Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

minimize the attendant damage before,

the full extent of the claims of the cargo

during

(See

owners (Aboitiz Shipping v. New India

Fortune Express v. CA, Caorong. G.R. No.

Assurance Company, G.R. No. 156978,

119756, 18 March 1999; Yobido v. CA,

02 May 2006).

and

after

the

typhoon

G.R. No. 113003, 17

October 1997;

Gathalian v. Delim, G.R. No. L-56487, 21

(C) Assume the facts in question (b). Can

October 1991).

the heirs of the three (3) crew members who

perished recover from CSC? Explain fully.

Under Art. 587 of Code of Commerce, in

(3%)

case

SUGGESTED ANSWER:

of

maritime

transactions,

the

liability of the owner of the vessel is

limited to the vessel itself. Since the
vessel of CSC was seaworthy at the time
it sank, the CSC is not liable to Empire
under the maritime principle that the
obligations of the owner of a vessel are
hypothecary in nature.

Yes, because the crew members died

while performing their assigned duties,
aggravated by the failure of the ship
owner to ensure that the vessel is
seaworthy. Workmens compensation has
been classified by jurisprudence as an
exception to the hypothecary nature of

(B) Assume the vessel was not seaworthy as

in fact its hull had leaked, causing flooding
in the vessel. Will you answer be the same?
Explain. (2%)

maritime commerce, Abueg v. San Diego,

77 Phil. 730 (1948), especially in this
case where the vessel was not seaworthy
at the time it sank.

SUGGESTED ANSWER:
When the vessel is not seaworthy, it is
an

exception

principle

in

to

the

maritime

hypothecary

commerce.

To

limit its liability to the amount of the

insurance proceeds, the carrier has the
burden

of

proving

that

the

unseaworthiness of its vessel was not

due to its fault or negligence. The failure
to

discharge

precludes

such

application

heavy
of

the

burden
limited

liability rule and the carrier is liable to

Negotiable Instruments Law

Checks:

Forged

Checks;

Liability

of

Drawee Bank (2008)

No.V. Pancho drew a check to Bong and
Gerard jointly, Bong indorsed the check
and also forged Gerards indorsement . The
payor bank paid the check and charged
Panchos account for the amount of the

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 68 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

check. Gerard received nothing from the

Checks; Liability; Drawer and Drawee

payment.

Bank (2010)

(A) Pancho asked the payor bank to recredit

his account. Should the bank comply?
Explain fully. (3%)

No.VIII. Marlon deposited with LYRIC Bank

a money market placement of P1 million for
tern of 31 days. On Maturity date, one
claiming to be Marlon called up the LYRIC

SUGGESTED ANSWER:

Bank account officer and instructed him to

Yes, Sec. 41 of the NIL provides that all

give the managers check representing the

payees or indorsees who are not partners

proceeds of the money market placement to

must indorse jointly, unless the one

Marlons girlfriend Ingrid.

indorsing has authority to endorse for

the others. Since the signature of Gerard

The check, which bore the forged signature

was forged, then the endorsement by

of

Bong was wholly inoperative. The Bank

account with YAMAHA Bank. YAMAHA

is under strict liability to pay to the

Bank stamped a guaranty on the check

order of payee. Payment under a forged

reading: All prior endorsements and/or

endorsement is

lack of endorsement guaranteed.

not

to

the

drawers

Marlon,

was

deposited

in

Ingrids

order, and consequently, the drawee

bank must bear the loss as against the

Upon presentment of the check, LYRIC

drawer (Associated Bank v. CA, G.R. Nos.

Bank funds the check. Days later, Marlon

107382 and 107612, 31 January 1996).

goes to LYRIC Bank to collect his money

market

(B) Based on the facts, was Pancho as

drawer

discharged

on

the

placement

and

discovers

the

foregoing transactions.

instrument?

Why? (2%)
SUGGESTED ANSWER:

Marlon thereupon sues LYRIC Bank which

in turn files a third-party complaint against

No. The payee Gerard can recover as he

YAMAHA

Bank.

