Defenses; Forgery (2004)

CX maintained a checking account with UBANK, Makati Branch.

One of his checks in a stub of fifty was missing. Later, he
discovered that Ms. DY forged his signature and succeeded to
encash P15,000 from another branch of the bank. DY was able to
encash the check when ET, a friend,
guaranteed due execution, saying that she was a holder in due
course. Can CX recover the money from the bank? Reason
briefly. (5%)
SUGGESTED ANSWER:
Yes, CX can recover from the bank. Under Section 23 of the
Negotiable Instruments Law, forgery is a real defense. The forged
check is wholly inoperative in relation to CX. CX cannot be held
liable thereon by anyone, not even by a holder in due course.
Under a forged signature of the drawer, there is no valid
instrument that would give rise to a contract which can be the
basis or source of liability on the part of the drawer. The drawee
bank has no right or authority to touch the drawer's funds
deposited with the drawee bank.

Forgery; Liabilities; Prior & Subsequent Parties (1990)

Jose loaned Mario some money and, to evidence his indebtedness, Mario
executed and delivered to Jose a promissory note payable to his order. Jose
endorsed the note to Pablo. Bert fraudulently obtained the note from Pablo
and endorsed it to Julian by forging Pablos signature. Julian endorsed the
note to Camilo.
a) May Camilo enforce the said promissory note against Mario and Jose?
b) May Camilo go against Pablo?
c) May Camilo enforce said note against Julian?
d) Against whom can Julian have the right of recourse?
e) May Pablo recover from either Mario or Jose?
SUGGESTED ANSWER:
a) Camilo may not enforce said promissory note against Mario and Jose. The
promissory note at the time of forgery being payable to order, the signature of
Pablo was essential
for the instrument to pass title to subsequent parties. A forged signature was
inoperative (Sec 23 NIL).

Accordingly, the parties before the forgery are not juridically related to parties
after the forgery to allow such enforcement.
b) Camilo may not go against Pablo, the latter not having indorsed the
instrument.
c) Camilo may enforce the instrument against Julian because of his special
indorsement to Camilo, thereby making him secondarily liable, both being
parties after the
Forgery.
d) Julian, in turn, may enforce the instrument against Bert who, by his forgery,
has rendered himself primarily liable.
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
Pablo. Pablo may, in
case of dishonor, go after Jose who, by his special indorsement, is secondarily
liable.
Note: It is possible that an answer might distinguish between blank and
special indorsements of prior parties which can thereby materially alter the
above suggested answers. The problem did not clearly indicate the kind of
indorsements made.

Forgery; Liabilities; Prior & Subsequent Parties (1995)

Alex issued a negotiable PN (promissory note) payable to Benito or order in
payment of certain goods. Benito indorsed the PN to Celso in payment of an
existing obligation. Later Alex found the goods to be defective. While in Celsos
possession the PN was stolen by Dennis who forged Celsos signature and
discounted it with Edgar, a money lender who did not make inquiries about the
PN. Edgar indorsed the PN to Felix, a holder in due course. When Felix
demanded payment of the PN from Alex the latter refused to pay. Dennis could
no longer be located.
1. What are the rights of Felix, if any, against Alex, Benito, Celso and Edgar?
Explain
2. Does Celso have any right against Alex, Benito and Felix? Explain.
SUGGESTED ANSWER:
1. Felix has no right to claim against Alex, Benito and Celso who are
parties prior to the forgery of Celsos signature by Dennis. Parties to
an instrument who are such prior to the forgery cannot be held liable
by any party who became such at or subsequent to the forgery.
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)
AX, a businessman, was preparing for a business trip abroad. As he usually
did in the past, he signed several checks in blank and entrusted them to his
secretary with instruction to safeguard them and fill them out only when
required to pay accounts during his absence. OB, his secretary, filled out one
of the checks by placing her name as the payee. She filled out the amount,
endorsed and delivered the check to KC, who accepted it in good faith for
payment of gems that KC sold to OB. Later, OB told AX of what she did with
regrets. AX timely directed the bank to dishonor the check. Could AX be held
liable to KC? Answer and reason briefly. (5%)
SUGGESTED ANSWER:
Yes. AX could be held liable to KC. This is a case of an incomplete check,
which has been delivered. Under Section 14 of the Negotiable Instruments
Law, KC, as a holder in due course, can enforce payment of the check as if it
had been filled up strictly in accordance with the authority given by AX to OB
and within a reasonable time.

Incomplete and Delivered (2005)

Brad was in desperate need of money to pay his debt to Pete, a loan shark.
Pete threatened to take Brads life if he failed to pay. Brad and Pete went to
see Seorita Isobel, Brads rich cousin, and asked her if she could sign a
promissory note in his favor in the amount of P10,000.00 to pay Pete. Fearing
that Pete would kill Brad, Seorita Isobel acceded to the request. She affixed
her signature on a piece of paper with the assurance of Brad that he will just
fill it up later. Brad then filled up the blank paper, making a promissory note for
the amount of P100,000.00. He then indorsed and delivered the same to Pete,
who accepted the note as payment of the debt. What defense or defenses can
Seorita Isobel set up against Pete? Explain. (3%)
SUGGESTED ANSWER:
The defense (personal defense) which Seorita Isobel can set up against Pete
is that the amount of P100,000.00 is not in accordance with the authority given
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 Seorita Isobel
during their meeting with Brad.

Incomplete Instruments; Incomplete Delivered Instruments vs.

Incomplete Undelivered Instrument (2006)
Jun was about to leave for a business trip. As his usual practice, he signed
several blank checks. He instructed Ruth, his secretary, to fill them as payment
for his obligations. Ruth filled one check with her name as payee, placed
P30,000.00 thereon, endorsed and delivered it to Marie. She accepted the
check in good faith as payment for goods she delivered to Ruth. Eventually,
Ruth regretted what she did and apologized to Jun. Immediately he directed
the drawee bank to dishonor the check. When Marie encashed the check, it
was dishonored.
1. Is Jun liable to Marie? (5%)
SUGGESTED ANSWER:
Yes. This covers the delivery of an incomplete instrument, under Section 14 of
the Negotiable Instruments Law, which provides that there was prima facie
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
accordance with the authority given.
2. Supposing the check was stolen while in Ruth's possession and a thief filled
the blank check, endorsed and delivered it to Marie in payment for the goods
he purchased from her, is Jun liable to Marie if the check is dishonored? (5%)
SUGGESTED ANSWER:
No. Even though Marie is a holder in due course, this is an incomplete and
undelivered instrument, covered by Section 15 of the Negotiable Instruments
Law. Where an incomplete instrument has not been delivered, it will not, if
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
thereon before delivery. Such defense is a real defense even against a
holder in due course, available to a party like Jun whose signature appeared
prior to delivery.

