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Nego

The document discusses two cases involving negotiable instruments: 1) A check for P50,000 was altered to P150,000 without the drawer's knowledge. The drawee bank paid the altered amount and deducted it from the drawer's account. The document finds the drawee bank liable for negligence and must restore the funds to the drawer. 2) A promissory note was stolen and the thief forged an endorsement to transfer it to a third party. The document finds that subsequent parties after the forgery have no rights against prior parties. The party whose endorsement was forged can recover from the forger, but subsequent parties can only recover against other subsequent parties.
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© © All Rights Reserved
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0% found this document useful (0 votes)
119 views

Nego

The document discusses two cases involving negotiable instruments: 1) A check for P50,000 was altered to P150,000 without the drawer's knowledge. The drawee bank paid the altered amount and deducted it from the drawer's account. The document finds the drawee bank liable for negligence and must restore the funds to the drawer. 2) A promissory note was stolen and the thief forged an endorsement to transfer it to a third party. The document finds that subsequent parties after the forgery have no rights against prior parties. The party whose endorsement was forged can recover from the forger, but subsequent parties can only recover against other subsequent parties.
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Checks; Liability; Drawee Bank (1995) check is wholly inoperative in relation to CX.

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: Forgery; Liabilities; Prior & Subsequent Parties (1995)


A. No. The serial number is not a material particular of the Alex issued a negotiable PN (promissory note) payable to Benito
check. Its alteration does not constitute material or order in payment of certain goods. Benito indorsed the PN to
alteration of the instrument. The serial number is not Celso in payment of an existing obligation. Later Alex found the
material to the negotiability of the instrument. goods to be defective. While in Celso‘s possession the PN was
stolen by Dennis who forged Celso‘s signature and discounted it
B. Yes. As a general rule, the drawee is not liable under the with Edgar, a money lender who did not make inquiries about the
check because there is no privity of contract between PN. Edgar indorsed the PN to Felix, a holder in due course. When
XYZ Marketing, as payee, and ABC Bank as the drawee Felix demanded payment of the PN from Alex the latter refused
bank. However, if the action taken by the bank is an to pay. Dennis could no longer be located.
abuse of right which caused damage not only to the
issuer of the check but also to the payee, the payee has A. What are the rights of Felix, if any, against Alex, Benito,
a cause of action under quasi-delict. Celso and Edgar? Explain
B. Does Celso have any right against Alex, Benito and Felix?
Defenses; Forgery (2004) Explain.
CX maintained a checking account with UBANK, Makati Branch.
One of his checks in a stub of fifty was missing. Later, he SUGGESTED ANSWER:
discovered that Ms. DY forged his signature and succeeded to A. Felix has no right to claim against Alex, Benito and Celso
encash P15,000 from another branch of the bank. DY was able to who are parties prior to the forgery of Celso‘s signature
encash the check when ET, a friend, guaranteed due execution, by Dennis. Parties to an instrument who are such prior to
saying that she was a holder in due course. Can CX recover the the forgery cannot be held liable by any party who
money from the bank? Reason briefly. (5%) became such at or subsequent to the forgery. However,
Edgar, who became a party to the instrument
SUGGESTED ANSWER: subsequent to the forgery and who indorsed the same
Yes, CX can recover from the bank. Under Section 23 of the to Felix, can be held liable by the latter.
Negotiable Instruments Law, forgery is a real defense. The forged
B. Celso has the right to collect from Alex and Benito. Celso
is a party subsequent to the two. However, Celso has no SUGGESTED ANSWER
right to claim against Felix who is a party subsequent to A. Yes. This covers the delivery of an incomplete instrument,
Celso (Sec 60 and 66 NIL) 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
Incomplete & Delivered (2004) thereof. Having done so, and when it is first completed
AX, a businessman, was preparing for a business trip abroad. As before it is negotiated to a holder in due course like
he usually did in the past, he signed several checks in blank and Marie, it is valid for all purposes, and Marie may enforce
entrusted them to his secretary with instruction to safeguard them it within a reasonable time, as if it had been filled up
and fill them out only when required to pay accounts during his strictly in accordance with the authority given.
absence. OB, his secretary, filled out one of the checks by placing
her name as the payee. She filled out the amount, endorsed and B. No. Even though Marie is a holder in due course, this is
delivered the check to KC, who accepted it in good faith for an incomplete and undelivered instrument, covered by
payment of gems that KC sold to OB. Later, OB told AX of what Section 15 of the Negotiable Instruments Law. Where an
she did with regrets. AX timely directed the bank to dishonor the incomplete instrument has not been delivered, it will not,
check. if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any
Could AX be held liable to KC? Answer and reason briefly. (5%) person, including Jun, whose signature was placed
thereon before delivery. Such defense is a real defense
SUGGESTED ANSWER: even against a holder in due course, available to a party
Yes. AX could be held liable to KC. This is a case of an incomplete like Jun whose signature appeared prior to delivery.
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 Negotiability; Holder in Due Course (1992)
filled up strictly in accordance with the authority given by AX to Perla bought a motor car payable on installments from
OB and within a reasonable time. Automotive Company for P250th. She made a down payment of
P50th and executed a promissory note for the balance. The
Incomplete and Delivered (2005) company subsequently indorsed the note to Reliable Finance
Brad was in desperate need of money to pay his debt to Pete, a Corporation which financed the purchase. The promissory note
loan shark. Pete threatened to take Brad‘s life if he failed to pay. read: ―For value received, I promised to pay Automotive
Brad and Pete went to see Señorita Isobel, Brad‘s rich cousin, and Company or order at its office in Legaspi City, the sum of
asked her if she could sign a promissory note in his favor in the P200,000.00 with interest at twelve (12%) percent per annum,
amount of P10,000.00 to pay Pete. Fearing that Pete would kill payable in equal installments of P20,000.00 monthly for ten (10)
Brad, Señorita months starting October 21, 1991.
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 Manila September 21, 1991.
later. Brad then filled up the blank paper, making a promissory (sgd) Perla
note for the amount of P100,000.00. He then indorsed and
delivered the same to Pete, who accepted the note as payment Pay to the order of Reliable Finance Corporation. Automotive
of the debt. Company
By: (Sgd) Manager
What defense or defenses can Señorita Isobel set up against
Pete? Explain. (3%) Because Perla defaulted in the payment of her installments,
Reliable Finance Corporation initiated a case against her for a
SUGGESTED ANSWER: sum of money. Perla argued that the promissory note is merely an
The defense (personal defense) which Señorita Isobel can set up assignment of credit, a non-negotiable instrument open to all
against Pete is that the amount of P100,000.00 is not in defenses available to the assignor and, therefore, Reliable
accordance with the authority given to her to Brad (in the Finance Corporation is not a holder in due course.
presence of Pete) and that Pete was not a holder in due course a. Is the promissory note a mere assignment of
for acting in bad faith when accepted the note as payment credit or a negotiable instrument? Why?
despite his knowledge that it was only 10,000.00 that was allowed b. Is Reliable Finance Corp a holder in due
by Señorita Isobel during their meeting with Brad. course? Explain briefly.

