NIL Bar Questions

Negotiable Instruments Law (BAR QUESTIONS) |1
BAR QUESTIONS
1975-1989
Condor, Cyrel
Tacastacas, Robinson
Canoy, Ermalyn
Quijano, Karlo Nov
Gako, Vicca Loraine
Bongcayao, Cesar
1975 BAR EXAMINATION
I. X makes a promissory note payable to bearer, and delivers the same to Y. Y indorses it to Z in this manner:
“Pay to Z, sgd. Y”. Later, Z without indorsing the promissory note transfers and delivers the same to R. The
note is subsequently dishonored by X. May R hold X liable?
- Section 40. Indorsement of instrument payable to bearer.
- Yes, R may hold X liable. Since the instrument is payable to bearer on its face, the special insdorsement
of Y did not affect the right of the holder to negotiate it by mere delivery. The transfer and delivery to R
from Z, therefore constituted a valid negotiation.
II. To accommodate M, drawer of a promissory note, A signed as an indorser thereon, and the instrument was
negotiated to H, a holder for value. At the time H took the instrument, he knew A to be only an
accommodation party. When the promissory note was not paid, and H discovered M without funds, he
sued A. A pleads in defense the fact that he had indorsed the instrument without receiving value therefor,
and the further fact that H knew that at the time he took the instrument that A had not receive any value
or consideration of any kind for his indorsement. Is A liable? Reason.
- Section 29. Liability of accommodation party
- Yes, A is liable. An accommodation party is liable on the instrument to a holder for value;
notwithstanding such holder at the time of the taking the instrument knew him to be only an
accommodation party.
III. A postal money order was received by a bookstore as part of its sales receipts, and was later deposited with
a bank. The bank cleared the money order with the Bureau of Posts, and received its value of Php 200.00.
About five months later, the Manila Post Office notified the bank that said money order had been
irregularly issued (in the sense that the money order had not been duly paid for), and accordingly, the Php
200.00, value of the money was deducted from the bank's clearing account. The bank on its part debited
the bookstore with the same amount, and gave the store advice thereof by means of a debit memo. The
bookstore sued the proper officials of the Bureau of Posts stating that under the Negotiable Instruments
Law, the bookstore must be properly redressed or indemnified. Rule on the bookstore's contention, with
reasons.
- The contention of the bookstore is untenable. A postal money order as usually issued is not a negotiable
instrument because it imposes conditions on the obligations to pay. Therefore, the NIL is not applicable.
Any defense of the Post Office against the purchase is available against any subsequent party, although
the latter may be in good faith. The Post Office is liable.
I. Monsanto, Inc. drew a check for Php 5,000.00 payable to Daez, Inc. drawn against Manila Bank. The check
was endorsed and delivered to Martel Co., which in turn deposited the check in its current account with the
PNB. The check was cleared in due course, and Manila Bank paid PNB the amount of the check. Twenty
days later, it was discovered that the signature of Daez, Inc. was forged. PNB paid Manila Bank and notified
Martel and Co. that it had debited its account with the corresponding amount. Who, as between Martel
and Co. and PNB, should bear the loss? Why?
- Martel, Inc. should bear the loss.
- Section 66. Liability of general indorser.
- Martel having deposited the check to PNB, must have indorsed the check. As an indorser, Martel
warranted that the instrument is genuine, valid and subsisting at the time of his indorsement.
II. A purchased some merchandise from B for Php 1,000.00. Not having any cash, A offered to pay in check. B
refused to accept the check unless it is endorsed by X. X endorsed A's check, and B knowing that X had not
received value for indorsing the check, accepted it. Upon maturity, B presented the check to the drawee
bank for payment. Payment was refused for lack of funds. B gave notice of dishonor, in accordance with
law to X but X refused to pay. Is X liable to B? Reasons.
- Section 29. Liability of accommodation party & Section 66. Liability of general indorser.
- Yes, X is liable. An accommodation party is liable on the instrument to a holder for value;
notwithstanding such holder at the time of the taking the instrument knew him to be only an
accommodation party. X as an indorser engages that on due presentment the instrument shall be
accepted or paid, or the case may, 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 it.
I. Fernando forged the name of Daniel, manager of Trading Company, as the drawer of a check. The Bank of
the Philippine Islands, the drawee bank, did not detect the forgery and paid the amount. May the bank
charge the amount paid against the account of the alleged drawer? Reasons.