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.

Negotiability (1993)
Discuss the negotiability or non-negotiability of the following notes
1) Manila, September 1, 1993 P2,500.00 I promise to pay Pedro San Juan
or order the sum of P2,500. (Sgd.) Noel Castro
2) Manila, June 3, 1993 P10,000.00 For value received, I promise to pay
Sergio
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
the fifth day of the succeeding month or thereafter. (Sgd.) Lito Villa
SUGGESTED ANSWER:
The promissory note is negotiable as it complies with Sec 1, NIL.
Firstly, it is in writing and signed by the maker, Noel Castro.
Secondly, the promise is unconditional to pay a sum certain in money, that is,
P2,500.00
Thirdly, it is payable on demand as no date of maturity is specified.
Fourth, it is payable to order.
The promissory note is negotiable. All the requirements of Sec 1 NIL are
complied with. The sum to be paid is still certain despite that the sum is to be
paid by installments (Sec 2b NIL)

Negotiability (2002)
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?
Indicate your answer by writing the paragraph number of the stipulation or
feature of the PN as shown below and your corresponding answer, either
Affected or Not affected. Explain (5%).
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
rate equal to five percent (5%) above the then prevailing 91-day Treasury Bill
rate as published at the beginning of such calendar quarter.
c) The PN gives the maker the option to make payment either in money or in
quantity of palay or equivalent value.
d) The PN gives the holder the option either to require payment in money or to
require the maker to serve as the bodyguard or escort of the holder for 30

SUGGESTED ANSWER:
a) Paragraph 1 negotiability is NOT AFFECTED. The date is not one of
the requirements for Negotiability.
b) Paragraph 2 negotiability is NOT AFFECTED
The interest is to be computed at a particular time and is determinable. It does
not make the sum uncertain or the promise conditional.
c) Paragraph 3 negotiability is AFFECTED.
Giving the maker the option renders the promise conditional
d) Paragraph 4 negotiability is NOT AFFECTED.
Giving the option to the holder does not make the promise conditional.

Negotiability; Holder in Due Course (1992)

Perla brought a motor car payable on installments from Automotive Company
for P250th. She made a down payment of P50th and executed a promissory
note for the balance. The company subsequently indorsed the note to Reliable
Finance Corporation which financed the purchase. The promissory note read:
For value received, I promised to pay Automotive Company or order at its
office in Legaspi City, the sum of P200,000.00 with interest at twelve (12%)
percent per annum, payable in equal installments of P20,000.00 monthly for
ten (10) months starting October 21, 1991. Manila September 21, 1991.
(sgd) Perla
Pay to the order of Reliable Finance Corporation.
Automotive Company
By: (Sgd) Manager
Because Perla defaulted in the payment of her installments, Reliable Finance
Corporation initiated a case against her for a sum of money. Perla argued that
the promissory note is merely an assignment of credit, a non-negotiable
instrument open to all defenses available to the assignor and, therefore,
Reliable Finance Corporation is not a holder in due course.
a) Is the promissory note a mere assignment of credit or a negotiable
instrument? Why?
b) Is Reliable Finance Corp a holder in due course? Explain briefly.
SUGGESTED ANSWER:
a) The promissory note in the problem is a negotiable instrument, being in
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) Yes, Reliable Finance Corporation is a holder in due course given the
factual settings. Said corporation apparently took the promissory note for
value, and there are no indications that it acquired it in bad faith (Sec 52 NIL
see Salas v CA 181 s 296)
Negotiability; Requisites (2000)
a) MP bought a used cell phone from JR. JR preferred cash but MP is a friend
so JR accepted MRs promissory note for P10,000. JR thought of converting
the note into cash by endorsing it to his brother KR. The promissory note is
a piece of paper with the following hand-printed notation:

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
payment are not material particulars required to make an instrument
negotiable. The fact that no mention is made of any consideration is not
material. Consideration is presumed.
Negotiable Instrument: Ambiguous Instruments (1998)
How do you treat a negotiable instrument that is so ambiguous that there is
doubt whether it is a bill or a note? (5%)
SUGGESTED ANSWER:
1. Where a negotiable instrument is so ambiguous that there is doubt
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.
Below this notation MPs signature with
8/1/00 next to it, indicating the date of the promissory note.
When JR presented MPs note to KR, the latter said it was not a negotiable
instrument under the law and so could not be a valid substitute for cash. JR
took the opposite view, insisting on the notes negotiability. You are asked to
referee. Which of the opposing views is correct?
b) TH is an indorsee of a promissory note that simply states:
PAY TO JUAN TAN OR ORDER 400 PESOS.
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: Definition & Characteristics (2005)

What is a negotiable instrument?
Give the characteristics of a negotiable instrument. (2%)
SUGGESTED ANSWER:
Negotiable Instrument is a written contract for the payment of money which is
intended as a substitute for money and passes from one person to another as
money, in such a manner as to give a holder in due course the right to hold the
instrument free from defenses available to prior parties. Such instrument must
comply with Sec. 1 of the Negotiable Instrument Law to be considered
Negotiable.
The characteristics of a negotiable instrument are;

Negotiable Instrument: Negotiable Document vs. Negotiable Instrument

(2005)
Distinguish a negotiable document from a negotiable instrument. (2%)
SUGGESTED ANSWER:
Negotiable Instrument have requisites of Sec. 1 of the NIL, a holder of this
instrument have right of recourse against intermediate parties who are
secondarily liable, Holder in due course may have rights better than transferor,
its subject is money and the Instrument itself is property of value.
On the other hand, negotiable document does not contain requisites of Sec. 1
of NIL, it has no secondary liability of intermediate parties, transferee merely
steps into the shoes of the transferor, its subject are goods and the instrument
is merely evidence of title; thing of value are the goods entioned in the
document.
Negotiable Instrument; Negotiability (1997)
Can a bill of exchange or a promissory note qualify as a negotiable instrument
if
a. it is not dated; or
b. the day and the month, but not the year of its maturity, is given; or
c. it is payable to cash or
d. it names two alternative drawees
SUGGESTED ANSWER:
a) Yes. Date is not a material particular required by Sec 1 NIL for the
negotiability of an instrument.
b) No. The time for payment is not determinable in this case. The year is not
stated.
c) Yes. Sec 9d NIL makes the instrument payable to bearer because the name
of the payee does not purport to be the name of any person.
d) A bill may not be addressed to two or more drawees in the alternative or in
succession, to be negotiable (Sec 128 NIL). To do so makes the order
conditional.