Discuss the

respective

still retains his claim on the debt of

rights and liabilities of the banks. (5%)

Pancho.
SUGGESTED ANSWER:
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 placement
to Ingrid, the obligation of Lyric Bank to

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 69 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

him has not been paid. Lyric Bank still

the

has the obligation to pay him.

irrevocably

JayArhSals

ASSIGNOR

unconditionally

agrees

to

pay

the

and
same,

assuming the liability to pay by way of

Since Yamaha Bank indorsed the check

penalty, three percent of the total amount

bearing

unpaid, for the period of delay until the

the

forged

indorsement

of

Marlon and guaranteed all indorsements,

same is fully paid.

including the forged indorsement, when

it presented the check to Lyric Bank, it

When

the

checks

became

due,

BFC

should be held liable to it.

deposited them for collection, but the

drawee banks dishonored all the checks for

However, since the issuance of the check

one of the ff. reasons: account closed,

was attended with the negligence of

payment

Lyric Bank, it should share the loss with

garnishment, or insufficiency of funds.

Yamaha Bank on a fifty percent basis

BFC wrote Gaudencio notifying him of the

(Allied Banking Corporation v. Lim Sio

dishonored

Wan, 549 SCRA 504 (2008)).

payment of the loan. Because Gaudencio

stopped,

account

checks,

and

under

demanding

did not pay, BFC filed a collection suit.

In his defense, Gaudencio contended that
Checks; Notice of Dishonor (2009)

(a) BFC did not give timely notice of

No.XII. Gaudencio, a store owner, obtained

dishonor

a P1-million loan from Bathala Financing

considering that the checks were duly

Corporation (BFC). As security, Gaudencio

indorsed, BfC should proceed against the

executed

drawers and the indorsers of the checks.

Receivables.
received

from

Deed

of

Assigning
various

Assignment
fifteen

of

(of

the

checks);

and

(b)

checks

customers

who

bought merchandise from his store. The

Are Gaudencios defenses tenable? Explain.

(5%)

checks were duly indorsed by Gaudencios

customers.

SUGGESTED ANSWER:
No. Gaudencios defenses are untenable.

The Deed of Assignment contains the ff.

The cause of action of BFC was really on

stipulation:

the contract of loan, with the checks

merely serving as collateral to secure the

If, for any reason, the receivables or any

payment of the loan. By virtue of the

part thereof cannot be paid by the obligors,

Deed of Assignment which he signed,

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 70 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

Gaudencio undertook to pay for the

the east the following morning to welcome

receivables if for any reason they cannot

the day.

be paid by the obligors (Velasquez v.

(Sgd.) Antonio Reyes

Solidbank Corporation, 550 SCRA 119

(2008)).

Explain each requirement of negotiability

present or absent in the instrument. (8%)
SUGGESTED ANSWER:
The instrument contains a promise to

Forgery; Liabilities; Drawee Bank (2009)

pay

and

was

signed

by

the

maker,

No.XI. (E) A bank is bound to know its

Antonio Reyes (Section 1(a) of Negotiable

depositors signature is an inflexible rule in

Instruments Law).

determining the liability of a bank in forgery

cases.

The promise to pay is unconditional

SUGGESTED ANSWER:

insofar as the reference to the setting of

False.

In cases of forgery, the forger

the sun in the west in the evening and

may not necessarily be a depositor of the

its rising in the east in the morning are

bank, especially in the case of a drawee

concerned. These are certain to happen

bank. Yet in many cases of forgery, it is

(Section 4(c) of Negotiable Instruments

the drawee that is held liable for the

Law). The promise to pay is conditional,

loss.

because the money will be taken from a

particular fund, BPI Account No. 1234
(Section 3 of Negotiable Instruments
Law).

Negotiability (2013)
No.I.

Antonio

issued

the

following

instrument:

The Instrument contains a promise to

pay

August 10, 2013

Makati City

sum

certain

in

money,

P100,000.00 (Section (b) of Negotiable

Instruments Law).

P1OO,OOO,OO
Sixty days after date, I promise to pay

The money is payable at a determinable

Bobby or his designated representative the

future time, sixty days after August 10,

sum of ONE HUNDRED THOUSAND PESOS

2013

(P100,000.00) from my BPI Acct. No. 1234

Instruments Law).

(Section

4(a)

of

Negotiable

if, by this due date, the sun still sets in the

west to usher in the evening and rises in

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 71 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

The instrument is not payable to order

there

or to bearer (Section 1(d) of Negotiable

(although there are 91-day, 182-day, and

Instruments Law).

