable Instruments
who accepted the note as payment of the debt. What defense or defenses can Law. Where an incomplete instrument has not been delivered, it will not, if
Señorita Isobel set up against Pete? Explain. (3%) completed and negotiated without authority, be a valid contract in the hands of
any holder, as against any person, including Jun, whose signature was placed
SUGGESTED ANSWER: thereon before delivery. Such defense is a real defense even against a
The defense (personal defense) which Señorita Isobel can set up against Pete holder in due course, available to a party like Jun whose signature appeared
is that the amount of P100,000.00 is not in accordance with the authority given prior to delivery.
to her to Brad (in the presence of Pete) and that Pete was not a holder in due
course for acting in bad faith when accepted the note as payment despite his
knowledge that it was only 10,000.00 that was allowed by Señorita Isobel
during their meeting with Brad.
Indorser: Irregular Indorser vs. General Indorser (2005)
Distinguish an irregular indorser from a general indorser. (3%)

SUGGESTED ANSWER:
Irregular Indorser is not a party to the instrument but he places his signature in
blank before delivery. He is not a party but he becomes one because of his
signature in the instrument. Because his signature he is considered an
indorser and he is liable to the parties in the instrument. While, a General
Indorser warrants that the instrument is genuine, that he has a good title to it,
that all prior parties had capacity to contract; that the instrument at the time of
the indorsement is valid and subsisting; and that on due presentment, the
instrument will be accepted or paid or both accepted and paid according to its
tenor, and that if it is dishonored, he will pay if the necessary proceedings for
dishonor are made.
 days.

SUGGESTED ANSWER:
a) Paragraph 1 – negotiability is ―NOT AFFECTED.‖ The date is not one of
Negotiability (1993) the requirements for Negotiability.
Discuss the negotiability or non-negotiability of the following notes
b) Paragraph 2 – negotiability is ―NOT AFFECTED‖
1) Manila, September 1, 1993 P2,500.00 I promise to pay Pedro San Juan The interest is to be computed at a particular time and is determinable. It does
or order the sum of P2,500. (Sgd.) Noel Castro not make the sum uncertain or the promise conditional.

2) Manila, June 3, 1993 P10,000.00 For value received, I promise to pay c) Paragraph 3 – negotiability is ―AFFECTED.‖
Sergio Giving the maker the option renders the promise conditional
Dee or order the sum of P10,000.00 in five (5) installments, with the first
installment payable on October 5, 1993 and the other installments on or before d) Paragraph 4 – negotiability is ―NOT AFFECTED.‖
the fifth day of the succeeding month or thereafter. (Sgd.) Lito Villa Giving the option to the holder does not make the promise conditional.

SUGGESTED ANSWER:
The promissory note is negotiable as it complies with Sec 1, NIL. Negotiability; Holder in Due Course (1992)
• Firstly, it is in writing and signed by the maker, Noel Castro. Perla brought a motor car payable on installments from Automotive Company
• Secondly, the promise is unconditional to pay a sum certain in money, that is, for P250th. She made a down payment of P50th and executed a promissory
P2,500.00 note for the balance. The company subsequently indorsed the note to Reliable
• Thirdly, it is payable on demand as no date of maturity is specified. Finance Corporation which financed the purchase. The promissory note read:
• Fourth, it is payable to order. ―For value received, I promised to pay Automotive Company or order at its
office in Legaspi City, the sum of P200,000.00 with interest at twelve (12%)
The promissory note is negotiable. All the requirements of Sec 1 NIL are percent per annum, payable in equal installments of P20,000.00 monthly for
complied with. The sum to be paid is still certain despite that the sum is to be ten (10) months starting October 21, 1991. Manila September 21, 1991.
paid by installments (Sec 2b NIL) (sgd) Perla

Pay to the order of Reliable Finance Corporation.

Automotive Company
Negotiability (2002) By: (Sgd) Manager
Which of the following stipulations or features of a promissory note (PN) affect
or do not affect its negotiability, assuming that the PN is otherwise negotiable? Because Perla defaulted in the payment of her installments, Reliable Finance
Indicate your answer by writing the paragraph number of the stipulation or Corporation initiated a case against her for a sum of money. Perla argued that
feature of the PN as shown below and your corresponding answer, either the promissory note is merely an assignment of credit, a non-negotiable
―Affected‖ or ―Not affected.‖ Explain (5%). instrument open to all defenses available to the assignor and, therefore,
Reliable Finance Corporation is not a holder in due course.
a) The date of the PN is ―February 30, 2002.‖
b) The PN bears interest payable on the last day of each calendar quarter at a a) Is the promissory note a mere assignment of credit or a negotiable
rate equal to five percent (5%) above the then prevailing 91-day Treasury Bill instrument? Why?
rate as published at the beginning of such calendar quarter. b) Is Reliable Finance Corp a holder in due course? Explain briefly.
c) The PN gives the maker the option to make payment either in money or in
quantity of palay or equivalent value. SUGGESTED ANSWER:
d) The PN gives the holder the option either to require payment in money or to a) The promissory note in the problem is a negotiable instrument, being in
require the maker to serve as the bodyguard or escort of the holder for 30 compliance with the provisions of Sec 1 NIL. Neither the fact that the payable
sum is to be paid with interest nor that the maturities are in stated
installments renders uncertain the amount payable (Sec 2 NIL) b) The fact that the instrument is undated and does not mention the place of
payment does not militate against its being negotiable. The date and place of
b) Yes, Reliable Finance Corporation is a holder in due course given the payment are not material particulars required to make an instrument
factual settings. Said corporation apparently took the promissory note for negotiable. The fact that no mention is made of any consideration is not
value, and there are no indications that it acquired it in bad faith (Sec 52 NIL material. Consideration is presumed.
see Salas v CA 181 s 296) Negotiable Instrument: Ambiguous Instruments (1998)
Negotiability; Requisites (2000) How do you treat a negotiable instrument that is so ambiguous that there is
doubt whether it is a bill or a note? (5%)
a) 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 SUGGESTED ANSWER:
the note into cash by endorsing it to his brother KR. The promissory note is 1. Where a negotiable instrument is so ambiguous that there is doubt
a piece of paper with the following hand-printed notation: whether it is a bill or a note, the holder may treat it either as a bill of
exchange or a promissory note at his election.
―MP WILL PAY JR TEN THOUSAND PESOS IN PAYMENT FOR HIS
CELLPHONE 1 WEEK FROM TODAY.‖
Negotiable Instrument: Definition & Characteristics (2005)
Below this notation MP‘s signature with What is a negotiable instrument?
Give the characteristics of a negotiable instrument. (2%)
―8/1/00‖ next to it, indicating the date of the promissory note.
SUGGESTED ANSWER:
When JR presented MP‘s note to KR, the latter said it was not a negotiable Negotiable Instrument is a written contract for the payment of money which is
instrument under the law and so could not be a valid substitute for cash. JR intended as a substitute for money and passes from one person to another as
took the opposite view, insisting on the note‘s negotiability. You are asked to money, in such a manner as to give a holder in due course the right to hold the
referee. Which of the opposing views is correct? instrument free from defenses available to prior parties. Such instrument must
comply with Sec. 1 of the Negotiable Instrument Law to be considered
b) TH is an indorsee of a promissory note that simply states: Negotiable.
―PAY TO JUAN TAN OR ORDER 400 PESOS.‖
The characteristics of a negotiable instrument are;
The note has no date, no place of payment and no consideration mentioned. It
was signed by MK and written under his letterhead specifying the address,
which happens to be his residence. TH accepted the promissory note as
payment for services rendered to SH, who in turn received the note from Juan
Tan as payment for a prepaid cell phone card worth 450 pesos. The payee
acknowledged having received the note on August 1, 2000. A Bar reviewee
had told TH, who happens to be your 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 protection under the statute. TH asks
for our advice specifically in connection with the note being undated and not
mentioning a place of payment and any consideration. What would your advice
be? (2%).