Negotiable Instruments; Bearer Instrument (1998)

Richard Clinton makes a promissory note payable to bearer and delivers the
same to Aurora Page. Aurora Page, however, endorses it to X in this manner:
Payable to X. Signed: Aurora Page.
Later, X, without endorsing the promissory note, transfers and delivers the
same to Napoleon. The note is subsequently dishonored by Richard Clinton.
May Napoleon proceed against Richard Clinton for the note? (5%)
SUGGESTED ANSWER:
Yes. Richard Clinton is liable to Napoleon under the promissory note. The note
made by Richard Clinton is a bearer instrument. Despite special indorsement
made by Aurora Page thereon, the note remained a bearer instrument and can
be negotiated by mere delivery. When X delivered and transferred the note to
Napoleon, the latter became a holder thereof. As such holder, Napoleon can
proceed against Richard Clinton.
Negotiable Instruments; Bearer Instruments (1997)
A delivers a bearer instrument to B. B then specially indorses it to C and C
later indorses it in blank to D. E steals the instrument from D and, forging the
signature of , succeeds in negotiating it to F who acquires the instrument in
good faith and for value. a) If, for any reason, the drawee bank refuses to
honor the check, can F enforce the instrument against the drawer? b) In case
of the dishonor of the check by both the drawee and the drawer, can F hold
any of B, C and D liable secondarily on the instrument?
SUGGESTED ANSWER:
a) Yes. The instrument was payable to bearer as it was a bearer
instrument. It could be negotiated by mere delivery despite the
presence of special indorsements. The forged signature is
unnecessary to presume the juridical relation between or among the
parties prior to the forgery and the parties after the forgery. The only
party who can raise the defense of forgery against a holder in due
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

was forged by E cannot be held liable by F.

Negotiable Instruments; bearer instruments; liabilities of maker and

indorsers (2001)
A issued a promissory note payable to B or bearer. A delivered the note to B. B
indorsed the note to C. C placed the note in his drawer, which was stolen by
the janitor X. X indorsed the note to D by forging Cs signature. D indorsed the
note to E who in turn delivered the note to F, a holder in due course, without
indorsement. Discuss the individual liabilities to F of A, B and C. (5%)
SUGGESTED ANSWER:
A is liable to F. As the maker of the promissory note, A is directly or primarily
liable to F, who is a holder in due course. Despite the presence of the special
indorsements on the note, these do not detract from the fact that a bearer
instrument, like the promissory note in question, is always negotiable by mere
delivery, until it is indorsed restrictively For Deposit Only. B, as a general
indorser, is liable to F secondarily, and warrants that the instrument is genuine
and in all respects what it purports to be; that he has good title to it; that all
prior parties had capacity to contract; that he has no knowledge of any fact
which would impair the validity of the instrument or render it valueless; that at
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,
and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay.
C is not liable to F since the latter cannot trace his title to the former. The
signature of C in the supposed indorsement by him to D was forged by X. C
can raise the defense of forgery since it was his signature that was forged.
ALTERNATIVE ANSWER:
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
steal the same and forge the signature of C relative to the indorsement in favor
of D.

As between C and F who are both innocent parties, it is C whose negligence is

the proximate cause of the loss. Hence C should suffer the loss.

Negotiable Instruments; incomplete and undelivered instruments; holder

in due course (2000)
PN makes a promissory note for P5,000.00, but leaves the name of the payee
in blank because he wanted to verify its correct spelling first. He mindlessly left
the note on top of his desk at the end of the workday. When he returned the
following morning, the note was missing. It turned up later when X presented it
to PN for payment. Before X, T, who turned out to have filched the note from
PNs office, had endorsed the note after inserting his own name in the blank
space as the payee. PN dishonored the note, contending that he did not
authorize its completion and delivery. But X said he had no participation in, or
knowledge about, the pilferage and alteration of the note and therefore he
enjoys the rights of a holder in due course under the Negotiable Instruments
Law. Who is correct and why? (3%)
b) Can the payee in a promissory note be a holder in due course within the
meaning of the Negotiable Instruments Law (Act 2031)? Explain your answer.
(2%)
SUGGESTED ANSWER:
a) PN is right. The instrument is incomplete and
b) undelivered. It did not create any contract that would bind PN to an
obligation to pay the amount thereof.
b) A payee in a promissory note cannot be a holder in due course within
the meaning of the Negotiable Instruments Law, because a payee is an
immediate party in relation to the maker. The payee is subject to whatever
defenses, real
of personal, available to the maker of the promissory note.
ALTERNATIVE ANSWER:
b) A payee can be a holder in due course. A holder is defined as the payee
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)
A, single proprietor of a business concern, is about to leave for a business trip
and, as he so often does on these occasions, signs several checks in blank.
He instructs B, his secretary, to safekeep the checks and fill them out when
and as required to pay accounts during his absence. B fills out one of the
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
to B. B regrets her action and tells A what she did. A directs the Bank in time to
dishonor the check. When C encashes the check, it is dishonored. Can A be
held liable to C?
SUGGESTED ANSWER:
Yes, A can be held liable to C, assuming that the latter gave notice of dishonor
to A. This is a case of an incomplete instrument but delivered as it was
entrusted to B, the secretary of A. Moreover, under the doctrine of comparative
negligence, as between A and C, both innocent parties, it was the negligence
of A in entrusting the check to B which is the proximate cause of the loss.