- No. the bank could not charge the amount paid against the account of the alleged drawer.
- Sec. 23 of the NIL provides that when a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative.
- In the case at bar, a bank that cashes a check must know to whom it pays. It is an elementary principle
both of banking and of the negotiable instruments law that a bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the payment out of its funds,
and cannot ordinarily charge the amount so paid to the account of the depositor whose name was
forged.
- However, in a case where the drawer’s own signature was forged to one of its checks, he should have
known of the forgery, and it would have been his duty to promptly notify the bank of any forged
signature, and any failure on his part would release the bank from any liability.
I. A signed a blank check which he inadvertently left on his desk at his Escolta Office. The same was later
stolen by B, who filled in the amount of Php 22,300.00 and a fictitious name as payee. B then endorsed the
check in the payee's name and passed the check to C; thereafter C passed it to D; then D to E, and E to F.
1. Can F enforce the instrument against A? Explain.
2. Suppose that F is a holder in due course, what will be your answer? Explain.
3. Can F enforce the instrument against B? Against C? Give reasons
Answers:
1. No. F could not enforce the instrument against A.
Sec. 15 of the NIL provides that, 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 whose signature was placed thereon before delivery.
In the case at bar, an incomplete instrument (of A) which has not been delivered, it will not, if
completed and negotiated without authority (by B), be a valid contract in the hands of any holder (F), as
against any person (A) whose signature was placed thereon before delivery.
2. No also, for the same reason as indicated above.
Section 15 of the NIL, the law says “in the hands of any holder”, meaning whether a holder in due course
or not.
3. Yes, F can enforce the said instrument against B.
Sec. 18 of the NIL provides that, one who signs in a trade or assumed name will be liable to the same
extent as if he had signed in his own name.
In the case at bar, the thief who, having no good title on the instrument, endorsed it in an assumed
(fictitious) name is liable as if he had signed it in his own name, also thereby making a breach of his
warranty under Sections 65 and 66 of NIL.
In this case, F may not enforce the instrument against C, unless there had been due presentment, and
dishonor of the instrument, and notice of dishonor given to C as provided under Sec. 65 of the NIL.
II. A induces B by fraud to make a promissory note payable on demand to the order of A in the sum of Php
5,000.00.
1. Can A file an action successfully against the maker B for the amount of the note?
2. Going further, A transfers the note to C who pays Php 5,000.00 therefor and acquires the note under
circumstances that make him (C) a holder in due course. Can C file an action successfully against B, the
maker of the note, for the amount of the note?
3. What defense/defenses can B interpose?
Answers:
1. No, A could not successfully file an action against the maker B for the amount of the note
Sec. 28 of the NIL provides that, absence or failure of consideration is a matter of defense as against any
person not a holder in due course.
In the case at bar, B my raise the defense of absence of consideration against A who is not a holder in
due course. It is clear that A induces B by fraud to make a promissory note payable on demand to the order
of A in the sum of Php 5,000.00.
2. Yes, C can file an action successfully against B, since C is a holder in due course, against whom absence
of consideration is not a defense as provided under Sec. 28 of the NIL.
3. As against A, being not a holder in due course, all defenses, real and absolute and personal and equities,
may be interposed by B.
However, as against C, Being a holder in due course only real and absolute defenses can be interposed.
I. A makes a promissory note payable to bearer and delivers it to B. In turn, B negotiates it by mere delivery
to C, who indorses it specially to D. D negotiates it by special indorsement to E, who negotiates it to F by
mere delivery. A did not pay. To whom are B, C, D, and E liable? Explain your answer.
- B,C,D and E are not liable.
- Sec. 65 of the NIL provides that, every person negotiating an instrument by delivery or by a qualified
endorsement, warrants:
- That the instrument is genuine;
- That he has a 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.
- In the case at bar, B and E being negotiators by mere delivery are not liable unless they made breach of
their warranties (sec. 65), and it appeared that they had not.
- On the other hand, Sec. 40 of the NIL provides that, when an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery, but the person indorsing specially is
liable as indorser to only such holders as make title through his indorsement.
- In the case at bar, C and D are also not liable to F, since F did not make title through the special
indorsements of C and D.
I. Juan dela Cruz signs a promissory note payable to Pedro Lim or bearer, and delivers it personally to Pedro
Lim. The latter somehow misplaces the said note and Carlos Ros finds the note lying around the corridor of
the building. Carlos Ros endorses the promissory note to Juana Bond, for value, by forging the signature of
Pedro Lim.