SUGGESTED ANSWER:
a) KR is right. The promissory note is not negotiable. It is not issued to order or
bearer. There is no word of negotiability containing therein. It is not issued in
accordance with Section 1 of the Negotiable Instruments Law
Negotiable Instrument: Negotiable Document vs. Negotiable Instrument
(2005)
Distinguish a negotiable document from a negotiable instrument. (2%) Negotiable Instruments; Bearer Instrument (1998)
Richard Clinton makes a promissory note payable to bearer and delivers the
SUGGESTED ANSWER: same to Aurora Page. Aurora Page, however, endorses it to X in this manner:
Negotiable Instrument have requisites of Sec. 1 of the NIL, a holder of this ―Payable to X. Signed: Aurora Page.‖
instrument have right of recourse against intermediate parties who are Later, X, without endorsing the promissory note, transfers and delivers the
secondarily liable, Holder in due course may have rights better than transferor, same to Napoleon. The note is subsequently dishonored by Richard Clinton.
its subject is money and the Instrument itself is property of value. May Napoleon proceed against Richard Clinton for the note? (5%)

On the other hand, negotiable document does not contain requisites of Sec. 1 SUGGESTED ANSWER:
of NIL, it has no secondary liability of intermediate parties, transferee merely Yes. Richard Clinton is liable to Napoleon under the promissory note. The note
steps into the shoes of the transferor, its subject are goods and the instrument made by Richard Clinton is a bearer instrument. Despite special indorsement
is merely evidence of title; thing of value are the goods entioned in the made by Aurora Page thereon, the note remained a bearer instrument and can
document. be negotiated by mere delivery. When X delivered and transferred the note to
Negotiable Instrument; Negotiability (1997) Napoleon, the latter became a holder thereof. As such holder, Napoleon can
Can a bill of exchange or a promissory note qualify as a negotiable instrument proceed against Richard Clinton.
if –
a. it is not dated; or
b. the day and the month, but not the year of its maturity, is given; or Negotiable Instruments; Bearer Instruments (1997)
c. it is payable to ―cash‖‘ or A delivers a bearer instrument to B. B then specially indorses it to C and C
d. it names two alternative drawees later indorses it in blank to D. E steals the instrument from D and, forging the
signature of , succeeds in ―negotiating‖ it to F who acquires the instrument in
SUGGESTED ANSWER: good faith and for value. a) If, for any reason, the drawee bank refuses to
a) Yes. Date is not a material particular required by Sec 1 NIL for the honor the check, can F enforce the instrument against the drawer? b) In case
negotiability of an instrument. 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?
b) No. The time for payment is not determinable in this case. The year is not
stated. SUGGESTED ANSWER:
a) Yes. The instrument was payable to bearer as it was a bearer
c) Yes. Sec 9d NIL makes the instrument payable to bearer because the name instrument. It could be negotiated by mere delivery despite the
of the payee does not purport to be the name of any person. presence of special indorsements. The forged signature is
unnecessary to presume the juridical relation between or among the
d) A bill may not be addressed to two or more drawees in the alternative or in parties prior to the forgery and the parties after the forgery. The only
succession, to be negotiable (Sec 128 NIL). To do so makes the order party who can raise the defense of forgery against a holder in due
conditional. course is the person whose signature is forged.

b) Only B and C can be held liable by F. The instrument at the time of the
forgery was payable to bearer, being a bearer instrument. Moreover,
 the instrument was indorsed in blank by C to D. D, whose signature As between C and F who are both innocent parties, it is C whose negligence is
was forged by E cannot be held liable by F. the proximate cause of the loss. Hence C should suffer the loss.

Negotiable Instruments; bearer instruments; liabilities of maker and

indorsers (2001)
Negotiable Instruments; incomplete and undelivered instruments; holder
A issued a promissory note payable to B or bearer. A delivered the note to B. B in due course (2000)
indorsed the note to C. C placed the note in his drawer, which was stolen by PN makes a promissory note for P5,000.00, but leaves the name of the payee
the janitor X. X indorsed the note to D by forging C‘s signature. D indorsed the in blank because he wanted to verify its correct spelling first. He mindlessly left
note to E who in turn delivered the note to F, a holder in due course, without the note on top of his desk at the end of the workday. When he returned the
indorsement. Discuss the individual liabilities to F of A, B and C. (5%) 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
SUGGESTED ANSWER: PN‘s office, had endorsed the note after inserting his own name in the blank
A is liable to F. As the maker of the promissory note, A is directly or primarily space as the payee. PN dishonored the note, contending that he did not
liable to F, who is a holder in due course. Despite the presence of the special authorize its completion and delivery. But X said he had no participation in, or
indorsements on the note, these do not detract from the fact that a bearer knowledge about, the pilferage and alteration of the note and therefore he
instrument, like the promissory note in question, is always negotiable by mere enjoys the rights of a holder in due course under the Negotiable Instruments
delivery, until it is indorsed restrictively ―For Deposit Only.‖ B, as a general Law. Who is correct and why? (3%)
indorser, is liable to F secondarily, and warrants that the instrument is genuine
and in all respects what it purports to be; that he has good title to it; that all b) Can the payee in a promissory note be a ―holder in due course‖ within the
prior parties had capacity to contract; that he has no knowledge of any fact meaning of the Negotiable Instruments Law (Act 2031)? Explain your answer.
which would impair the validity of the instrument or render it valueless; that at (2%)
the time of his indorsement, the instrument is valid and subsisting; and that on
due presentment, it shall be accepted or paid, or both, according to its tenor, SUGGESTED ANSWER:
and that if it be dishonored and the necessary proceedings on dishonor be a) PN is right. The instrument is incomplete and
duly taken, he will pay the amount thereof to the holder, or to any subsequent b) undelivered. It did not create any contract that would bind PN to an
indorser who may be compelled to pay. obligation to pay the amount thereof.

C is not liable to F since the latter cannot trace his title to the former. The b) A payee in a promissory note cannot be a ―holder in due course‖ within
signature of C in the supposed indorsement by him to D was forged by X. C the meaning of the Negotiable Instruments Law, because a payee is an
can raise the defense of forgery since it was his signature that was forged. immediate party in relation to the maker. The payee is subject to whatever
defenses, real
ALTERNATIVE ANSWER: of personal, available to the maker of the promissory note.
As a general endorser, B is secondarily liable to F. C is liable to F since it is
due to the negligence of C in placing the note in his drawer that enabled X to ALTERNATIVE ANSWER:
steal the same and forge the signature of C relative to the indorsement in favor b) A payee can be a ―holder in due course. ‖ A holder is defined as the payee
of D. or indorsee of the instrument who is in possession of it. Every holder is
deemed prima facie to be a holder in due course.
Negotiable Instruments; Incomplete DeliveredInstruments; Comparative
Negligence (1997) Negotiable Instruments; kinds of negotiable instrument; words of
negotiability (2002)
A, single proprietor of a business concern, is about to leave for a business trip A. Define the following:
and, as he so often does on these occasions, signs several checks in blank. (1) a negotiable promissory note,
He instructs B, his secretary, to safekeep the checks and fill them out when (2) a bill of exchange and
and as required to pay accounts during his absence. B fills out one of the (3) (3) a check. (3%)
checks by placing her name as payee, fills in the amount, endorses and
delivers the check to C who accepts it in good faith as payment for goods sold B. You are Pedro Cruz. Draft the appropriate contract language for (1) your
to B. B regrets her action and tells A what she did. A directs the Bank in time to negotiable promissory note and (2) your check, each containing the essential
dishonor the check. When C encashes the check, it is dishonored. Can A be elements of a negotiable instrument (2%)
held liable to C?
SUGGESTED ANSWER:
SUGGESTED ANSWER: A. (1) A negotiable promissory note is an unconditional promise in writing
Yes, A can be held liable to C, assuming that the latter gave notice of dishonor made by one person to another, signed by the maker, engaging to pay on
to A. This is a case of an incomplete instrument but delivered as it was demand or at a fixed or determinable future time, a sum certain in money to
entrusted to B, the secretary of A. Moreover, under the doctrine of comparative order
negligence, as between A and C, both innocent parties, it was the negligence or bearer.
of A in entrusting the check to B which is the proximate cause of the loss.
(2) A bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a
sum certain in money to order or to bearer.