Negotiable Instruments; kinds of negotiable instrument; words of

negotiability (2002)
A. Define the following:
(1) a negotiable promissory note,
(2) a bill of exchange and
(3) (3) a check. (3%)
B. You are Pedro Cruz. Draft the appropriate contract language for (1) your
negotiable promissory note and (2) your check, each containing the essential
elements of a negotiable instrument (2%)
SUGGESTED ANSWER:
A. (1) A negotiable promissory note is an unconditional promise in writing
made by one person to another, signed by the maker, engaging to pay on
demand or at a fixed or determinable future time, a sum certain in money to
order
or bearer.
(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
to fill up the amount in blank with his loan account in the sum of P1,000.
However, Evelyn inserted P5,000 in violation of the instruction. She negotiated
the note to Julie who had knowledge of the infirmity. Julie in turn negotiated
said note to Devi for value and who had no knowledge of the infirmity.
1) Can Devi enforce the note against Larry and if she can, for how much?
Explain.
2) Supposing Devi endorses the note to Baby for value but who has
knowledge of the infirmity, can the latter enforce the note against
Larry?
SUGGESTED ANSWER:
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
of trust committed by Evelyn cannot be set up by Larry against Devi
because it is a personal defense. As a holder in due course, Devi is
not subject to such personal defense.
2) Yes. Baby is not a holder in due course because she has knowledge of the
breach of trust committed by Evelyn against Larry which is just a personal
defense. But having taken the instrument from Devi, a holder in due course,
Baby has all the rights of a holder in due course. Baby did not participate in the
breach of trust committed by Evelyn who filled the blank but filled up the
instrument with P5,000 instead of P1,000 as instructed by Larry (Sec 58 NIL)
Parties; Holder in Due Course (1996)

Parties; Holder in Due Course (1996)

1996 2.2) Eva issued to Imelda a check in the amount of P50th post-dated
Sep 30, 1995, as security for a diamond ring to be sold on commission. On
Sep 15, 1995, Imelda negotiated the check to MT investment which paid the
amount of P40th to her. Eva failed to sell the ring, so she returned it to Imelda
on Sep 19, 1995. Unable to retrieve her check, Eva withdrew her funds from
the drawee bank. Thus, when MT Investment presented the check for
payment, the drawee
bank dishonored it. Later on, when MT Investment sued her, Eva raised the
defense of absence of consideration, the check having been issued merely as
security for the ring that she could not sell. Does Eva have a valid defense?
Explain.
SUGGESTED ANSWER:
No. Eva does not have a valid defense. First, MT Investment is a holder in due
course and, as such, holds he postdated check free from any defect of title of
prior parties and from defenses available to prior parties among themselves.
Eva can invoke the defense of absence of consideration against MT
Investment only if the latter was privy to the purpose for which the checks were
issued and,
therefore, not a holder in due course. Second, it is not a ground for the
discharge of the postdated check as against a holder in due course that it was
issued merely as security. The only grounds for the discharge of negotiable
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
drawee bank. (State Investments v CA GR 101163, Jan 11, 93 217s32).

Parties; Holder in Due Course (1998)

X makes a promissory note for P10,000 payable to A, a minor, to help him buy
school books. A endorses the note to B for value, who in turn endorses the
note to C. C knows A is a minor. If C sues X on the note, can X set up the
defenses of minority and lack of consideration? (3%)
SUGGESTED ANSWER:
Yes. C is not a holder in due course. The promissory note is not a negotiable
instrument as it does not contain any word of negotiability, that is, order or
bear, or words of similar meaning or import. Not being a holder in due course,
C is to subject such personal defenses of minority and lack of consideration. C
is a mere assignee who is subject to all defenses.
ALTERNATIVE ANSWER:
X cannot set up the defense of the minority of A. Defense of minority is
available to the minor only. Such defense is not available to X. X cannot set up
the defense against C. Lack of consideration is a personal defense which is
only available between immediate parties or against parties who are not
holders in due course. Cs knowledge that A is a minor does not prevent C
from being a holder in due course. C took the promissory note from a holder
for value, B.

Parties; Holder in Due Course; Indorsement in blank (2002)

A. AB issued a promissory note for P1,000 payable to CD or his order on
September 15, 2002. CD indorsed the note in blank and delivered the same to
EF. GH stole the note from EF and on September 14, 2002 presented it to AB
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
September 15, 2002, EF discovered that the note of AB was not in his
possession and he went to AB. It was then that EF found out that AB had
already made payment on the note. Can EF still claim payment from AB?
Why?
(3%)
B. As a sequel to the same facts narrated above, EF, out of pity for AB who
had already paid P1,000.00 to GH, decided to forgive AB and instead go after
CD who indorsed the note in blank to him. Is CD still liable to EF by virtue of
the indorsement in blank? Why? (2%)
SUGGESTED ANSWER:
A. No. EF cannot claim payment from AB. EF is not a holder of the promissory
note. To make the presentment for payment, it is necessary to exhibit the
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 nonnegotiable credits by assignment, the transferor does not assume liability for
the fault of the debtor or obligor. Accordingly the courts 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)

Mr Pablo sought to borrow P200th from Mr Carlos. Carlos agreed to
loan the amount in the form of a post- dated check which was crossed
(i.e. 2 parallel lines diagonally drawn on the top left portion of the check).
Before the due date of the check, Pablo discounted it with Noble On due
date, Noble deposited the check with his bank. The check was
dishonored. Noble sued Pablo. The court dismissed Nobles complaint.
Was the courts decision correct?
SUGGESTED ANSWER:
The courts decision was incorrect. Pablo and Carlos, being immediate
parties to the instrument, are governed by the rules of privity. Given the factual
circumstances of the problem, Pablo has no valid excuse from denying
liability, (State investment House v IAC GR 72764 13July1989). Pablo
undoubtedly had benefited in the transaction. To hold otherwise would also
contravene the basic rules of unjust enrichment. Even in negotiable
instruments, the
ALTERNATIVE ANSWER:
The dismissal by the court was correct. A check whether or not post-dated or
crossed, is still a negotiable instrument and unless Pablo is a general indorser,
which is not expressed in the factual settings, he cannot be held liable for the
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
would render the instrument non-negotiable.
ALTERNATIVE ANSWER:
In State Investment House v IAC (GR 72764 13Jul1989), the SC considered a
crossed check as subjecting a subsequent holder thereof to the contractual
covenants of the payor and the payee. If such were the case, then the

Checks; Crossed Check (1994)