364-days bills); second the promise does

not

are

JayArhSals

no

specify

90-day

whether

treasury

the

bills

so-called

interest rate is that established at the

primary market (where new T-bills are

Negotiability (2012)

sold for the first time by the Bureau of

No.IV. Indicate and explain whether the

Treasury) or at the secondary market

promissory

(where T-bills can be bought and sold

note is negotiable or

non-

negotiable.

after they have been issued in the

primary market).; and third, T-bills are

(A)

promise

to

pay

or

bearer

conventionally quoted in terms of their

Php100,000.00 from my inheritance which

discount rate, rather than their interest

I will get after the death of my father. (2%)

rate. They do not pay any interest

directly; instead, they are sold at a

SUGGESTED ANSWER:
Not

negotiable.

discount of their face value and this

There

is

no

unconditional promise 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).

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%)

(B) I promise to pay A or bearer Php100,000

plus the interest rate of ninety (90) day
treasury bills. (2%)

negotiable.

SUGGESTED ANSWER:
Not negotiable. The promise to pay is
subject to a condition, i.e., that A will

SUGGESTED ANSWER:
Not

earn by selling at face value upon

pass the 2012 bar exams (Sec.1[b],NIL).

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,

(D) I promise to pay A or bearer the sum of

Php100.000 on or before December 30,
2012. (2%)
SUGGESTED ANSWER:

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 72 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

Negotiable. It conforms fully with the

constitute a defect of title (Section 55,

requirements

Negotiable Instruments Law).

of

negotiability

under

Section 1, NIL.
(B) Does S have a cause of action against R
(E) I promise to pay A or bearer the sum of

in case of dishonor by the drawee bank?

Php100,000. (2%)
SUGGESTED ANSWER:

SUGGESTED ANSWER:

No, s does not have a cause of action

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).

against R in case of dishonor of the

check by the drawee bank. S is not a
holder in due course, thus, R can raise
the defense that the check was issued
for an illegal consideration (Section 58,
Negotiable Instruments Law).
(C) It S negotiated the check to T, who
accepted it in good faith and for value, may

Negotiable

Instruments;

Illicit/Illegal

R be held secondarily liable by T?

Consideration (2007)
No.I. R issued a check for P1m which he
used to pay S for killing his political enemy.
(10%)

Reason Briefly in (a), (b) and (c).

SUGGESTED ANSWER:
Yes, R may be held secondarily liable by

(A) Can be the check be considered a

negotiable instrument?

T who took the check in good faith and

for value. T is a holder in due course. R
cannot raise the defense of illegality of
the considerarion, because T took the

SUGGESTED ANSWER:
Yes, the check can be considered a
negotiable instrument even if it was

check fre from the defect of title of S

(Section 57, Negotiable Instrumets Law).

issued to pay S to kill his political

enemy. The validity of the consideration
is

not

one

negotiable

of

the

requisites

instruments

of

(Section

a
1,

Negotiable Instruments Law.) it merely

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 73 of 173

Mercantile Law Q&As (2007-2013)

Negotiable

[email protected]

Instruments;

Illicit/Illegal

No.VI. Lorenzo drew a bill of exchange in

the amount of P100, 000.00 payable to
Barbara or order, with his wife, Diana, as
drawee. At the time the bill was drawn.
Diana

was

unaware

that

Barbara

is

Lorenzos paramour.

sister, Elena, who paid for it for value, and

who did not know who Lorenzo was. On
due date, Elena presented the bill to Diana
payment,

but

not

adversely

affect

the

negotiability of the bill, especially in the

hands of a holder in due course. Under
Sec. 1 of the Negotiable Instruments law,
the bill of exchange is a negotiable
instrument. Every negotiable instrument
is deemed prima facie to have been
issued for valuable consideration, and

Barbara then negotiated the bill to her

for

No. the illicit cause or consideration

does

Consideration; Lawful Dishonor (2009)

JayArhSals

the

latter

every person whose signature appears

thereon is deemed to have become a
party

thereto

for

value

(Sec.

24,

Negotiable Instruments Law).

promptly

dishonored the instrument because, by

then, Diana had already learned of her
husbands dalliance.
(A) Was the bill lawfully dishonored by

Negotiable

Instruments:

Incomplete,

Delivered;

Doctrine:

Comparative

Negligence (2008)

Diana? Explain. (3%)

No.IV. AB

Corporation drew a check for

payment to XY Bank. The check was given

SUGGESTED ANSWER:

to an officer of AB Corporation who was

No, the bill was not lawfully dishonored
by Diana. Elena, to whom the instrument
was negotiated, was a holder in due
course

inasmuch

as

she

paid

value

therefore in good faith.

instructed deliver it to XY Bank. Instead ,

the

officer

intending

to

defraud

the

Corporation, filled up the check by making

himself as the payee and delivered it to XY
Bank for deposit to his personal account.
XY Bank debited AB Corporations account.