(3) A check is a bill of exchange drawn on a bank payable on demand.

B. (1) Negotiable promissory note -

―September 15, 2002
―For value received, I hereby promise to pay Juan Santos or order the sum of
TEN THOUSAND PESOS (P10,000) thirty (30) days from date hereof.
(Signed) Pedro Cruz

to: Philippine National Bank Escolta, Manila Branch‖

Negotiable Instruments; Requisites (1996)
What are the requisites of a negotiable instrument?

SUGGESTED ANSWER:
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 to order
or to bearer; and d) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable certainty. (Sec 1 NIL)

Notice Dishonor (1996)

When is notice of dishonor not required to be given to the drawer?

SUGGESTED ANSWER:
Notice of dishonor is not required to be given to the drawer in any of the
following cases:
a) Where the drawer and drawee are the same person;
b) When the drawee is a fictitious person or a person not having capacity
to contract;
c) When the drawer is the person to whom the instrument is presented for
payment;
d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument; e) Where the drawer has
countermanded
payment (Sec 114 NIL)
 What constitutes a holder in due course?

SUGGESTED ANSWER:
A holder in due course is one who has taken the instrument under the
following conditions:
1 That it is complete and regular upon its face;
2 That he became holder of it before it was overdue and without notice that it
had been previously dishonored, if such was the fact;
3 That he took it in good faith and for value;
4 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. (Sec 52, NIL)

Parties; Holder in Due Course (1993)

Larry issued a negotiable promissory note to Evelyn and authorized the latter Parties; Holder in Due Course (1996)
to fill up the amount in blank with his loan account in the sum of P1,000. 1996 2.2) Eva issued to Imelda a check in the amount of P50th post-dated
However, Evelyn inserted P5,000 in violation of the instruction. She negotiated Sep 30, 1995, as security for a diamond ring to be sold on commission. On
the note to Julie who had knowledge of the infirmity. Julie in turn negotiated Sep 15, 1995, Imelda negotiated the check to MT investment which paid the
said note to Devi for value and who had no knowledge of the infirmity. amount of P40th to her. Eva failed to sell the ring, so she returned it to Imelda
1) Can Devi enforce the note against Larry and if she can, for how much? on Sep 19, 1995. Unable to retrieve her check, Eva withdrew her funds from
Explain. the drawee bank. Thus, when MT Investment presented the check for
2) Supposing Devi endorses the note to Baby for value but who has payment, the drawee
knowledge of the infirmity, can the latter enforce the note against bank dishonored it. Later on, when MT Investment sued her, Eva raised the
Larry? 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?
SUGGESTED ANSWER: Explain.
1) Yes, Devi can enforce the negotiable promissory note against Larry in
the amount of P5,000. Devi is a holder in due course and the breach SUGGESTED ANSWER:
of trust committed by Evelyn cannot be set up by Larry against Devi No. Eva does not have a valid defense. First, MT Investment is a holder in due
because it is a personal defense. As a holder in due course, Devi is course and, as such, holds he postdated check free from any defect of title of
not subject to such personal defense. prior parties and from defenses available to prior parties among themselves.
Eva can invoke the defense of absence of consideration against MT
2) Yes. Baby is not a holder in due course because she has knowledge of the Investment only if the latter was privy to the purpose for which the checks were
breach of trust committed by Evelyn against Larry which is just a personal issued and,
defense. But having taken the instrument from Devi, a holder in due course, therefore, not a holder in due course. Second, it is not a ground for the
Baby has all the rights of a holder in due course. Baby did not participate in the discharge of the postdated check as against a holder in due course that it was
breach of trust committed by Evelyn who filled the blank but filled up the issued merely as security. The only grounds for the discharge of negotiable
instrument with P5,000 instead of P1,000 as instructed by Larry (Sec 58 NIL) instruments are those set forth in Sec 119 of the NIL and none of those
grounds are available to Eva. The latter may not unilaterally discharge herself
from her liability by the mere expediency of withdrawing her funds from the
Parties; Holder in Due Course (1996) drawee bank. (State Investments v CA GR 101163, Jan 11, 93 217s32).
Parties; Holder in Due Course (1998) Parties; Holder in Due Course; Indorsement in blank (2002)
X makes a promissory note for P10,000 payable to A, a minor, to help him buy A. AB issued a promissory note for P1,000 payable to CD or his order on
school books. A endorses the note to B for value, who in turn endorses the September 15, 2002. CD indorsed the note in blank and delivered the same to
note to C. C knows A is a minor. If C sues X on the note, can X set up the EF. GH stole the note from EF and on September 14, 2002 presented it to AB
defenses of minority and lack of consideration? (3%) for payment. When asked by AB, GH said CD gave him the note in payment
for two cavans of rice. AB therefore paid GH P1,00 on the same date. On
SUGGESTED ANSWER: September 15, 2002, EF discovered that the note of AB was not in his
Yes. C is not a holder in due course. The promissory note is not a negotiable possession and he went to AB. It was then that EF found out that AB had
instrument as it does not contain any word of negotiability, that is, order or already made payment on the note. Can EF still claim payment from AB?
bear, or words of similar meaning or import. Not being a holder in due course, Why?
C is to subject such personal defenses of minority and lack of consideration. C (3%)
is a mere assignee who is subject to all defenses.
B. As a sequel to the same facts narrated above, EF, out of pity for AB who
ALTERNATIVE ANSWER: had already paid P1,000.00 to GH, decided to forgive AB and instead go after
X cannot set up the defense of the minority of A. Defense of minority is CD who indorsed the note in blank to him. Is CD still liable to EF by virtue of
available to the minor only. Such defense is not available to X. X cannot set up the indorsement in blank? Why? (2%)
the defense against C. Lack of consideration is a personal defense which is
only available between immediate parties or against parties who are not SUGGESTED ANSWER:
holders in due course. C‘s knowledge that A is a minor does not prevent C A. No. EF cannot claim payment from AB. EF is not a holder of the promissory
from being a holder in due course. C took the promissory note from a holder note. To make the presentment for payment, it is necessary to exhibit the
for value, B. instrument, which EF cannot do because he is not in possession thereof.

B. No, because CD negotiated the instrument by delivery.

Place of Payment (2000)
PN is the holder of a negotiable promissory note within the meaning of the
Negotiable Instruments Law (Act 2031). The note was originally issued by RP
to XL as payee. XL indorsed the note to PN for goods bought by XL. The note
mentions the place of payment on the specified maturity date as the office of
the corporate secretary of PX Bank during banking hours. ON maturity date,
RP was at the aforesaid office ready to pay the note but PN did not show up.
What PN later did was to sue XL for the face value of the note, plus interest
and costs. Will the suit prosper? Explain. (5%)

SUGGESTED ANSWER:
Yes. The suit will prosper as far as the face value of the note is concerned, but
not with respect to the interest due subsequent to the maturity of the note and
the costs of collection. RP was ready and willing to pay the note at the
specified place of payment on the specified maturity date, but PN did not show
up. PN lost his right to recover the interest due subsequent to the maturity of
the note and the costs of collection.
 instrument is not one which can still be said to contain an unconditional
promise to pay or order a sum certain in money. In the transfer of non-
negotiable credits by assignment, the transferor does not assume liability for
the fault of the debtor or obligor. Accordingly the court‘s decision was correct.

