Nego
Nego
CX cannot be held
Mario Guzman issued to Honesto Santos a check for P50th as liable thereon by anyone, not even by a holder in due course.
payment for a 2nd hand car. Without the knowledge of Mario, Under a forged signature of the drawer, there is no valid
Honesto changed the amount to P150th which alteration could instrument that would give rise to a contract which can be the
not be detected by the naked eye. Honesto deposited the basis or source of liability on the part of the drawer. The drawee
altered check with Shure Bank which forwarded the same to bank has no right or authority to touch the drawer's funds
Progressive Bank for payment. Progressive Bank without noticing deposited with the drawee bank.
the alteration paid the check, debiting P150th from the account
of Mario. Honesto withdrew the amount of P150th from Shure Bank
and disappeared. After receiving his bank statement, Mario Forgery; Liabilities; Prior & Subsequent Parties (1990)
discovered the alteration and demanded restitution from Jose loaned Mario some money and, to evidence his
Progressive Bank. Discuss fully the rights and the liabilities of the indebtedness, Mario executed and delivered to Jose a promissory
parties concerned. note payable to his order. Jose endorsed the note to Pablo. Bert
fraudulently obtained the note from Pablo and endorsed it to
SUGGESTED ANSWER: Julian by forging Pablo‘s signature. Julian endorsed the note to
The demand of Mario for restitution of the amount of P150,000 to Camilo.
his account is tenable. Progressive Bank has no right to deduct a. May Camilo enforce the said promissory note
said amount from Mario‘s account since the order of Mario is against Mario and Jose?
different. Moreover, Progressive Bank is liable for the negligence b. May Camilo go against Pablo?
of its employees in not noticing the alteration which, though it c. May Camilo enforce said note against Julian?
cannot be detected by the naked eye, could be detected by a d. Against whom can Julian have the right of
magnifying instrument used by tellers. recourse?
As between Progressive Bank and Shure Bank, it is the former that SUGGESTED ANSWER:
should bear the loss. Progressive Bank failed to notify Shure Bank A. Camilo may not enforce said promissory note against
that there was something wrong with the check within the Mario and Jose. The promissory note at the time of
clearing hour rule of 24 hours. 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
Checks; Material Alterations; Liability (1999) (Sec 23 NIL).Accordingly, the parties before the forgery
A check for P50,000.00 was drawn against drawee bank and are not juridically related to parties after the forgery to
made payable to XYZ Marketing or order. The check was allow such enforcement.
deposited with payee‘s account at ABC Bank which then sent the B. Camilo may not go against Pablo, the latter not having
check for clearing to drawee bank. Drawee bank refused to indorsed the instrument.
honor the check on ground that the serial number thereof had C. Camilo may enforce the instrument against Julian
been altered. XYZ marketing sued because of his special indorsement to Camilo, thereby
drawee bank. making him secondarily liable, both being parties after
the forgery.
A. Is it proper for the drawee bank to dishonor the check D. Julian, in turn, may enforce the instrument against Bert
for the reason that it had been altered? Explain (2%) who, by his forgery, has rendered himself primarily liable.
E. Pablo preserves his right to recover from either Mario or
B. In instant suit, drawee bank contended that XYZ Jose who remain parties juridically related to him. Mario
Marketing as payee could not sue the drawee bank as is still considered primarily liable to Pablo. Pablo may, in
there was no privity between then. Drawee theorized case of dishonor, go after Jose who, by his special
that there was no basis to make it liable for the check. Is indorsement, is secondarily liable.
this contention correct? Explain. (3%)
SUGGESTED ANSWER:
2. TH is an indorsee of a promissory note that simply states: A is liable to F. As the maker of the promissory note, A is directly or
―PAY TO JUAN TAN OR ORDER 400 PESOS.‖ The note has primarily liable to F, who is a holder in due course. Despite the
no date, no place of payment and no consideration presence of the special indorsements on the note, these do not
mentioned. It was signed by MK and written under his detract from the fact that a bearer instrument, like the promissory
letterhead specifying the address, which happens to be note in question, is always negotiable by mere delivery, until it is
his residence. TH accepted the promissory note as indorsed restrictively ―For Deposit Only.
payment for services rendered to SH, who in turn
received the note from Juan Tan as payment for a B, as a general indorser, is liable to F secondarily, and warrants
prepaid cell phone card worth 450 pesos. The payee that the instrument is genuine and in all respects what it purports
acknowledged having received the note on August 1, to be; that he has good title to it; that all prior parties had capacity
2000. A Bar reviewee had told TH, who happens to be to contract; that he has no knowledge of any fact which would
your friend, that TH is not a holder in due course under impair the validity of the instrument or render it valueless; that at
Article 52 of the Negotiable Instruments Law (Act 2031) the time of his indorsement, the instrument is valid and subsisting;
and therefore does not enjoy the rights and protection and that on due presentment, it shall be accepted or paid, or
under the statute. TH asks for our advice specifically in both, according to its tenor, and that if it be dishonoured and the
connection with the note being undated and not necessary proceedings on dishonour be duly taken, he will pay
mentioning a place of payment and any consideration. the amount thereof to the holder, or to any subsequent indorser
What would your advice be? (2%). who may be compelled to pay.