May Juana Bond hold Juan dela Cruz liable on the note?
- Yes, Juana Bond may hold Juan dela Cruz liable on the subject promissory note.
- Section 9 of the NIL provides that an instrument is payable to bearer when it is payable to a person
named therein (par. b). It is negotiated by delivery alone as provided in Section 30 of the same law.
- Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer,
it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and
completed by delivery.
- In the case at bar, since the subject promissory note payable to Pedro Lim or bearer is a bearer
instrument, indorsement to Juana Bond is not necessary for her to become a holder. Absent any
showing that she has knowledge on the forgery, she is considered as holder in due course and may hold
Juan dela Cruz liable on the subject promissory note.
I. “A” makes a promissory note payable to “B” or bearer. “C” delivers the note to “B”. “B” indorses the note
to “C”. “C” places the note in his wallet, which was stolen by “X”, who, finding the note, indorses it to “D”,
by forging “C's” signature. “D” indorses the note to “E”, who in turn delivers the note to “F”, a holder in due
course without indorsement.
What are the liabilities of “A”, “B”, and “C” to “F”?
- A, as maker of the promissory note, he is primarily liable, and therefore liable on the same to F, a holder
in due course of said instrument.
- Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay
it according to its tenor, and admits the existence of the payee and his then capacity to indorse.
- B, being an endorsed is secondarily liable on said promissory note.
- Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all
subsequent holders in due course:
- (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section (Sec.
65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by
delivery or by a qualified indorsement warrants:
- (a) That the instrument is genuine and in all respects what it purports to be;
- (b) That he has a good title to it;
- (c) That all prior parties had capacity to contract;
- xxxxxxxxxxxxxxxxxxx); and
- (b) That the instrument is, at the time of his indorsement, valid and subsisting;
- And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, 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 it. If, in the case at bar, A would pay the instrument, thereby discharging it, all,
including B, are no longer liable.
- Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be
negotiable until it has been restrictively indorsed or discharged by payment or otherwise.
- Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due
course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation
thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of
money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his
own right.
- Now, if, however, A would dishonor it, and F would have given notice of dishonor to B, the latter is liable
to F. (Sec. 66, supra)
- As to C's liability, he is also party secondarily liable on said promissory note. (Sec. 66, Supra). If A would
pay the instrument thereby discharging it, all, including B, are no longer liable. (Secs. 57 & 119, NIL)
- Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect
of title of prior parties, and free from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against all parties liable thereon.
- If A, however, would dishonor it and F would have given notice of dishonor to C, the latter would be
liable to F. (Secs. 65&66, supra). But C may raise the defense that his said instrument was stolen from
him and his signature in the indorsement was forgery, which defense being real or absolute one, can be
raised even against a holder in due course. (Sec. 23, NIL)
- Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument,
or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
I. Jose makes a note payable to bearer with the amount blank and delivers it to Karen for safekeeping.
Marina fills up the note for Php 20,000.00 and negotiates it to Adriano.
Can Jose refuse payment to Adriano on the ground that the note (A) was incomplete and (B) was
originally delivered to Karen for safekeeping only and not for negotiating?
- Yes. Jose can dishonor the note. This is a case of incomplete and and not delivered instrument.
- Sec. 15. Incomplete instrument not delivered. - 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 whose signature was placed thereon before delivery.
- In the case at bar, applying the law, Jose whose signature was placed thereon before delivery has no
valid contract with Adriano whether he is a holder in due course or not, being a real or absolute defense.
Furthermore Karen has no authority to negotiate the same. Thus, Jose can validly dishonor the note.
II. Hernan issued a check payable to the order of Fernando in the sum of Php 12,000.00 and drawn on “X”
Bank. The check was not delivered to Matilde by Adriano for encashment. At that time, the check had the
indorsements of (1) Fernando and (2) Rosa. When Matilde encashed it with “X” Bank, she affixed her
signature on the check. Upon Matilde's receipt of the cash proceeds of the check, she turned over the
amount to Adriano. “X” bank was informed by Hernan that the alleged indorsement of the payee Fernando
was a forgery, since the latter had died 2 years ago. “X” Bank, having refunded the amount to Hernan, sued
Matilde, who refused to return the money.
Was “X” Bank correct in paying Hernan?
Does “X” Bank have a cause of action against Matilde?