ALTERNATIVE ANSWER:
Yes. The check is crossed. It should have forewarned Mr. Noble that it was
issued for a specific purpose. Hence, Mr Noble could not be a holder in due
course. He is subject to the personal defense of breach of trust/ agreement by
Mr. Pablo. Such defense is available in favor of Mr Carlos against Mr Noble.

Checks; Crossed Check (1991) Checks; Crossed Check (1994)

Mr Pablo sought to borrow P200th from Mr Carlos. Carlos agreed to Po Press issued in favor of Jose a postdated crossed check, in payment
loan the amount in the form of a post- dated check which was crossed of newsprint which Jose promised to deliver. Jose sold and negotiated
(i.e. 2 parallel lines diagonally drawn on the top left portion of the check). the check to Excel Inc. at a discount. Excel did not ask Jose the purpose
Before the due date of the check, Pablo discounted it with Noble On due of crossing the check. Since Jose failed to deliver the newsprint, Po
date, Noble deposited the check with his bank. The check was ordered the drawee bank to stop payment on the check. Efforts of Excel
dishonored. Noble sued Pablo. The court dismissed Noble‘s complaint. to collect from Po failed. Excel wants to know from you as counsel: 1)
Was the court‘s decision correct? What are the effects of crossing a check? 2) Whether as second indorser
SUGGESTED ANSWER: and holder of the crossed check, is it a holder in due course? 3) Whether
The court‘s decision was incorrect. Pablo and Carlos, being immediate Po‘s defense of lack of consideration as against Jose is also available as
parties to the instrument, are governed by the rules of privity. Given the factual against Excel?
circumstances of the problem, Pablo has no valid excuse from denying
liability, (State investment House v IAC GR 72764 13July1989). Pablo SUGGESTED ANSWER:
undoubtedly had benefited in the transaction. To hold otherwise would also 1) The effects of crossing a check are: (same-same-same)
contravene the basic rules of unjust enrichment. Even in negotiable 2) No. It is a crossed check and Excel did not take it in accordance with the
instruments, the purpose for which the check was issued. Failure on its part to inquire as to
said purpose, prevented Excel from becoming a holder in due course, as such
ALTERNATIVE ANSWER: failure or refusal constituted bad faith.
The dismissal by the court was correct. A check whether or not post-dated or 3) Yes. Not being a holder in due course, Excel is subject to the personal
crossed, is still a negotiable instrument and unless Pablo is a general indorser, defense which Po Press can set up against Jose (State Investment House v
which is not expressed in the factual settings, he cannot be held liable for the IAC 175 S 310)
dishonor of the instrument. In State Investment House v IAC (GR 72764
13Jul1989), the court did not go so far as to hold that the fact of crossing Checks; Crossed Check (1995)
would render the instrument non-negotiable. On Oct 12, 1993, Chelsea Straights, a corp engaged in the manufacture
of cigarettes, ordered from Moises 2,000 bales of tobacco. Chelsea
ALTERNATIVE ANSWER: issued to Moises two crossed checks postdated 15 Mar 94 and 15 Apr 94
In State Investment House v IAC (GR 72764 13Jul1989), the SC considered a in full payment therefor. On 19 Jan 94 Moises sold to Dragon Investment
crossed check as subjecting a subsequent holder thereof to the contractual House at a discount the two checks drawn by Chelsea in his favor.
covenants of the payor and the payee. If such were the case, then the Moises failed to deliver the bales of tobacco as agreed despite Chelsea‘s
demand. Consequently, on 1 Mar 94 Chelsea issued a ―stop payment‖ Checks: Forged Checks; Liability of Drawee Bank (2008)
order on the 2 checks issued to Moises. Dragon, claiming to be a holder No.V. Pancho drew a check to Bong and Gerard jointly, Bong indorsed
in due course, filed a complaint for collection against Chelsea for the the check and also forged Gerard’s indorsement . The payor bank paid
value of the checks. Rule on the complaint of Dragon. Give your legal the check and charged Pancho’s account for the amount of the
basis. check. Gerard received nothing from the payment.

(A) Pancho asked the payor bank to recredit his account. Should the
SUGGESTED ANSWER: bank comply? Explain fully. (3%)
Dragon cannot collect from Chelsea. The instruments are crossed checks
which were intended to pay for the 2,000 bales of tobacco to be delivered to SUGGESTED ANSWER:
Moises. It was therefore the obligation of Dragon to inquire as to the purpose Yes, Sec. 41 of the NIL provides that all payees or indorsees who are not
of the issuance of the 2 crossed checks before causing them to be partners must indorse jointly, unless the one indorsing has authority to endorse
discounted. Failure on its part to make such inquiry, which resulted in its bad for the others. Since the signature of Gerard was forged, then the
faith, Dragon cannot claim to be a holder in due course. Moreover, the checks endorsement by Bong was wholly inoperative. The Bank is under strict
were sold, not endorsed, by him to Dragon which did not become a holder in liability to pay to the order of payee. Payment under a forged endorsement
due course. Not being a holder in due course, Dragon is subject to the is not to the drawer’s order, and consequently, the drawee bank must
personal defense on the part of Chelsea concerning the breach of trust on the bear the loss as against the drawer (Associated Bank v. CA, G.R. Nos. 107382
part of Moises Lim in not complying with his obligation to deliver the 2000 and 107612, 31 January 1996).
bales of tobacco.
Checks; Crossed Check (1996) (B) Based on the facts, was Pancho as drawer discharged on the
On March 1, 1996, Pentium Company ordered a computer from CD Bytes, instrument? Why? (2%)
and issued a crossed check in the amount of P30,000 post-dated Mar 31,
1996. Upon receipt of the check, CD Bytes discounted the check with SUGGESTED ANSWER:
Fund House. No. The payee Gerard can recover as he still retains his claim on the debt of
Pancho.
On April 1, 1996, Pentium stopped payment of the check for failure of CD
Bytes to deliver the computer. Thus, when Fund House deposited the
check, the drawee bank dishonored it. Checks; Liability; Drawer and Drawee Bank (2010)
If Fund House files a complaint against Pentium and CD Bytes for the No.VIII. Marlon deposited with LYRIC Bank a money market placement of
payment of the dishonored check, will the complaint prosper? Explain. P1 million for tern of 31 days. On Maturity date, one claiming to be
Marlon called up the LYRIC Bank account officer and instructed him to
SUGGESTED ANSWER: give the manager’s check representing the proceeds of the money
The complaint filed by Fund House against Pentium will not prosper but the market placement to Marlon’s girlfriend Ingrid.
one against CD Bytes will. Fund House is not a holder in due course and,
therefore, Pentium can raise the defense of failure of consideration against it. The check, which bore the forged signature of Marlon, was
The check in question was issued by Pentium to pay for a computer that it deposited in Ingrid’s account with YAMAHA Bank. YAMAHA Bank
ordered from CD Bytes. The computer not having been delivered, there was a stamped a guaranty on the check reading: ―All prior endorsements
failure of consideration. The check discounted with Fund House by CD Bytes and/or lack of endorsement guaranteed.‖
is a crossed check and this should have put Fund House on inquiry. It should
have ascertained the title of CD Bytes to the check or the nature of the latter‘s Upon presentment of the check, LYRIC Bank funds the check. Days
possession. Failing in this respect, Fund House is deemed guilty of gross later, Marlon goes to LYRIC Bank to collect his money market placement
negligence amounting to legal absence of good faith and, thus, not a holder in and discovers the foregoing transactions.
due course. Fund House can collect from CD Bytes as the latter was the
immediate indorser of the check. (See Bataan Cigar and Cigarette Factory v Marlon thereupon sues LYRIC Bank which in turn files a third-party
CA et al 230 s 643 GR 93048 Mar 3, 94) complaint against YAMAHA Bank. Discuss the respective rights and
liabilities of the banks. (5%) the bank honors the check when it is presented for payment. Apparently,
X has conspired with the bank‘s bookkeeper so that his ledger card
SUGGESTED ANSWER: would show that he still has sufficient funds.
Since the money market placement of Marlon is in the nature of a loan to Lyric
Bank, and since he did not authorize the release of the money market The bank files an action for recovery of the amount paid to B because
placement to Ingrid, the obligation of Lyric Bank to him has not been paid. Lyric the check presented has no sufficient funds. Decide the case (5%)
Bank still has the obligation to pay him.
SUGGESTED ANSWER:
Since Yamaha Bank indorsed the check bearing the forged indorsement The bank cannot recover the amount paid to B for the check. When the bank
of Marlon and guaranteed all indorsements, including the forged indorsement, honored the check, it became an acceptor. As acceptor, the bank became
when it presented the check to Lyric Bank, it should be held liable to it. primarily and directly liable to the payee/holder B.