SUGGESTED ANSWER: C is not liable to F since the latter cannot trace his title to the
The fact that the instrument is undated and does not former. The signature of C in the supposed indorsement by him to
mention the place of payment does not militate against D was forged by X. C can raise the defense of forgery since it was
its being negotiable. The date and place of payment his signature that was forged.
are not material particulars required to make an
instrument negotiable.
Negotiable Instruments; incomplete and undelivered
The fact that no mention is made of any consideration is instruments; holder in due course (2000)
not material. Consideration is presumed. 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
Negotiable Instruments; Bearer Instruments (1997) end of the workday. When he returned the following morning, the
A delivers a bearer instrument to B. B then specially indorses it to note was missing. It turned up later when X presented it to PN for
C and C later indorses it in blank to D. E steals the instrument from payment. Before X, T, who turned out to have filched the note
D and, forging the signature of D, succeeds in ―negotiating‖ it to from PN‘s office, had endorsed the note after inserting his own
F who acquires the instrument in good faith and for value. name in the blank space as the payee. PN dishonored the note,
a. If, for any reason, the drawee bank refuses to contending that he did not authorize its completion and delivery.
honor the check, can F enforce the instrument But X said he had no participation in, or knowledge about, the
against the drawer? pilferage and alteration of the note and therefore he enjoys the
b. In case of the dishonor of the check by both rights of a holder in due course under the Negotiable Instruments
the drawee and the drawer, can F hold any of Law.
B, C and D liable secondarily on the
instrument? a. Who is correct and why? (3%)
b. Can the payee in a promissory note be a ―holder in due
SUUGESTED ANSWER: course within the meaning of the Negotiable Instruments
a. Yes. The instrument was payable to bearer as it was Law (Act 2031)? Explain your answer. (2%)
a bearer instrument. It could be negotiated by
mere delivery despite the presence of special SUGGESTED ANSWER:
indorsements. The forged signature is unnecessary
to presume the juridical relation between or among
a. PN is right. The instrument is incomplete and undelivered. a. Is Saad liable on the check as an
It did not create any contract that would bind PN to an accommodation party?
obligation to pay the amount thereof. b. If it is not, who then, under the above facts,
is/are the accommodation party?
b. A payee in a promissory note cannot be a ―holder in
due course‖ within the meaning of the Negotiable SUGGESTED ANSWER:
Instruments Law, because a payee is an immediate a. Saad is not liable on the check as an accommodation
party in relation to the maker. The payee is subject to party. The act of the corporation in accommodating a
whatever defenses, real of personal, available to the friend of the President, is ultra vires (Crisologo-Jose v CA
maker of the promissory note. GR 80599, 15Sep1989). While it may be legally possible
Negotiable Instruments; Incomplete Delivered Instruments; for the corporation, whose business is to provide
Comparative Negligence (1997) financial accommodations in the ordinary course of
business, such as one given by a financing company to
A, single proprietor of a business concern, is about to leave for a be an accommodation party, this situation, however, is
business trip and, as he so often does on these occasions, signs not the case in the bar problem.
several checks in blank. He instructs B, his secretary, to safekeep
the checks and fill them out when and as required to pay b. Considering that both the President and Vice-President
accounts during his absence. B fills out one of the checks by were signatories to the accommodation, they
placing her name as payee, fills in the amount, endorses and themselves can be subject to the liabilities of
delivers the check to C who accepts it in good faith as payment accommodation parties to the instrument in their
for goods sold to B. B regrets her action and tells A what she did. personal capacity.
A directs the Bank in time to dishonor the check.
When C encashes the check, it is dishonored. Can A be held liable Parties; Accommodation Party (1996)
to C? Nora applied for a loan of P100th with BUR Bank. By way of
accommodation, Nora‘s sister, Vilma, executed a promissory note
SUGGESTED ANSWER: in favor of BUR Bank. When Nora defaulted, BUR Bank sued Vilma,
Yes, A can be held liable to C, assuming that the latter gave despite its knowledge that Vilma received no part of the loan.
notice of dishonor to A. This is a case of an incomplete instrument May Vilma be held liable? Explain.
but delivered as it was entrusted to B, the secretary of A.
Moreover, under the doctrine of comparative negligence, as SUGGESTED ANSWER:
between A and C, both innocent parties, it was the negligence Yes, Vilma may be held liable. Vilma is an accommodation party.
of A in entrusting the check to B which is the proximate cause of As such, she is liable on the instrument to a holder for value such
the loss. 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.