- Yes, X Bank was correct in paying Hernan. It is the duty of X Bank to know that the check was only
indorsed by the original payee, and when it pays the check to a third person, the loss falls upon the bank
which cashed the check, and not in the drawer, Hernan. ( Great Eastern Life Insurance Co. vs. Hong Kong
& Shanghai Bank and PNB, 43 Phil 678; Republic Bank vs. Ebrada, July 31, 1975, 665 SCRA 680)
- Yes, X Bank has a cause of action against Matilde. Although Matilde, to whom the plaintiff Bank paid the
check, was not proven to be the author of the supposed forgery, yet as last Indorser of the check, she
was warranted that she has good title to it even if in fact she does not have, because the payee was
already dead two (2) years ago, before the check was issued. The fact that immediately after receiving
the cash proceeds of the check in question, she immediately turned over the said amount to Adriano,
would not exempt her from liability, because by doing so, she acted as an accommodation party in the
check, for which she is also liable as accommodation party. ( Secs. 29 & 66, NIL; Republic Bank vs.
Ebrada, supra)
- Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be only an
- Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all
subsequent holders in due course:
- (b) That the instrument is, at the time of his indorsement, valid and subsisting;
- And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, 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 it.
I. A issued promissory note to B in the following tenor: “I promise to pay to the order of B Php 1,000.00 sixty
days after date. (Sgd.) A”. The note was subsequently negotiated with proper indorsement by B to C, C to D,
and D to E, the holder. When E presented the note for payment to A, the latter refused to pay. E then gave
Notice of Dishonor to C only.
May E immediately proceed against B, C, or D? What should C do to protect his rights, if any, against A, B,
and D?
- E may immediately proceed only to C to whom notice of dishonor was previously given.
- Sec. 89 of the NIL: When a negotiable instrument has been dishonored by non-payment, notice of
dishonor must be given to each indorser, and any indorser to whom such notice is not given is
discharged.
- Therefore, as notice of dishonor was not given to B and D, who are secondarily liable to the instrument
as indorsers, they are considered discharged and E cannot anymore proceed against them pursuant to
Sec. 89 of the NIL.
- To protect his rights, C, who received the notice of dishonor must also give such notice to B within the
fixed period provided by the NIL, to wit:
- Sec 102: Notice may be given as soon as the instrument is dishonored unless delay is excused as
hereinafter provided, must be given within the times fixed by this act (Arts. 103 and 104)
- Sec 103: WHERE PARTIES RESIDE AT THE SAME PLACE – Where the person giving and the person to
receive notice reside in the same place, notice must be given within the following times:
- If given at the place of business of the person to receive notice, it must be given before the close of
business hours on the day following
- If given at his residence, it must be given before the usual hours of rest on the day following
- If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day
following.
- Sec. 104: WHERE PARTIES RESIDE IN DIFFERENT PLACES – Where the person giving and the person to
receive notice reside in different places, the notice must be given in the following times:
- a. If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of
dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter
- b. If given otherwise than through the post office, then within the time that notice would have been
received in due course of mail, if it has been deposited in the post office with the time specified in the last
provision.
II. Juan makes a promissory note payable to the order of Pedro, who indorses it to Jose. Somehow, Roberto
obtains possession of the note and, forging the signature of Jose, indorses it to Amado. Amado then
indorses the note to Nilo, the holder.
State the rights and liabilities of the parties.
- Nilo cannot enforce the instrument against Juan, the maker, and Pedro, the payee because his rights
against them are cut-off by the forged signature of Jose, which is inoperative. According to Sec 23 of the
NIL:
- When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority
- b. Neither can Nilo enforce the note against Jose since the latter’s signature is wholly inoperative. Under
Sec. 23, Nilo acquired no right to enforce payment of the note under the forged signature of Jose.
- c. Nilo, however, may go against Amado whose signature is genuine, hence, operative. Also as a general
indorser, Amado is liable pursuant to Sec. 66 of the NIL which provides that: Every indorser who indorses
without qualification, warrants to all subsequent holders in due course –
- (b) That the instrument is, at the time of his indorsement, valid and subsisting
- d. Roberto is liable to Jose or Amado since he is the forger.
- e. Jose can recover from Juan, the maker, and Pedro, the payee, because his rights are not affected by
the forgery
I. Jose Reyes signed a blank check, and in his haste to attend a party, left the check on top of his executive
desk in his office. Later, Nazareno forced open the door to Reyes' office, and stole the blank check.