However, since the issuance of the check was attended with the negligence The recourse of the bank should be against X and its bookkeeper who
of Lyric Bank, it should share the loss with Yamaha Bank on a fifty percent conspired to make X‘s ledger show that he has sufficient funds.
basis (Allied Banking Corporation v. Lim Sio Wan, 549 SCRA 504 (2008)).
ALTERNATIVE ANSWER:
Checks; Liability; Drawee Bank (1995) The bank can recover from B. This is solutio indebiti because there is payment
Mario Guzman issued to Honesto Santos a check for P50th as payment by the bank to B when such payment is not due. The check issued by X to B
for a 2nd hand car. Without the knowledge of Mario, Honesto changed as payee had no sufficient funds.
the amount to P150th which alteration could not be detected by the
naked eye. Honesto deposited the altered check with Shure Bank which
forwarded the same to Progressive Bank for payment. Progressive Bank Checks; Notice of Dishonor (2009)
without noticing the alteration paid the check, debiting P150th from the No.XII. Gaudencio, a store owner, obtained a P1-million loan from Bathala
account of Mario. Honesto withdrew the amount of P15th from Shure Financing Corporation (BFC). As security, Gaudencio executed a ―Deed
Bank and disappeared. After receiving his bank statement, Mario of Assignment of Receivables.‖ Assigning fifteen checks received from
discovered the alteration and demanded restitution from Progressive various customers who bought merchandise from his store. The
Bank. Discuss fully the rights and the liabilities of the parties concerned. checks were duly indorsed by Gaudencio’s customers.
SUGGESTED ANSWER: The Deed of Assignment contains the ff. stipulation:
The demand of Mario for restitution of the amount of P150,000 to his account ―If, for any reason, the receivables or any part thereof cannot be paid
is tenable. Progressive Bank has no right to deduct said amount from Mario‘s by the obligors, the ASSIGNOR unconditionally and irrevocably agrees to
account since the order of Mario is different. Moreover, Progressive Bank is pay the same, assuming the liability to pay by way of penalty, three
liable for the negligence of its employees in not noticing the alteration which, percent of the total amount unpaid, for the period of delay until the
though it cannot be detected by the naked eye, could be detected by a same is fully paid.”
magnifying instrument used by tellers.
When the checks became due, BFC deposited them for collection, but
As between Progressive Bank and Shure Bank, it is the former that should the drawee banks dishonored all the checks for one of the ff.
bear the loss. Progressive Bank failed reasons: ―account closed,‖ ―payment stopped,‖ ―account under
to notify Shure Bank that there was something wrong with the check within the garnishment, ―or ―insufficiency of funds.‖ BFC wrote Gaudencio
clearing hour rule of 24 hours. notifying him of the dishonored checks, and demanding payment of the
loan. Because Gaudencio did not pay, BFC filed a collection suit.

Checks; Effect; Acceptance by the drawee bank (1998) In his defense, Gaudencio contended that (a) BFC did not give timely
X draws a check against his current account with the Ortigas branch of notice of dishonor (of the checks); and (b) considering that the checks
Bonifacio Bank in favor of B. Although X does not have sufficient funds, were duly indorsed, BfC should proceed against the drawers and the
indorsers of the checks. against the bank sending the same. Assuming that the relationship between
Are Gaudencio’s defenses tenable? Explain. (5%) the drawee bank and the collecting bank is evidenced by some written
document, the prescriptive period would be 10 years. (Campos, NIL 5th ed
SUGGESTED ANSWER: 454-455)
No. Gaudencio’s defenses are untenable. The cause of action of BFC was
really on the contract of loan, with the checks merely serving as collateral to ALTERNATIVE ANSWER:
secure the payment of the loan. By virtue of the Deed of Assignment which XM Bank should bear the loss. When the drawee bank (XM Bank) failed to
he signed, Gaudencio undertook to pay for the receivables if for any reason return the altered check to the collecting bank (ND Bank) within the 24 hour
they cannot be paid by the obligors (Velasquez v. Solidbank Corporation, 550 clearing period provided in Sec 4c of CB Circular 9, dated Feb 17, 1949, the
SCRA 119 (2008)). latter is absolved from liability (See HSBC v PB&T Co GR L-28226 Sep 30
1970; 35 s 140; also Rep Bank v CA GR 42725 Apr 22, 1991 196 s 100)

Checks; Effects; Alterations; Prescriptive Period (1996)

William issued to Albert a check for P10,000 drawn on XM Bank. Albert Checks; Forged Check; Effects (2006)
altered the amount of the check to P210,000 and deposited the check to Discuss the legal consequences when a bank honors a forged check.
his account with ND (5%)
Bank. When ND Bank presented the check for payment through the SUGGESTED ANSWER: The legal consequences when a bank honors a
Clearing House, XM Bank honored it. Thereafter, Albert withdrew the forged check are as follows:
P210,000 and closed his account. (a) When Drawer's Signature is Forged: Drawee-bank by accepting the
check cannot set up the defense of forgery, because by accepting the
When the check was returned to him after a month, William discovered instrument, the drawee bank admits the genuineness of signature of drawer
the alteration. XM Bank recredited P210,000 to William‘s current account, (BPI Family Bank vs. Buenaventura G.R. No. 148196, September 30, 2005;
and sought reimbursement from ND Bank. ND Bank refused, claiming Section 23, Negotiable Instruments Law).
that XM Bank failed to return the altered check to it within 24 hour
clearing period. Who, as between, XM Bank and ND Bank, should bear Unless a forgery is attributable to the fault or negligence of the drawer himself,
the loss? Explain. the remedy of the drawee-bank is against the party responsible for the forgery.
Otherwise, drawee-bank bears the loss (BPI Family Bank v. Buenaventura,
SUGGESTED ANSWER: G.R. No. 148196, September 30, 2005). A drawee-bank paying on a forged
ND Bank should bear the loss if XM Bank returned the altered check to ND check must be considered as paying out of its funds and cannot charge the
Bank within twenty four hours after its discovery of the alteration. Under the amount to the drawer (Samsung Construction Co. Phils, v. Far East Bank,
given facts, William discovered the alteration when the altered check was G.R. No. 129015, August 13, 2004). If the drawee-bank has charged drawer's
returned to him after a month. It may safely be assumed that William account, the latter can recover such amount from the drawee-bank.
immediately advised XM Bank of such fact and that the latter promptly notified
ND Bank thereafter. Central Bank Circular No. 9, as amended, on which the However, the drawer may be precluded or estopped from setting up the
decisions of the Supreme Court in Hongkong & Shanghai Banking Corp v defense of forgery as against the drawee-bank, when it is shown that
People‟s Bank & Trust Co and Republic Bank vs CA were based was the drawer himself had been guilty of gross negligence as to have facilitated
expressly cancelled and superseded by CB No 317 dated Dec 23 1970. The the forgery.
latter was in turn amended by CB Circular No 580, dated Sept
19, 1977. As to altered checks, the new rules provide that the drawee bank (NOTA BENE: The question does not qualify the term "forged check". An
can still return them even after 4:00 pm of the next day provided it does so answer addressing the liabilities of a drawer should be deemed sufficient.
within 24 hours from discovery of the alteration but in no event beyond the Answers addressing liabilities of parties should likewise be given full credit)
period fixed or provided by law for filing of a legal action by the returning bank
Drawee Bank versus Collecting Bank — When the signature of the drawer could not sue the drawee bank as there was no privity between then.
is forged, as between the drawee-bank and collecting bank, the Drawee theorized that there was no basis to make it liable for the check.
drawee-bank sustains the loss, since the collecting bank does not guarantee Is this contention correct? Explain. (3%)
the signature of the drawer. The payment of the check by the drawee bank
constitutes the proximate negligence since it has the duty to know the SUGGESTED ANSWER:
signature of i(tPshiclilpiepninte-dNratwioenra.l Bank v. Court of Appeals, G.R. a. No. The serial number is not a material particular of the check. Its alteration
No. L-26001, October 29, 1968). does not constitute material alteration of the instrument. The serial number is
not material to the negotiability of the instrument.
(b) Forged Payee's Signature: When drawee-bank pays the forged check, it
must be considered as paying out of its funds and cannot charge the amount b. Yes. As a general rule, the drawee is not liable under the check because
so paid to the account of the depositor. In such case, the bank becomes liable there is no privity of contract between XYZ Marketing, as payee, and ABC
since its primary duty is to verify the authenticity of the payee's signature. Bank as the drawee bank. However, if the action taken by the bank is an
abuse of right which caused damage not only to the issuer of the check but
(c.) Forged Indorsement- drawer’s account cannot be charged and if charged also to the payee, the payee has a cause of action under quasi-delict.
he can recover from the drawee-bank