Po Press issued in favor of Jose a postdated crossed check, in payment
of newsprint which Jose promised to deliver. Jose sold and negotiated
the check to Excel Inc. at a discount. Excel did not ask Jose the purpose
of crossing the check. Since Jose failed to deliver the newsprint, Po
ordered the drawee bank to stop payment on the check. Efforts of Excel
to collect from Po failed. Excel wants to know from you as counsel: 1)
What are the effects of crossing a check? 2) Whether as second indorser
and holder of the crossed check, is it a holder in due course? 3) Whether
Pos defense of lack of consideration as against Jose is also available as
against Excel?
SUGGESTED ANSWER:
1) The effects of crossing a check are:
(same-same-same)
2) No. It is a crossed check and Excel did not take it in accordance with 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
failure or refusal constituted bad faith.
3) Yes. Not being a holder in due course, Excel is subject to the personal
defense which Po Press can set up against Jose (State Investment House v
IAC 175 S 310)
Checks; Crossed Check (1995)
On Oct 12, 1993, Chelsea Straights, a corp engaged in the manufacture
of cigarettes, ordered from Moises 2,000 bales of tobacco. Chelsea
issued to Moises two crossed checks postdated 15 Mar 94 and 15 Apr 94
in full payment therefor. On 19 Jan 94 Moises sold to Dragon Investment
House at a discount the two checks drawn by Chelsea in his favor.
Moises failed to deliver the bales of tobacco as agreed despite Chelseas

demand. Consequently, on 1 Mar 94 Chelsea issued a stop payment

order on the 2 checks issued to Moises. Dragon, claiming to be a holder
in due course, filed a complaint for collection against Chelsea for the
value of the checks. Rule on the complaint of Dragon. Give your legal
basis.
SUGGESTED ANSWER:
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
Moises. It was therefore the obligation of Dragon to inquire as to the purpose
of the issuance of the 2 crossed
checks before causing them to be
discounted. Failure on its part to make such inquiry, which resulted in its bad
faith, Dragon cannot claim to be a holder in due course. Moreover, the checks
were sold, not endorsed, by him to Dragon which did not become a holder in
due course. Not being a holder in due course, Dragon is subject to the
personal defense on the part of Chelsea concerning the breach of trust on the
part of Moises Lim in not complying with his obligation to deliver the 2000
bales of tobacco.
Checks; Crossed Check (1996)
On March 1, 1996, Pentium Company ordered a computer from CD Bytes,
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
Fund House.
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.
If Fund House files a complaint against Pentium and CD Bytes for the
payment of the dishonored check, will the complaint prosper? Explain.
SUGGESTED ANSWER:
The complaint filed by Fund House against Pentium will not prosper but the
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 in question was issued by Pentium to pay for a computer that it
ordered from CD Bytes. The computer not having been delivered, there was a
failure of consideration. The check discounted with Fund House by CD Bytes
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 latters
possession. Failing in this respect, Fund House is deemed guilty of gross
negligence amounting to legal absence of good faith and, thus, not a holder in
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
CA et al 230 s 643 GR 93048 Mar 3, 94)

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
check. Gerard received nothing from the payment.
(A) Pancho asked the payor bank to recredit his account. Should the
bank comply? Explain fully. (3%)
SUGGESTED ANSWER:
Yes, Sec. 41 of the NIL provides that all payees or indorsees who are not
partners must indorse jointly, unless the one indorsing has authority to endorse
for the others. Since the signature of Gerard was forged, then the
endorsement by Bong was wholly inoperative. The Bank is under strict
liability to pay to the order of payee. Payment under a forged endorsement
is not to the drawers order, and consequently, the drawee bank must
bear the loss as against the drawer (Associated Bank v. CA, G.R. Nos. 107382
and 107612, 31 January 1996).
(B) Based on the facts, was Pancho as drawer
instrument? Why? (2%)

discharged

on

the

SUGGESTED ANSWER:
No. The payee Gerard can recover as he still retains his claim on the debt of
Pancho.

Checks; Liability; Drawer and Drawee Bank (2010)

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 Bank account officer and instructed him to
give the managers check representing the proceeds of the money
market placement to Marlons girlfriend Ingrid.
The check, which bore the forged signature of
Marlon,
was
deposited in
Ingrids account with YAMAHA Bank. YAMAHA Bank
stamped a guaranty on the check reading: All prior endorsements
and/or lack of endorsement guaranteed.
Upon presentment of the check, LYRIC Bank funds the check. Days
later, Marlon goes to LYRIC Bank to collect his money market placement
and discovers the foregoing transactions.
Marlon thereupon sues LYRIC Bank which in turn files a third-party
complaint against YAMAHA Bank. Discuss the respective rights and

liabilities of the banks. (5%)

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 him has not been paid. Lyric
Bank still has the obligation to pay him.
Since Yamaha Bank indorsed the check bearing the forged indorsement
of Marlon and guaranteed all indorsements, including the forged indorsement,
when it presented the check to Lyric Bank, it should be held liable to it.
However, since the issuance of the check was attended with the negligence
of Lyric Bank, it should share the loss with Yamaha Bank on a fifty percent
basis (Allied Banking Corporation v. Lim Sio Wan, 549 SCRA 504 (2008)).
Checks; Liability; Drawee Bank (1995)
Mario Guzman issued to Honesto Santos a check for P50th as payment
for a 2nd hand car. Without the knowledge of Mario, Honesto changed
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
without noticing the alteration paid the check, debiting P150th from the
account of Mario. Honesto withdrew the amount of P15th from Shure
Bank and disappeared. After receiving his bank statement, Mario
discovered the alteration and demanded restitution from Progressive
Bank. Discuss fully the rights and the liabilities of the parties concerned.

the bank honors the check when it is presented for payment. Apparently,
X has conspired with the banks bookkeeper so that his ledger card
would show that he still has sufficient funds.
The bank files an action for recovery of the amount paid to B because
the check presented has no sufficient funds. Decide the case (5%)
SUGGESTED ANSWER:
The bank cannot recover the amount paid to B for the check. When the bank
honored the check, it became an acceptor. As acceptor, the bank became
primarily and directly liable to the payee/holder B.
The recourse of the bank should be against X and its bookkeeper who
conspired to make Xs ledger show that he has sufficient funds.
ALTERNATIVE ANSWER:
The bank can recover from B. This is solutio indebiti because there is payment
by the bank to B when such payment is not due. The check issued by X to B
as payee had no sufficient funds.

Checks; Notice of Dishonor (2009)

No.XII. Gaudencio, a store owner, obtained a P1-million loan from Bathala
Financing Corporation (BFC). As security, Gaudencio executed a Deed
of Assignment of Receivables. Assigning fifteen checks received from
various
customers
who bought merchandise from his store. The
checks were duly indorsed by Gaudencios customers.

SUGGESTED ANSWER:
The demand of Mario for restitution of the amount of P150,000 to his account
is tenable. Progressive Bank has no right to deduct said amount from Marios
account since the order of Mario is different. Moreover, Progressive Bank is
liable for the negligence of its employees in not noticing the alteration which,
though it cannot be detected by the naked eye, could be detected by a
magnifying instrument used by tellers.