Nazareno immediately filled in the amount of Php 50,000.00 and a fictitious name as payee on the said
check. Nazareno then indorsed the check on the Payee's name and passed it to Roldan. Thereafter, Roldan
endorsed the check to Dantes.
(A) Can Dantes enforce the check against Jose Reyes?
(B) If Dantes is a holder in due course, will your answer to question (A) be the same?
(C) Can Dantes enforce the check against Roldan?
Answers:
(A) No, Dantes cannot enforce the check against Jose Reyes.
Sec. 15 – 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 whose
signature was placed thereon before delivery.
Therefore, Jose Reyes can validly raise the defense that the instrument, being incomplete and
undelivered, there was no valid contract between them when the check was only stolen and deliberately
filled up by Nazareno.
(B) Yes, my answer to question (A) will be the same. Dantes cannot enforce the instrument since sec.15 partly
provides that “Where an incomplete instrument has not been delivered it will not be a valid contract in the
hands of any holder…xxx”. The phrase “any holder” includes a Holder in Due Course.
(C) Yes, Dantes can enforce the check against Roldan. The latter being a general indorser is liable under the
warranties provided in Sec. 66 of the NIL, to wit:
N e g o t i a b l e I n s t r u m e n t s L a w ( B A R Q U E S T I O N S ) | 10
- (b) That he has good title to it;
- (c) That all prior parties had capacity to contract; and
- (d) That the instrument is at the time of his indorsement, valid and subsisting.
- In the case at bar, Roldan, as indorser, he warrants that the check is genuine and in all respects what it
purports to be. Also, as his signature appears on the check after delivery, the instrument is valid as to him.
Therefore, the check can be enforced against him.
II. Santos purchased Vera's car for Php 50,000.00. Not having enough cash on hand, Santos offered to pay in
check. Vera refused to accept the check unless it is endorsed by Reyes, their mutual friend. Reyes endorsed
Santos' check and Vera, knowing that Reyes had not received any value for endorsing the check, accepted
it. The next day, Vera presented the check to the drawee bank for payment. Payment was refused for lack
of funds. Vera gave notice of dishonor to Reyes, but Reyes refused to pay, saying that he indorsed merely
as a friend.
(A) Is Reyes liable to Vera?
(B) In the event Reyes voluntary pays Vera, does Reyes have the right to recover from Santos?
Answers:
(A) Yes, Reyes is liable to Vera.
Sec. 29: An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving any value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew him to be only an accommodation party.
In the case at bar, Reyes, the accommodation party, is liable on the check to a Vera, notwithstanding
Vera, at the time of taking the check knew Reyes to be only an accommodation party.
(B) Yes, Reyes has the right to recover from Santos.
In lending Reyes’ name to Santos, the former is, in effect, a surety, while the latter being the principal. It
is basic in surety, when the surety pays the amount, he has the right to recover from the principal.
Therefore, Reyes can recover from Santos the payment made to Vera. (PNB vs Aruego)
I. As payment of goods received, Masikap gave to Humimok on November 3, hs check drawn on the Eternal
Bank of Manila. On November 11, Kahusayan went to Eternal Bank to encash the check. He could not cash
the check because on November 10, Central Bank had forbidden Eternal Bank to do business in the
Philippines on grounds of insolvency. Masikap, Humimok, and Kahusayan all reside in Manila.
a.) Can Kahusayan hold Masikap liable on the uncashed check?
b.) Can Kahusayan hold Huminok liable on the check?
c.) Can Kahusayan still collect from Huminok for the dental work done on the latter?
d.) Assume that Eternal Bank was not closed by Central Bank but simply refused to honor and encash the
check. Can Kahusayan hold Masikap liable?
Answers:
a. Yes, Kahusayan can hold Masikap secondarily liable on the uncashed check.
Section 61 of the Negotiable Instruments Law provides “The drawer by drawing the instrument admits
the existence of the payee and his then capacity to indorse; and engages that on due presentment the
instrument will 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 compelled to pay it.
Drawer assumes secondary liability.
b. The liability of Humimok depends whether the check is negotiated by delivery or endorsement.
Huminok would not be secondary liable if the check negotiated by delivery but if it was endorsed,
Humimok may be secondarily liable as a general indorser under Section 66 of Negotiable Instrument law
which provides” Every indorser who indorses without qualification, warrants to all subsequent holders in
due course XXXXX”.