• Drawer has no cause of action against collecting bank, since the duty of
collecting bank is only to the payee. A collecting bank is not guilty of Checks; Presentment (1994)
negligence over a forged indorsement on checks for it has no way of Gemma drew a check on September 13, 1990. The holder presented the
ascertaining the authority of the endorsement and when it caused the checks check to the drawee bank only on March 5, 1994. The bank dishonored
to pass through the clearing house before allowing withdrawal of the proceeds the check on the same date. After dishonor by the drawee bank, the
thereof (Manila Lighter Transportation, Inc. v. Court of Appeals, G.R. No. holder gave a formal notice of dishonor to Gemma through a letter dated
50373, February 15, 1990). April 27, 1994. 1) What is meant by ―unreasonable time ‖ as applied to
 On the other hand, a collecting bank which endorses a check bearing a presentment? 2) Is Gemma liable to the holder?
forged endorsement and presents it to the drawee bank guarantees all
prior endorsements including the forged endorsement itself and should be SUGGESTED ANSWER:
1) As applied to presentment for payment, ―reasonable time: is meant not
held liable therefor more than 6 months from the date of issue. Beyond said period, it is
 Drawee-bank can recover from the collecting bank (Great Eastern Life Ins. ―unreasonable time‖ and the check becomes stale.
Co. v. Hongkong & Shanghai Bank, G.R. No. 18657, August 23,1922)
because even if the indorsement on the check deposited by the bank's 2) No. Aside form the check being already stale, Gemma is also discharged
client is forged, collecting bank is bound by its warranties as an indorser form liability under the check, being a drawer and a person whose liability is
and cannot set up defense of forgery as against drawee bank. secondary, this is due to the giving of the notice of dishonor beyond the period
allowed by law. The giving of notice of dishonor on April 27, 1994 is more than
Checks; Material Alterations; Liability (1999) one (1) month from March 5, 1994 when the check was dishonored. Since it is
A check for P50,000.00 was drawn against drawee bank and made not shown that Gemma and the holder resided in the same place, the period
payable to XYZ Marketing or order. The check was deposited with within which to give notice of dishonor must be the same time that the notice
payee‘s account at ABC Bank which then sent the check for clearing to would reach Gemma if sent by mail. (NIL Sec 103 & 104; Far East Realty
drawee bank. Drawee bank refused to honor the check on ground that Investment Inc v CA 166 S 256)
the serial number thereof had been altered. XYZ marketing sued drawee
bank. ALTERNATIVE ANSWER:
Is it proper for the drawee bank to dishonor the check for the reason that 2) Gemma can still be liable under the original contract for the consideration of
it had been altered? Explain (2%) which the check was issued.

In instant suit, drawee bank contended that XYZ Marketing as payee

Checks; Presentment (2003)
A bank issues its own check. May the holder hold the bank liable
thereunder if he fails to –
• prove presentment for payment, or
• present the bill to the drawee for acceptance?
Explain your answers. (4%)
SUGGESTED ANSWER:

Checks; Validity; Waiver of Bank’s liability for negligence (1991)

Mr. Lim issued a check drawn against BPI Bank in favor of Mr Yu as
payment of certain shares of stock which he purchased. On the same
day that he issued the check to Yu, Lim ordered BPI to stop payment. Per
standard banking practice, Lim was made to sign a waiver of BPI‘s

liability in the event that it should pay Yu through oversight or

inadvertence. Despite the stop order by Lim, BPI nevertheless paid Yu
upon presentation of the check. Lim sued BPI for paying against his
order. Decide the case.

SUGGESTED ANSWER:
In the event that Mr. Lim, in fact, had sufficient legal reasons to issue the stop
payment order, he may sue BPI for paying against his order. The waiver
executed by Mr Lim did not mean that it need not exercise due diligence to
protect the interest of its account holder. It is not amiss to state that the
drawee, unless the instrument has earlier been accepted by it, is not bound to
honor payment to the holder of the check that thereby excludes it from any
liability if it were to comply with its stop payment order (Sec 61 NIL)

ALTERNATIVE ANSWER:
1991 6b) BPI would not be liable to Mr Lim. Mr Lim and BPI are governed by
their own agreement. The waiver executed by Mr Lim, neither being one of
future fraud or gross negligence, would be valid. The problem does not
indicate the existence of fraud or gross negligence on the part of BPI so as to
warrant liability on its part.
 accomodation party only. When the promissory note was not paid, and
Raffy discovered that Carmen had no funds, he sued Jorge. Jorge pleads
in defense the fact that he had endorsed the instrument without
receiving value therefor, and the further fact that Raffy knew that at the
time he took the instrument Jorge had not received any value or
consideration of any kind for his indorsement. Is Jorge liable? Discuss.

SUGGESTED ANSWER:
Yes. Jorge is liable. Sec 29 of the NIL provides that an accommodation party is
liable on the instrument to a holder for value, notwithstanding the holder at the
time of taking said instrument knew him to be only an accommodation party.
This is the nature or the essence of accommodation.