Incomplete Instruments; Incomplete Delivered SUGGESTED ANSWER:


Instruments vs. Incomplete Undelivered Instrument (2006) a. The promissory note in the problem is a
Jun was about to leave for a business trip. As his usual practice, negotiable instrument, being in compliance
he signed several blank checks. He instructed Ruth, his secretary, with the provisions of Sec 1 NIL. Neither the fact
to fill them as payment for his obligations. Ruth filled one check that the payable sum is to be paid with interest
with her name as payee, placed P30,000.00 thereon, endorsed nor that the maturities are in stated installments
and delivered it to Marie. She accepted the check in good faith renders uncertain the amount payable (Sec 2
as payment for goods she delivered to Ruth. Eventually, Ruth NIL).
regretted what she did and apologized to Jun. Immediately he
directed the drawee bank to dishonor the check. When Marie b. Yes, Reliable Finance Corporation is a holder in
encashed the check, it was dishonored. due course given the factual settings. Said
corporation apparently took the promissory
A. Is Jun liable to Marie? (5%) note for value, and there are no indications
B. Supposing the check was stolen while in Ruth's that it acquired it in bad faith.
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%)
Negotiability; Requisites (2000) the parties prior to the forgery and the parties after
1. MP bought a used cell phone from JR. JR preferred cash the forgery. The only party who can raise the
but MP is a friend so JR accepted MP‘s promissory note defense of forgery against a holder in due course is
for P10,000. JR thought of converting the note into cash the person whose signature is forged.
by endorsing it to his brother KR. The promissory note is a
piece of paper with the following hand-printed notation: b. Only B and C can be held liable by F. The instrument
―MP WILL PAY JR TEN THOUSAND PESOS IN PAYMENT FOR at the time of the forgery was payable to bearer,
HIS CELLPHONE 1 WEEK FROM TODAY.‖ Below this being a bearer instrument. Moreover, the
notation MP‘s signature with ―8/1/00‖ next to it, instrument was indorsed in blank by C to D. D,
indicating the date of the promissory note. When JR whose signature was forged by E cannot be held
presented MP‘s note to KR, the latter said it was not a liable by F.
negotiable instrument under the law and so could not
be a valid substitute for cash. JR took the opposite view,
insisting on the note‘s negotiability. You are asked to Negotiable Instruments; bearer instruments; liabilities of
referee. Which of the opposing views is correct? 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
SUGGESTED ANSWER: drawer, which was stolen by the janitor X. X indorsed the note to
KR is right. The promissory note is not negotiable. It is not D by forging C‘s signature. D indorsed the note to E who in turn
issued to order or bearer. There is no word of negotiability delivered the note to F, a holder in due course, without
containing therein. It is not issued in accordance with indorsement. Discuss the individual liabilities to F of A, B and C.
Section 1 of the Negotiable Instruments Law. (5%)

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).

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:
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.

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

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