The Deed of Assignment contains the ff. stipulation:

If, for any reason, the receivables or any part thereof cannot be paid
by the obligors, the ASSIGNOR unconditionally and irrevocably agrees to
pay the same, assuming the liability to pay by way of penalty, three
percent of the total amount unpaid, for the period of delay until the
same is fully paid.

As between Progressive Bank and Shure Bank, it is the former that should
bear the loss. Progressive Bank failed
to notify Shure Bank that there was something wrong with the check within the
clearing hour rule of 24 hours.

When the checks became due, BFC deposited them for collection, but
the drawee banks dishonored all the checks for one
of the
ff.
reasons: account closed, payment stopped, account under
garnishment, or insufficiency of funds. BFC wrote Gaudencio
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)

X draws a check against his current account with the Ortigas branch of
Bonifacio Bank in favor of B. Although X does not have sufficient funds,

In his defense, Gaudencio contended that (a) BFC did not give timely
notice of dishonor (of the checks); and (b) considering that the checks
were duly indorsed, BfC should proceed against the drawers and the

indorsers of the checks.

Are Gaudencios defenses tenable? Explain. (5%)
SUGGESTED ANSWER:
No. Gaudencios defenses are untenable. The cause of action of BFC was
really on the contract of loan, with the checks merely serving as collateral to
secure the payment of the loan. By virtue of the Deed of Assignment which
he signed, Gaudencio undertook to pay for the receivables if for any reason
they cannot be paid by the obligors (Velasquez v. Solidbank Corporation, 550
SCRA 119 (2008)).

Checks; Effects; Alterations; Prescriptive Period (1996)

William issued to Albert a check for P10,000 drawn on XM Bank. Albert
altered the amount of the check to P210,000 and deposited the check to
his account with ND
Bank. When ND Bank presented the check for payment through the
Clearing House, XM Bank honored it. Thereafter, Albert withdrew the
P210,000 and closed his account.
When the check was returned to him after a month, William discovered
the alteration. XM Bank recredited P210,000 to Williams current account,
and sought reimbursement from ND Bank. ND Bank refused, claiming
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
the loss? Explain.
SUGGESTED ANSWER:
ND Bank should bear the loss if XM Bank returned the altered check to ND
Bank within twenty four hours after its discovery of the alteration. Under the
given facts, William discovered the alteration when the altered check was
returned to him after a month. It may safely be assumed that William
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
decisions of the Supreme Court in Hongkong & Shanghai Banking Corp v
Peoples Bank & Trust Co and Republic Bank vs CA were based was
expressly cancelled and superseded by CB No 317 dated Dec 23 1970. The
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
can still return them even after 4:00 pm of the next day provided it does so
within 24 hours from discovery of the alteration but in no event beyond the
period fixed or provided by law for filing of a legal action by the returning bank

against the bank sending the same. Assuming that the relationship between
the drawee bank and the collecting bank is evidenced by some written
document, the prescriptive period would be 10 years. (Campos, NIL 5th ed
454-455)
ALTERNATIVE ANSWER:
XM Bank should bear the loss. When the drawee bank (XM Bank) failed to
return the altered check to the collecting bank (ND Bank) within the 24 hour
clearing period provided in Sec 4c of CB Circular 9, dated Feb 17, 1949, the
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; Forged Check; Effects (2006)

Discuss the legal consequences when a bank honors a forged check.
(5%)
SUGGESTED ANSWER: The legal consequences when a bank honors a
forged check are as follows:
(a) When Drawer's Signature is Forged: Drawee-bank by accepting the
check cannot set up the defense of forgery, because by accepting the
instrument, the drawee bank admits the genuineness of signature of drawer
(BPI Family Bank vs. Buenaventura G.R. No. 148196, September 30, 2005;
Section 23, Negotiable Instruments Law).
Unless a forgery is attributable to the fault or negligence of the drawer himself,
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,
G.R. No. 148196, September 30, 2005). A drawee-bank paying on a forged
check must be considered as paying out of its funds and cannot charge the
amount to the drawer (Samsung Construction Co. Phils, v. Far East Bank,
G.R. No. 129015, August 13, 2004). If the drawee-bank has charged drawer's
account, the latter can recover such amount from the drawee-bank.
However, the drawer may be precluded or estopped from setting up the
defense of forgery as against the drawee-bank, when it is shown that
the drawer himself had been guilty of gross negligence as to have facilitated
the forgery.
(NOTA BENE: The question does not qualify the term "forged check". An
answer addressing the liabilities of a drawer should be deemed sufficient.
Answers addressing liabilities of parties should likewise be given full credit)

Drawee Bank versus Collecting Bank When the signature of the drawer
is forged, as between the drawee-bank and collecting bank, the
drawee-bank sustains the loss, since the collecting bank does not guarantee
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
signature of i(tPshiclilpiepninte-dNratwioenra.l Bank v. Court of Appeals, G.R.
No. L-26001, October 29, 1968).
(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
so paid to the account of the depositor. In such case, the bank becomes liable
since its primary duty is to verify the authenticity of the payee's signature.
(c.) Forged Indorsement- drawers account cannot be charged and if charged
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
negligence over a forged indorsement on checks for it has no way of
ascertaining the authority of the endorsement and when it caused the checks
to pass through the clearing house before allowing withdrawal of the proceeds
thereof (Manila Lighter Transportation, Inc. v. Court of Appeals, G.R. No.
50373, February 15, 1990).
On the other hand, a collecting bank which endorses a check bearing a
forged endorsement and presents it to the drawee bank guarantees all
prior endorsements including the forged endorsement itself and should be
held liable therefor
Drawee-bank can recover from the collecting bank (Great Eastern Life Ins.
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
client is forged, collecting bank is bound by its warranties as an indorser
and cannot set up defense of forgery as against drawee bank.
Checks; Material Alterations; Liability (1999)
A check for P50,000.00 was drawn against drawee bank and made
payable to XYZ Marketing or order. The check was deposited with
payees account at ABC Bank which then sent the check for clearing to
drawee bank. Drawee bank refused to honor the check on ground that
the serial number thereof had been altered. XYZ marketing sued drawee
bank.
Is it proper for the drawee bank to dishonor the check for the reason that
it had been altered? Explain (2%)
In instant suit, drawee bank contended that XYZ Marketing as payee

could not sue the drawee bank as there was no privity between then.
Drawee theorized that there was no basis to make it liable for the check.
Is this contention correct? Explain. (3%)
SUGGESTED ANSWER:
a. No. The serial number is not a material particular of the check. Its alteration
does not constitute material alteration of the instrument. The serial number is
not material to the negotiability of the instrument.
b. Yes. As a general rule, the drawee is not liable under the check because
there is no privity of contract between XYZ Marketing, as payee, and ABC
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
also to the payee, the payee has a cause of action under quasi-delict.