Parties; Accommodation Party (2005)

Dagul has a business arrangement with Facundo. The latter would
lend money to another, through Dagul, whose name would appear in the
promissory note as the lender. Dagul would then immediately indorse the
Parties; Accommodation Party (2003) note to Facundo. Is Dagul an accommodation party? Explain. (2%)
Juan Sy purchased from ―A‖ Appliance Center one generator set on SUGGESTED ANSWER:
installment with chattel mortgage in favor of the vendor. After getting
hold of the generator set, Juan Sy immediately sold it without consent of Dagul is an accommodation party because in the case at bar, he is essentially,
the vendor. Juan Sy was criminally charged with estafa. a person who signs as maker without receiving any consideration, signs as an
accommodation party merely for the purpose of lending the credit of his name.
To settle the case extra judicially, Juan Sy paid the sum of P20,000 and And as an accommodation party he cannot set up lack of consideration
for the balance of P5,000.00 he executed a promissory note for said against any holder, even as to one who is not a holder in due course.
amount with Ben Lopez as an accommodation party. Juan Sy failed to Parties; Accommodation Party (1991)
pay the balance. 1) What is the liability of Ben Lopez as an On June 1, 1990, A obtained a loan of P100th from B, payable not later
accommodation party? Explain. 2) What is the liability of Juan Sy? than 20Dec1990. B required A to issue him a check for that amount to be
dated 20Dec1990. Since he does not have any checking account, A, with
SUGGESTED ANSWER: the knowledge of B, requested his friend, C, President of Saad Banking
1) Ben Lopez, as an accommodation party, is liable as maker to the holder up Corp (Saad) to accommodate him. C agreed, he signed a check for
to the sum of P5,000 even if he did not receive any consideration for the the aforesaid amount dated 20Dec 1990, drawn against Saad’s
promissory note. This is the nature of accommodation. But Ben Lopez can ask account with the ABC Commercial Banking Co. The By-laws of Saad
for reimbursement from Juan Sy, the accommodation party. requires that checks issued by it must be signed by the President and
the Treasurer or the Vice-President. Since the Treasurer was absent, C
2) Juan Sy is liable to the extent of P5,000 in the hands of a holder in due requested the Vice-President to co-sign the check, which the latter
course (Sec 14 NIL). If Ben Lopez paid the promissory note, Juan Sy has the reluctantly did. The check was delivered to B. The check was dishonored
obligation to reimburse Ben Lopez for the amount paid. If Juan Sy pays upon presentment on due date for insufficiency of funds. a) Is Saad liable
directly to the holder of the promissory note, or he pays Ben Lopez for the on the check as an accommodation party? b) If it is not, who then, under
reimbursement of the payment by the latter to the holder, the instrument is the above facts, is/are the accommodation party?
discharged.
SUGGESTED ANSWER:
Parties; Accommodation Party (1990) a.) Saad is not liable on the check as an accommodation party. The act of the
To accommodate Carmen, maker of a promissory note, Jorge signed as corporation in accommodating a friend of the President, is ultra vires
indorser thereon, and the instrument was negotiated to Raffy, a holder (Crisologo-Jose v CA GR 80599, 15Sep1989). While it may be legally possible
for value. At the time Raffy took the instrument, he knew Jorge to be an for the corporation, whose business is to provide financial accommodations in
the ordinary course of business, such as one given by a financing company to a solidary debtor? Explain. (4%)
be an accommodation party, this situation, however, is not the case in the bar SUGGESTED ANSWER:
problem. (per Dondee) Rose may be held liable. Rose is an accommodation party.
Absence of consideration is in the nature of an accommodation. Defense of
b) Considering that both the President and Vice-President were signatories to absence of consideration cannot be validly interposed by accommodation
the accommodation, they themselves can be subject to the liabilities of party against a holder in due course.
accommodation parties to the instrument in their personal capacity (Crisologo-
Jose v CA 15Sep1989)
Topic: Parties; Instances a Subsequent Party is Liable (2008)
Parties; Accommodation Party (1996) No.III. (A) As a rule under the Negotiable Instruments Law, a subsequent
Nora applied for a loan of P100th with BUR Bank. By way of party may hold a prior party liable but not vice versa.
accommodation, Nora‘s sister, Vilma, executed a promissory note in
favor of BUR Bank. When Nora defaulted, BUR Bank sued Vilma, despite Give two (2) instances where a prior party may hold a subsequent party
its knowledge that Vilma received no part of the loan. May Vilma be held liable. (2%) SUGGESTED ANSWER:
liable? Explain.
SUGGESTED ANSWER: In the following cases, a prior party may hold a subsequent party liable: (1)
Yes, Vilma may be held liable. Vilma is an accommodation party. As such, she where an instrument is negotiated back to a prior party, and he reissues and
is liable on the instrument to a holder for value such as BUR Bank. This is true further negotiates the same, he is entitled to en force payment against a
even if BUR Bank was aware at the time it took the instrument that Vilma is subsequent party who qualifies as an intervening party to whom the prior party
merely an accommodation party and received no part of the loan (See Sec 29, is not personally liable; and (2) in the case of an accommodation party
NIL; Eulalio Prudencio v CA GR L-34539, Jul 14, 86 143 s 7) arrangement, where the accommodation party may recover from the party
Parties; Accommodation Party (1998) accommodated, even when the latter is a subsequent party (Sec. 29, NIL).
For the purpose of lending his name without receiving value therefore,
Pedro makes a note for P20,000 payable to the order of X who in turn (B) How does the ―shelter principle‖ embodied in the Negotiable
negotiates it to Y, the latter knowing that Pedro is not a party for value. Instruments Law operate to give the rights of a holder- in-dine course to
1. May Y recover from Pedro if the latter interposes a holder who does not have the status of a holder-in-due course? Briefly
the absence of consideration? (3%) explain. (2%)
2. Supposing under the same facts, Pedro pays the said P20,000 may he
recover the same amount from X? (2%) SUGGESTED ANSWER:
SUGGESTED ANSWER: The “shelter principle” provides that a holder who is not himself a holder in due
1. Yes. Y can recover from Pedro. Pedro is an accommodation party. Absence course but is not a party to any fraud or illegality affecting the instrument, and
of consideration is in the nature of an accommodation. Defense of absence of who derives his title from a holder in due course, acquires the rights of a
consideration cannot be validly interposed by accommodation party against a holder in due course (Sec. 58, NIL).
holder in due course.

2. If Pedro pays the said P20,000 to Y, Pedro can recover the amount from X. Topic: Parties; Holder in Due Course (2012)
X is the accommodated party or the party ultimately liable for the instrument. No.III. X borrowed money from Y in the amount of Php1Million and as
Pedro is only an accommodation party. Otherwise, it would be unjust payment, issued a check. Y then indorsed the check to his sister Z for no
enrichment on the part of X if he is not to pay Pedro. consideration. When Z deposited the check to her account, the check
was dishonored for insufficiency of funds.
Parties; Accommodation Party (2003)
Susan Kawada borrowed P500,000 from XYZ Bank which required her, (A) Is Z a holder in due course? Explain your answer. (5%)
together with Rose Reyes who did not receive any amount from the
bank, to execute a promissory note payable to the bank, or its order on SUGGESTED ANSWER:
stated maturities. The note was executed as so agreed. What kind of Z is not a holder in due course. She did not give any valuable consideration for
liability was incurred by Rose, that of an accommodation party or that of the check. To be a holder in due course, the holder must have taken the check
in good faith and for value (Sec. 52[c], Negotiable Instruments Law). SUGGESTED ANSWER:
The filling up by the officer of his name as payee does not constitute forgery,
(B) Who is liable on the check. The drawer or the indorser? Explain your and contemplates a mechanically incomplete but delivered instrument. Under
answer. (5%) Sec. 14 of the NIL, in order to enforce an incomplete but delivered instrument
against a prior party, it must be filled-up strictly in accordance with the authority
SUGGESTED ANSWER: given. The doctrine of comparative negligence provides that AB Corp. is
X, the drawer, will be liable. As the drawer, X engaged that on due deemed negligent for having issued the check with a blank payee section that
presentment the check would be paid according to its tenor and that if it is facilitated the fraud; it should be AB Corp. that must bear the loss, and not XY
dishonored and he is given notice of dishonor, he will pay the amount to the Bank.
holder (Sec. 61, NIL). No notice of dishonor need be given to X if he is
aware that he has insufficient funds in his account. Under Section 114(d) of the (B) How would you decide the case? Explain. (2%)
Negotiable Instruments Law, notice of dishonor is not required to be given to SUGGESTED ANSWER:
the drawer where he has no right to expect that the drawee will honor the I would fin AB Corp. liable for its negligence in delivering an incomplete
instrument. Z cannot hold Y, the endorser, liable as the latter can raise the instrument to XY Bank (Sec. 14, NIL).
defense that there was no valuable consideration for the endorsement of the
check(Sec. 58, NIL).