But if it was qualified indoserment by Humimok would preclude Dr. Kahusayan from holding the former
secondarily liable.
c. Yes, Dr. Kahusayan can still collect from Humimok what may be due for the dental work done, since
payment of check will only produce the effect to payment once the instrument is encashed or by the fault
of the holder, it is impaired.
To effect a discharge of the instrument (Sec. 119[a].) payment should be in money since in a negotiable
instrument, the promise or order is to pay a sum certain in money. (Sec, 1[b].)
d. The secondarily liability of Masikap to Kahusayan as expressed in letter (a), is not dependent on the ability
or capacity of the drawee to honor the instrument. Accordingly, Kahusayan can still hold Masikap liable.
II. Sumabod issued a promissory note payable to the order of Panloob as consideration for the textiles
purchased from the latter. The promissory note recites that the amount of P100,000.00 is payable in five
monthly installments of P20,000.00 each, beginning on December 1, 1986 and every first day of the month
thereafter until fully paid, provided that the holder may declare the entire amount due and demandable in
the event the maker fails to pay on time any installment in full, or whatever the holder for valid reasons
finds his clains insecure. Panloob indorsed and delivered the note for value to Humabol who acted in good
faith. Panloob's factory burns down and he is unable to deliver the textiles. Sumabod did not pay as
promised.
Can Humabol as an innocent purchaser for value hold Sumabod liable on the promisory note?
- Yes, Humabol can hold Sumabod liable of the promissory note.
- Humabol being a holder in due course as provided in Section 52 of Negotiable Instrument Law may hold
Sumabod the maker liable of the note. The statement in the instrument providing installment payments
and acceleration clause did not adversely affect the negotiability of the instrument.
- Additionally, personal defense that Sumabod may raise against an immediate party may not be raised
against holder in due course.
III. Romeo had P100,000.00 in his current account at the Matatag Banking Corporation. Romeo learned that
his enemy had hired a contract killer to liquidate him. Fearful for his life, he mailed to his fiancee, Juliet a
check for his P100,000 in the bank. The check was payable to Juliet or order and was accompanied by a
letter stating that he was giving her his money out of his great love for her and because something would
happen to him anytime now.
a) Juliet presented the check for payment but the bank refused to honor it. Does Juliet have any right of
action against the bank?
b) The hit contract was called off by Romeo's enemy. Meanwhile, Juliet broke off her engagement to
Romeo because of the humiliation she suffered at the bank. Does Romeo have a right of action against
the bank?
Answers:
a.) Yes, Juliet has the right of action against the bank.
While the drawee has the right to dishonor the check until it has been accepted by it, the right must not
be exercised arbitrarily and whimsically. When the bank without justification whatsoever, dishonor the
check, it would be liable under Article 19 of the Civil code which provides every person, in the exercise of
his right and in the performace of his duty act with justice, give everyone his due, and observe honesty and
goodfaith
b.) Romeo has a right of action against the bank.
The juridical relation between the drawer and drawee is not governed soley by the Negotiable
Instrument Law but it is governed primarily by their own agreement and by the applicable provision of the
Civil Code under which a possible breach of obligation is likely under factual setting in the problem.
I. “B” forged “A’s” signature as drawer of a check drawn on Citibank. The check was purportedly payable to
the order of “B”. “B” then indorsed the check to “C”, a holder in due course, who deposited the same to his
account with Bank of P.I. The check passed through the normal course of clearing and accordingly the
drawee, Citibank, credited and collecting bank, Bank of P.I., with the amount of the check which Citibank in
turn debited from “A’s” deposit account. Upon receiving his monthly statement from Citibank, together
with the cancelled checks debited from his deposit account, “A” discovered the forgery.
1. Can “A” compel Citibank in turn re-credit to his account the amount of the forged check?
2. Does Citibank in turn have a recourse against the collecting bank, Bank of P.I.? Explain.
3. Can Citibank or Bank of P.I., as the case may be, proceed against “C” as indorser? Explain.
Answers:
1. Yes, A may compel Citibank to re-credit the amount of the forged check.
Section 23: When a signature is forged or made without authority of the person whose signature it
purports to be, it is wholly inoperative, and no tight to retain the instrument, or give a discharge therefor, or
to enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
In the given case A not being a party to the instrument may not re credit the amount of the forged check
being inoperative. Additionally, the drawee bank is charged with the knowledge of drawer’s signature.