(B) Does the illicit cause or consideration

adversely affect the negotiability of the bill?
Explain. (3%)

AB Corporation came to know of the

officers fraudulent act after he absconded.
AB Corporation asked XY Bank to recredit
its amount. XY Bank refused.

SUGGESTED ANSWER:

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 74 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

(A) If you were the judge, what issues would

5,000.00 five days after his pet dog, Sparky,

you consider relevant to resolve the case?

dies. Signed Y. is a negotiable instrument.

Explain. (3%)

SUGGESTED ANSWER:

SUGGESTED ANSWER:

True. The document is subject to a term

The filling up by the officer of his name

as payee does not constitute forgery, and
contemplates a mechanically incomplete
but delivered instrument. Under 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
given.

The

doctrine

of

comparative

and not a condition. The dying of the

dog is a day which is certain to come.
Therefore,

the

unconditional,

order
in

to

pay

compliance

is
with

Section 1 of the Negotiable Instruments

Law (NIL).
(Note: This answers presumes that there
is a drawee)

negligence provides that AB Corp. is

deemed negligent for having issued the
check with a blank payee section that
facilitated the fraud; it should be AB
Corp. that must bear the loss, and not
XY Bank.
(B)

How

Parties; Holder in Due Course (2012)

No.III. X borrowed money from Y in the

would

you

decide

the

case?

amount of Php1Million and as payment,

Explain. (2%)

issued a check. Y then indorsed the check

SUGGESTED ANSWER:

to his sister Z for no consideration. When Z

deposited the check to her account, the

I would fin AB Corp. liable for its

check was dishonored for insufficiency of

negligence in delivering an incomplete

funds.

instrument to XY Bank (Sec. 14, NIL).

(A) Is Z a holder in due course? Explain
your answer. (5%)
SUGGESTED ANSWER:
Negotiable Instruments: Subject to a
Term (2009)
No.XI. (D) A document, dated July 15, 2009
that reads: Pay to X or order the sum of

Z is not a holder in due course. She did

not give any valuable consideration for
the check. To be a holder in due course,
the holder must have taken the check in

Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 75 of 173

Mercantile Law Q&As (2007-2013)

[email protected]

JayArhSals

good faith and for value (Sec. 52[c],

Give two (2) instances where a prior party

Negotiable Instruments Law).

may hold a subsequent party liable. (2%)

SUGGESTED ANSWER:

(B) Who is liable on the check. The drawer

or the indorser? Explain your answer. (5%)

In the following cases, a prior party may

hold a subsequent party liable: (1) where
an instrument is negotiated back to a

SUGGESTED ANSWER:
X, the drawer, will be liable. As the
drawer,

engaged

that

on

due

presentment the check would be paid

according to its tenor and that if it is
dishonored and he is given notice of
dishonor, he will pay the amount to the
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
Negotiable Instruments Law, notice of

prior party, and he reissues and further

negotiates the same, he is entitled to en
force

payment

against

subsequent

party who qualifies as an intervening

party to whom the prior party is not
personally liable; and (2) in the case of
an accommodation party arrangement,
where the accommodation party may
recover from the party accommodated,
even when the latter is a subsequent
party (Sec. 29, NIL).

dishonor is not required to be given to

(B)

the drawer where he has no right to

embodied in the Negotiable Instruments

expect that the drawee will honor the

Law operate to give the rights of a holder-

instrument.

the

in-dine course to a holder who does not

endorser, liable as the latter can raise

have the status of a holder-in-due course?

the defense that there was no valuable

Briefly explain. (2%)

consideration for the endorsement of the

SUGGESTED ANSWER:

cannot

hold

Y,

How

does

the

shelter

principle

check(Sec. 58, NIL).

The shelter principle provides that a
holder who is not himself a holder in due
course but is not a party to any fraud or
illegality affecting the instrument, and
Parties; Instances a Subsequent Party is

who derives his title from a holder in due

Liable (2008)

course, acquires the rights of a holder in

No.III. (A) As a rule under the Negotiable

due course (Sec. 58, NIL).

Instruments Law, a subsequent party may

hold a prior party liable but not vice versa.
Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige

Page 76 of 173