Topic: Negotiable Instruments: Subject to a Term (2009) Topic: Negotiable Instruments; Illicit/Illegal Consideration (2007)
No.XI. (D) A document, dated July 15, 2009 that reads: ―Pay to X or No.I. R issued a check for P1m which he used to pay S for killing his
order the sum of 5,000.00 five days after his pet dog, Sparky, dies. political enemy. (10%)
Signed Y.‖ is a negotiable instrument.
(A) Can be the check be considered a negotiable instrument?
SUGGESTED ANSWER: SUGGESTED ANSWER:
True. The document is subject to a term and not a condition. The dying of the
dog is a day which is certain to come. Therefore, the order to pay is Yes, the check can be considered a negotiable instrument even if it was issued
unconditional, in compliance with Section 1 of the Negotiable Instruments Law to pay S to kill his political enemy. The validity of the consideration is not
(NIL). one of the requisites of a negotiable instruments (Section 1, Negotiable
Instruments Law.) it merely constitute a defect of title (Section 55, Negotiable
(Note: This answers presumes that there is a drawee) Instruments Law).

(B) Does S have a cause of action against R in case of dishonor by the

egotiable Instruments: Incomplete, Delivered; Doctrine: Comparative drawee bank?
Negligence (2008)
No.IV. AB Corporation drew a check for payment to XY Bank. The check SUGGESTED ANSWER:
was given to an officer of AB Corporation who was instructed deliver it to No, s does not have a cause of action against R in case of dishonor of the
XY Bank. Instead , the officer intending to defraud the Corporation, filled check by the drawee bank. S is not a holder in due course, thus, R can raise
up the check by making himself as the payee and delivered it to XY Bank the defense that the check was issued for an illegal consideration (Section 58,
for deposit to his personal account. XY Bank debited AB Corporation’s Negotiable Instruments Law).
account. AB Corporation came to know of the officer’s fraudulent act
after he absconded. AB Corporation asked XY Bank to recredit its (C) It S negotiated the check to T, who accepted it in good faith and
amount. XY Bank refused. for value, may R be held secondarily liable by T?

(A) If you were the judge, what issues would you consider relevant to Reason Briefly in (a), (b) and (c).
resolve the case? Explain. (3%) SUGGESTED ANSWER:
Yes, R may be held secondarily liable by T who took the check in good faith
and for value. T is a holder in due course. R cannot raise the defense of Negotiable Instruments Law).
illegality of the considerarion, because T took the check fre from the defect of
title of S (Section 57, Negotiable Instrumets Law).

Topic: Negotiable Instruments; Illicit/Illegal Consideration; Lawful Dishonor Topic: Negotiability (2013)
(2009) No.I. Antonio issued the following instrument:
No.VI. Lorenzo drew a bill of exchange in the amount of P100, 000.00 August 10, 2013
payable to Barbara or order, with his wife, Diana, as drawee. At the time Makati City
the bill was drawn. Diana was unaware that Barbara is Lorenzo’s
paramour. P1OO,OOO,OO
Sixty days after date, I promise to pay Bobby or his designated
Barbara then negotiated the bill to her sister, Elena, who paid for it for representative the sum of ONE HUNDRED THOUSAND PESOS
value, and who did not know who Lorenzo was. On due date, Elena (P100,000.00) from my BPI Acct. No. 1234 if, by this due date, the sun still
presented the bill to Diana for payment, but the latter promptly sets in the west to usher in the evening and rises in the east the
dishonored the instrument because, by then, Diana had already learned following morning to welcome the day.
of her husband’s dalliance. (Sgd.) Antonio Reyes

(A) Was the bill lawfully dishonored by Diana? Explain. (3%) Explain each requirement of negotiability present or absent in the
instrument. (8%)
SUGGESTED ANSWER:
No, the bill was not lawfully dishonored by Diana. Elena, to whom the SUGGESTED ANSWER:
instrument was negotiated, was a holder in due course inasmuch as she paid The instrument contains a promise to pay and was signed by the maker,
value therefore in good faith. Antonio Reyes (Section 1(a) of Negotiable Instruments Law).

(B) Does the illicit cause or consideration adversely affect the The promise to pay is unconditional insofar as the reference to the setting of
negotiability of the bill? Explain. (3%) the sun in the west in the evening and its rising in the east in the morning are
SUGGESTED ANSWER: concerned. These are certain to happen (Section 4(c) of Negotiable
No. the illicit cause or consideration does not adversely affect the Instruments Law). The promise to pay is conditional, because the money will
negotiability of the bill, especially in the hands of a holder in due course. Under be taken from a particular fund, BPI Account No. 1234 (Section 3 of Negotiable
Sec. 1 of the Negotiable Instruments law, the bill of exchange is a negotiable Instruments Law).
instrument. Every negotiable instrument is deemed prima facie to have been
issued for valuable consideration, and every person whose signature appears The Instrument contains a promise to pay a sum certain in money,
thereon is deemed to have become a party thereto for value (Sec. 24, P100,000.00 (Section (b) of Negotiable Instruments Law).
 SUGGESTED ANSWER: Not negotiable. The promise to pay is subject to a
The money is payable at a determinable future time, sixty days after August condition, i.e., that A will pass the 2012 bar exams (Sec.1[b],NIL).
10, 2013 (Section 4(a) of Negotiable Instruments Law) The instrument
is not payable to order or to bearer (Section 1(d) of Negotiable Instruments (D) I promise to pay A or bearer the sum of Php100.000 on or before
Law).w). December 30, 2012. (2%)
SUGGESTED ANSWER: Negotiable. It conforms fully with the requirements of
negotiability under Section 1, NIL.

(E) I promise to pay A or bearer the sum of Php100,000. (2%)

SUGGESTED ANSWER: Negotiable. It conforms fully with the requirements of
negotiability under Section 1,NIL. It is payable on demand because the note
does not express a time for its payment(Sec.7[b], NIL).

TOPIC: Forgery; Liabilities; Drawee Bank (2009)

Topic: Negotiability (2012) No.XI. (E) ―A bank is bound to know its depositor’s signature ‖ is an
No.IV. Indicate and explain whether the promissory note is negotiable or inflexible rule in determining the liability of a bank in forgery cases.
non- negotiable. SUGGESTED ANSWER:
(A) I promise to pay A or bearer Php100,000.00 from my inheritance False. In cases of forgery, the forger may not necessarily be a depositor of
which I will get after the death of my father. (2%) the bank, especially in the case of a drawee bank. Yet in many cases of
SUGGESTED ANSWER: Not negotiable. There is no unconditional promise forgery, it is the drawee that is held liable for the loss.
to pay a sum certain in money (Sec. 1 [b], NIL) as the promise is to pay the
amount out of a particular fund, i.e., the inheritance from the father of the
promisor(Sec. 3, NIL).

(B) I promise to pay A or bearer Php100,000 plus the interest rate of

ninety (90) – day treasury bills. (2%)
SUGGESTED ANSWER: Not negotiable. There is no unconditional promise
to pay a sum certain in money. The promise to pay “the interest rate of ninety
(90)-day treasury bills” is vague because, first, there are no 90-day
treasury bills (although there are 91-day, 182-day, and 364-days bills);
second the promise does not specify whether the so-called “interest
rate” is that established at the primary market (where new T-bills are sold for
the first time by the Bureau of Treasury) or at the secondary market (where
T-bills can be bought and sold after they have been issued in the
primary market).; and third, T-bills are conventionally quoted in terms of their
discount rate, rather than their interest rate. They do not pay any interest
directly; instead, they are sold at a discount of their face value and this
“earn” by selling at face value upon maturity. (See, among
other, www.treasury.gov.ph/govsec/aboutsec.h tml)

(C) I promise to pay A or bearer the sum of Php100,000 if A passes the

2012 bar exams. (2%)