2. No, Citibank has no right of recourse against Bank of P.I.
It is because of the principle of Estoppel which provides that the negligence of the drawee is presumed
for the failure of the drawee to detect the forgery of drawer’s signature. And also under the principle of
natural justice which provides that as between two persons one of whom must suffer, the legal title
prevails.
3. Yes, But only Bank of P.I. may proceed against C the indorser.
Under Section 66 of Negotiable Instrument law which provides” Every indorser who indorses without
qualification, warrants to all subsequent holders in due course XXXXX”.
Provided that Citibank or bank of P.I. is not negligent.
In the given case C as an indorser warrants the genuineness of the instrument and also under the rule of
agency. But Citibank may not proceed against C because of the negligence imputed upon the Citibank
which has access to the signature of the drawer which is the proximate cause of the loss, applying the
doctrine of comparative negligence Citibank is more negligent than C that give rise to the loss.
I. A promissory note reads as follows:

“I promise to pay Gabriela Silangan P100.00 three years after the unconditional withdrawal of the US of its
military bases in the Philippines.”
A. Discuss the negotiability or non-negotiability of the above note.
B. Discuss the effect of each of the following upon the note’s negotiability:
(1) No date given
(2) The places where drawn and where payable are not stated.
Answers:
A. The promissory note is not negotiable. It does not conform to an unconditional promise to pay as required by
Sec. 1(b) of the NIL. “Three years after the unconditional withdrawal of the US of its military bases in the
Philippines” is conditional which makes the promise conditional.
B. (1) The negotiability of an instrument is not adversely affected by its being undated.
Sec. 6 of NIL – The validity and negotiable character of an instrument are not affected by the fact that:
It is not dated
Xxx
Sec. 13 of NIL – Where an instrument expressed to be payable at a fixed period after date is issued
undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any
holder may insert therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent
holder in due course; but as to him, the date so inserted is to be regarded as the true date.
Sec. 17 of NIL – Where the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply:
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued.
(2) For the negotiability of a promissory note it is not necessary that it must express the place where it is
made or where it is payable. All that is required under the NIL is compliance with Sec. 1 of NIL.
II. Anna makes a promissory note payable to bearer and delivers it to Bing. In turn, Bing negotiates it by mere
delivery to Carmen, who endorses it specially to Dong. Dong negotiates it by special indorsement to Emma,
who negotiates it to Fe by mere delivery. Anna did not pay. To whom are Bing, Carmen, Dong, and Emma
liable?
- Sec. 40 of NIL – Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be
further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders
as make title through his indorsement.
- Bing, not being an indorser, may only be held liable for breach of warranty but the facts in the problem
do not disclose any such breach.
- Carmen, under her special indorsement, may be held secondarily liable by Dong and Emma since the
latter (Dong and Emma) derived title under Carmen’s special indorsement. Carmen is not secondarily
liable to Fe since the latter obtained it by mere delivery from Emma and therefore did not obtain title
through Carmen’s special indorsement.
- Dong, hold himself secondarily liable to Emma since the latter delivered title under Dong’s special
indorsement but not to Fe who acquired the instrument only by delivery.
- Secondarily liable requires due notice of dishonor, unless excused, which we assume had properly been
observed.
I. What is the test to determine whether an instrument is negotiable or not?

- The requisites of negotiability expressed in Section 1 of NIL are met on the face of the instrument itself.
II. X bought a jeep from Reliable Motors Company for a consideration of P50,000.00. He paid P25,000.00 in
cash and executed the following promissory note on the balance:
September 1, 1989
I promise to pay the sum of P25,000.00 to Reliable Motors Company on or before December 31, 1989.
Sgd. X
At the bottom of the note, X wrote in his own handwriting the following: “I will not sell the jeep until I
shall have paid it in full.” Is the note negotiable?
- No. The note is not negotiable.
- Sec. 1 of NIL provides the requisites for an instrument to be negotiable, to wit:
- a. It must be in writing and signed by the maker or drawer;
- b. Must contain an unconditional promise or order to pay a sum certain in money;
- c. Must be payable on demand, or at fixed or determinable future time;
- d. Must be payable to order or to bearer; and
- e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.
- The promissory note is not negotiable for it fell short to the requirement as required by law under Sec. 1
of NIL for it is payable to Reliable Motors, Inc., merely and not “to order or to bearer” or words of similar
import.