Checks; Presentment (1994)

Gemma drew a check on September 13, 1990. The holder presented the
check to the drawee bank only on March 5, 1994. The bank dishonored
the check on the same date. After dishonor by the drawee bank, the
holder gave a formal notice of dishonor to Gemma through a letter dated
April 27, 1994. 1) What is meant by unreasonable time as applied to
presentment? 2) Is Gemma liable to the holder?
SUGGESTED ANSWER:
1) As applied to presentment for payment, reasonable time: is meant not
more than 6 months from the date of issue. Beyond said period, it is
unreasonable time and the check becomes stale.
2) No. Aside form the check being already stale, Gemma is also discharged
form liability under the check, being a drawer and a person whose liability is
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
one (1) month from March 5, 1994 when the check was dishonored. Since it is
not shown that Gemma and the holder resided in the same place, the period
within which to give notice of dishonor must be the same time that the notice
would reach Gemma if sent by mail. (NIL Sec 103 & 104; Far East Realty
Investment Inc v CA 166 S 256)
ALTERNATIVE ANSWER:
2) Gemma can still be liable under the original contract for the consideration of
which the check was issued.
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 Banks 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 BPIs
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 (2003)

Juan Sy purchased from A Appliance Center one generator set on
installment with chattel mortgage in favor of the vendor. After getting
hold of the generator set, Juan Sy immediately sold it without consent of
the vendor. Juan Sy was criminally charged with estafa.
To settle the case extra judicially, Juan Sy paid the sum of P20,000 and
for the balance of P5,000.00 he executed a promissory note for said
amount with Ben Lopez as an accommodation party. Juan Sy failed to
pay the balance. 1) What is the liability of Ben Lopez as an
accommodation party? Explain. 2) What is the liability of Juan Sy?
SUGGESTED ANSWER:
1) Ben Lopez, as an accommodation party, is liable as maker to the holder up
to the sum of P5,000 even if he did not receive any consideration for the
promissory note. This is the nature of accommodation. But Ben Lopez can ask
for reimbursement from Juan Sy, the accommodation party.
2) Juan Sy is liable to the extent of P5,000 in the hands of a holder in due
course (Sec 14 NIL). If Ben Lopez paid the promissory note, Juan Sy has the
obligation to reimburse Ben Lopez for the amount paid. If Juan Sy pays
directly to the holder of the promissory note, or he pays Ben Lopez for the
reimbursement of the payment by the latter to the holder, the instrument is
discharged.
Parties; Accommodation Party (1990)
To accommodate Carmen, maker of a promissory note, Jorge signed as
indorser thereon, and the instrument was negotiated to Raffy, a holder
for value. At the time Raffy took the instrument, he knew Jorge to be an

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
note to Facundo. Is Dagul an accommodation party? Explain. (2%)
SUGGESTED ANSWER:
Dagul is an accommodation party because in the case at bar, he is essentially,
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.
And as an accommodation party he cannot set up lack of consideration
against any holder, even as to one who is not a holder in due course.
Parties; Accommodation Party (1991)
On June 1, 1990, A obtained a loan of P100th from B, payable not later
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
the knowledge of B, requested his friend, C, President of Saad Banking
Corp (Saad) to accommodate him. C agreed, he signed a check for
the aforesaid amount dated 20Dec 1990, drawn against Saads
account with the ABC Commercial Banking Co. The By-laws of Saad
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
requested the Vice-President to co-sign the check, which the latter
reluctantly did. The check was delivered to B. The check was dishonored
upon presentment on due date for insufficiency of funds. a) Is Saad liable
on the check as an accommodation party? b) If it is not, who then, under
the above facts, is/are the accommodation party?
SUGGESTED ANSWER:
a.) Saad is not liable on the check as an accommodation party. The act of the
corporation in accommodating a friend of the President, is ultra vires
(Crisologo-Jose v CA GR 80599, 15Sep1989). While it may be legally possible
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

be an accommodation party, this situation, however, is not the case in the bar
problem.
b) Considering that both the President and Vice-President were signatories to
the accommodation, they themselves can be subject to the liabilities of
accommodation parties to the instrument in their personal capacity (CrisologoJose v CA 15Sep1989)
Parties; Accommodation Party (1996)
Nora applied for a loan of P100th with BUR Bank. By way of
accommodation, Noras sister, Vilma, executed a promissory note in
favor of BUR Bank. When Nora defaulted, BUR Bank sued Vilma, despite
its knowledge that Vilma received no part of the loan. May Vilma be held
liable? Explain.
SUGGESTED ANSWER:
Yes, Vilma may be held liable. Vilma is an accommodation party. As such, she
is liable on the instrument to a holder for value such as BUR Bank. This is true
even if BUR Bank was aware at the time it took the instrument that Vilma is
merely an accommodation party and received no part of the loan (See Sec 29,
NIL; Eulalio Prudencio v CA GR L-34539, Jul 14, 86 143 s 7)
Parties; Accommodation Party (1998)
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
negotiates it to Y, the latter knowing that Pedro is not a party for value.
1. May Y recover from Pedro if the latter interposes
the absence of consideration? (3%)
2. Supposing under the same facts, Pedro pays the said P20,000 may he
recover the same amount from X? (2%)
SUGGESTED ANSWER:
1. Yes. Y can recover from Pedro. Pedro is an accommodation party. Absence
of consideration is in the nature of an accommodation. Defense of absence of
consideration cannot be validly interposed by accommodation party against a
holder in due course.
2. If Pedro pays the said P20,000 to Y, Pedro can recover the amount from X.
X is the accommodated party or the party ultimately liable for the instrument.
Pedro is only an accommodation party. Otherwise, it would be unjust
enrichment on the part of X if he is not to pay Pedro.
Parties; Accommodation Party (2003)
Susan Kawada borrowed P500,000 from XYZ Bank which required her,
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
stated maturities. The note was executed as so agreed. What kind of
liability was incurred by Rose, that of an accommodation party or that of

a solidary debtor? Explain. (4%)