Parties; Accommodation Party (1990)
To accommodate Carmen, maker of a promissory note, Jorge Parties; Accommodation Party (1998)
signed as indorser thereon, and the instrument was negotiated to For the purpose of lending his name without receiving value
Raffy, a holder for value. At the time Raffy took the instrument, he therefore, Pedro makes a note for P20,000 payable to the order
knew Jorge to be an accommodation party only. When the of X who in turn negotiates it to Y, the latter knowing that Pedro is
promissory note was not paid, and Raffy discovered that Carmen not a party for value.
had no funds, he sued Jorge.
Jorge pleads in defense the fact that he had endorsed the a. May Y recover from Pedro if the latter interposes the
instrument without receiving value therefor, and the further fact absence of consideration? (3%)
that Raffy knew that at the time he took the instrument Jorge had b. Supposing under the same facts, Pedro pays the said
not received any value or consideration of any kind for his P20,000 may he recover the same amount from X? (2%)
indorsement. Is Jorge liable? Discuss.
SUGGESTED ANSWER:
SUGGESTED ANSWER: a. Yes. Y can recover from Pedro. Pedro is an
Yes. Jorge is liable. Sec 29 of the NIL provides that an accommodation party. Absence of consideration is in
accommodation party is liable on the instrument to a holder for the nature of an accommodation. Defense of absence
value, notwithstanding the holder at the time of taking said of consideration cannot be validly interposed by
instrument knew him to be only an accommodation party. accommodation party against a holder in due course.
This is the nature or the essence of accommodation. b. 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
Parties; Accommodation Party (1991) accommodation party. Otherwise, it would be unjust
On June 1, 1990, A obtained a loan of P100th from B, payable not enrichment on the part of X if he is not to pay Pedro.
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 Parties; Accommodation Party (2003)
friend, C, President of Saad Banking Corp (Saad) to Susan Kawada borrowed P500,000 from XYZ Bank which required
accommodate him. C agreed, he signed a check for the her, together with Rose Reyes who did not receive any amount
aforesaid amount dated 20Dec 1990, drawn against Saad’s from the bank, to execute a promissory note payable to the bank,
account with the ABC Commercial Banking Co. The By-laws of or its order on stated maturities. The note was executed as so
Saad requires that checks issued by it must be signed by the agreed. What kind of liability was incurred by Rose, that of an
President and the Treasurer or the Vice-President. Since the accommodation party or that of a solidary debtor? Explain. (4%)
Treasurer was absent, C requested the Vice-President to co-sign
the check, which the latter reluctantly did. The check was SUGGESTED ANSWER:
delivered to B. The check was dishonored upon presentment on Rose may be held liable. Rose is an accommodation party.
due date for insufficiency of funds. Absence of consideration is in the nature of an accommodation.
Defense of absence of consideration cannot be validly indorsed the note in blank to him. Is CD still liable to EF by
interposed by accommodation party against a holder in due virtue of the indorsement in blank? Why? (2%)
course.
SUGGESTED ANSWER:
a. No. EF cannot claim payment from AB. EF is not a holder
Parties; Holder in Due Course (1993) of the promissory note. To make the presentment for
Larry issued a negotiable promissory note to Evelyn and payment, it is necessary to exhibit the instrument, which
authorized the latter to fill up the amount in blank with his loan EF cannot do because he is not in possession thereof.
account in the sum of P1,000. However, Evelyn inserted P5,000 in
violation of the instruction. She negotiated the note to Julie who b. No, because CD negotiated the instrument by delivery.
had knowledge of the infirmity. Julie in turn negotiated said note
to Devi for value and who had no knowledge of the infirmity.
a. Can Devi enforce the note against Larry and if
she can, for how much? Explain. Place of Payment (2000)
b. Supposing Devi endorses the note to Baby for PN is the holder of a negotiable promissory note within the
value but who has knowledge of the infirmity, meaning of the Negotiable Instruments Law (Act 2031). The note
can the latter enforce the note against Larry? 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
SUGGESTED ANSWER: payment on the specified maturity date as the office of the
a. Yes, Devi can enforce the negotiable corporate secretary of PX Bank during banking hours. ON maturity
promissory note against Larry in the amount of date, RP was at the aforesaid office ready to pay the note but PN
P5,000. Devi is a holder in due course and the did not show up. What PN later did was to sue XL for the face value
breach of trust committed by Evelyn cannot of the note, plus interest and costs. Will the suit prosper? Explain.
be set up by Larry against Devi because it is a (5%)
personal defense. As a holder in due course,
Devi is not subject to such personal defense. SUGGESTED ANSWER:
Yes. The suit will prosper as far as the face value of the note is
b. Yes. Baby is not a holder in due course concerned, but not with respect to the interest due subsequent
because she has knowledge of the breach of to the maturity of the note and the costs of collection. RP was
trust committed by Evelyn against Larry which ready and willing to pay the note at the specified place of
is just a personal defense. But having taken the payment on the specified maturity date, but PN did not show up.
instrument from Devi, a holder in due course, PN lost his right to recover the interest due subsequent to the
Baby has all the rights of a holder in due course. maturity of the note and the costs of collection.
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).
SUGGESTED ANSWER:
No. 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.