SUGGESTED ANSWER:
(per Dondee) Rose may be held liable. Rose is an accommodation party.
Absence of consideration is in the nature of an accommodation. Defense of
absence of consideration cannot be validly interposed by accommodation
party against a holder in due course.
Topic: Parties; Instances a Subsequent Party is Liable (2008)
No.III. (A) As a rule under the Negotiable Instruments Law, a subsequent
party may hold a prior party liable but not vice versa.
Give two (2) instances where a prior party may hold a subsequent party
liable. (2%) SUGGESTED ANSWER:
In the following cases, a prior party may hold a subsequent party liable: (1)
where an instrument is negotiated back to a prior party, and he reissues and
further negotiates the same, he is entitled to en force payment against a
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).
(B) How does the shelter principle embodied in the Negotiable
Instruments Law operate to give the rights of a holder- in-dine course to
a holder who does not have the status of a holder-in-due course? Briefly
explain. (2%)
SUGGESTED ANSWER:
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
who derives his title from a holder in due course, acquires the rights of a
holder in due course (Sec. 58, NIL).
Topic: Parties; Holder in Due Course (2012)
No.III. X borrowed money from Y in the amount of Php1Million and as
payment, issued a check. Y then indorsed the check to his sister Z for no
consideration. When Z deposited the check to her account, the check
was dishonored for insufficiency of funds.
(A) Is Z a holder in due course? Explain your answer. (5%)
SUGGESTED ANSWER:
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 good faith and for value (Sec. 52[c], Negotiable Instruments Law).
(B) Who is liable on the check. The drawer or the indorser? Explain your
answer. (5%)
SUGGESTED ANSWER:
X, the drawer, will be liable. As the drawer, X 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 dishonor is not required to be given to
the drawer where he has no right to expect that the drawee will honor the
instrument. Z cannot hold Y, the endorser, liable as the latter can raise the
defense that there was no valuable consideration for the endorsement of the
check(Sec. 58, NIL).
Topic: 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 5,000.00 five days after his pet dog, Sparky, dies.
Signed Y. is a negotiable instrument.
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
unconditional, in compliance with Section 1 of the Negotiable Instruments Law
(NIL).
(Note: This answers presumes that there is a drawee)
egotiable Instruments: Incomplete, Delivered; Doctrine: Comparative
Negligence (2008)
No.IV. AB Corporation drew a check for payment to XY Bank. The check
was given to an officer of AB Corporation who was 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. 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.
(A) If you were the judge, what issues would you consider relevant to
resolve the case? Explain. (3%)

SUGGESTED ANSWER:
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 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 would you decide the case? Explain. (2%)
SUGGESTED ANSWER:
I would fin AB Corp. liable for its negligence in delivering an incomplete
instrument to XY Bank (Sec. 14, NIL).

Topic: Negotiable Instruments; Illicit/Illegal Consideration (2007)

No.I. R issued a check for P1m which he used to pay S for killing his
political enemy. (10%)
(A) Can be the check be considered a negotiable instrument?
SUGGESTED ANSWER:
Yes, the check can be considered a negotiable instrument even if it was issued
to pay S to kill his political enemy. The validity of the consideration is not
one of the requisites of a negotiable instruments (Section 1, Negotiable
Instruments Law.) it merely constitute a defect of title (Section 55, Negotiable
Instruments Law).
(B) Does S have a cause of action against R in case of dishonor by the
drawee bank?
SUGGESTED ANSWER:
No, s does not have a cause of action 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 R be held secondarily liable by T?
Reason Briefly in (a), (b) and (c).
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
illegality of the considerarion, because T took the check fre from the defect of
title of S (Section 57, Negotiable Instrumets Law).

Negotiable Instruments Law).

Topic: Negotiable Instruments; Illicit/Illegal Consideration; Lawful Dishonor

(2009)
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.

Topic: Negotiability (2013)

No.I. Antonio issued the following instrument:
August 10, 2013
Makati City

Barbara then negotiated the bill to her 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 for payment, but the latter promptly
dishonored the instrument because, by then, Diana had already learned
of her husbands dalliance.
(A) Was the bill lawfully dishonored by Diana? Explain. (3%)
SUGGESTED ANSWER:
No, the bill was not lawfully dishonored by Diana. Elena, to whom the
instrument was negotiated, was a holder in due course inasmuch as she paid
value therefore in good faith.
(B) Does the illicit cause or consideration adversely affect the
negotiability of the bill? Explain. (3%)
SUGGESTED ANSWER:
No. the illicit cause or consideration does not adversely affect the
negotiability of the bill, especially in the hands of a holder in due course. Under
Sec. 1 of the 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 every person whose signature appears
thereon is deemed to have become a party thereto for value (Sec. 24,

P1OO,OOO,OO
Sixty days after date, I promise to pay Bobby or his designated
representative the sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) from my BPI Acct. No. 1234 if, by this due date, the sun still
sets in the west to usher in the evening and rises in the east the
following morning to welcome the day.
(Sgd.) Antonio Reyes
Explain each requirement of negotiability present or absent in the
instrument. (8%)
SUGGESTED ANSWER:
The instrument contains a promise to pay and was signed by the maker,
Antonio Reyes (Section 1(a) of Negotiable Instruments Law).
The promise to pay is unconditional insofar as the reference to the setting of
the sun in the west in the evening and its rising in the east in the morning are
concerned. These are certain to happen (Section 4(c) of Negotiable
Instruments Law). The promise to pay is conditional, because the money will
be taken from a particular fund, BPI Account No. 1234 (Section 3 of Negotiable
Instruments Law).
The Instrument contains a promise to pay a sum certain in money,
P100,000.00 (Section (b) of Negotiable Instruments Law).

The money is payable at a determinable future time, sixty days after August
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
Law).w).

SUGGESTED ANSWER: Not negotiable. The promise to pay is subject to a

condition, i.e., that A will pass the 2012 bar exams (Sec.1[b],NIL).
(D) I promise to pay A or bearer the sum of Php100.000 on or before
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: Negotiability (2012)

No.IV. Indicate and explain whether the promissory note is negotiable or
non- negotiable.
(A) I promise to pay A or bearer Php100,000.00 from my inheritance
which I will get after the death of my father. (2%)
SUGGESTED ANSWER: Not negotiable. 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).
(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%)

TOPIC: Forgery; Liabilities; Drawee Bank (2009)

No.XI. (E) A bank is bound to know its depositors signature is an
inflexible rule in determining the liability of a bank in forgery cases.
SUGGESTED ANSWER:
False. In cases of forgery, the forger may not necessarily be a depositor of
the bank, especially in the case of a drawee bank. Yet in many cases of
forgery, it is the drawee that is held liable for the loss.