BAR QUESTIONS
1990-1999
Cagatin, Rachel Marie
Caupayan, Jose Marcelo
Cepe, Ruth Mae
Orena, Joy
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 Noble’s complaint. Was the court’s
decision correct?
Suggested Answer:
The court’s 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 Civil Code and other laws of general application can still
apply suppletorily.
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.
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 instrument is not one which can still be said to contain an unconditional promise
to pay or order a sum certain in money. In the transfer of non-negotiable credits by assignment, the transferor
does not assume liability for the fault of the debtor or obligor. Accordingly the court’s decision was correct.
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.
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 Po’s defense of lack of consideration as against Jose is also available as against Excel?
Suggested Answer:
1) The effects of crossing a check are:
a. The check is for deposit only in the account of the payee
b. The check may be indorsed only once in favor of a person who has an account with a bank
c. The check is issued for a specific purpose and the person who takes it not in accordance with said purpose
does not become a holder in due course and is not entitled to payment thereunder.
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)
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 Chelsea’s 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.
What are the effects of crossing a check?
The effects of crossing a check are as follows:
a. The check may not be encashed but only deposited in a bank;
b. The check may be negotiated only once to one what has an account with a bank;
c. The act of crossing a check serves as a warning to the holder thereof that the check has been issued for a
definite purpose so that the holder must inquire if he has received the check pursuant to that purpose,
otherwise he is not a holder in due course (See Bataan Cigar and Cigarette Factory, Inc. v CA GR 93048, Mar 3,
1994; 230 s 643)
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 latter’s 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; 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, the bank honors the check when it is presented for payment. Apparently, X has
conspired with the bank’s bookkeeper so that his ledger card 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 X’s 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.
Applicable Provisions:
Section 132: Acceptance; how made, etc. – The acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not
express that the drawee will perform his promise by any other means than the payment of money.
Section 62: Liability of Acceptor – The acceptor by accepting the instrument engages that he will pay it according
to the tenor of his acceptance; and admits –
a.) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
b.) The existence of the payee and his then capacity to indorse.
Section 61: Liability of Drawer – The drawer by drawing the instrument admits the existence of the payee and
his then capacity to indorse; and engages that on due presentment the instrument will 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 it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability
to the holder.
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 William’s 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 People’s 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 providethat 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; 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 P150, 000 from the
account of Mario. Honesto withdrew the amount of P15, 000 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.
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 Mario’s 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.
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.
Applicable Provision:
Section 62: Liability of Acceptor – The acceptor by accepting the instrument engages that he will pay it according
to the tenor of his acceptance; and admits –
a.) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
b.) The existence of the payee and his then capacity to indorse.
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 payee’s 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.
a. Is it proper for the drawee bank to dishonor the check for the reason that it had been altered? Explain (2%)
b. 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.
Applicable provision:
Section 125: What constitutes a material alteration – Any alteration which changes –
a. The date;
b. The sum payable, either for principal or interest;
c. The time or place of payment;
d. The number or the relations of the parties;
e. The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is a material alteration.
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 from the check being already stale, Gemma is also discharged from 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.
Applicable Provisons:
Section 102: Time within which notice must be given – Notice may be given as soon as the instrument is
dishonored and unless delay is excused as hereinafter provided, must be given within the times fixed by this Act.
Sec. 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside
in the same place, notice must be given within the following times:
(a) If given at the place of business of the person to receive notice, it must be given before the close of business
hours on the day following.
(b) If given at his residence, it must be given before the usual hours of rest on the day following.
(c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day
following.
Sec. 104. Where parties reside in different places. - Where the person giving and the person to receive notice
reside in different places, the notice must be given within the following times:
(a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of
dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter.
(b) If given otherwise than through the post office, then within the time that notice would have been received
in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision.
Checks; Validity; Waiver of Bank’s liability for negligence (1991)
Mr. Lim issued a check drawn against BPI Bank in favor of Mr Yu as payment of certain shares of stock which he
purchased. On the same day that he issued the check to Yu, Lim ordered BPI to stop payment. Per standard
banking practice, Lim was made to sign a waiver of BPI’s liability in the event that it should pay Yu through
oversight or inadvertence. Despite the stop order by Lim, BPI nevertheless paid Yu upon presentation of the
check. Lim sued BPI for paying against his order. Decide the case.
Suggested Answer:
In the event that Mr. Lim, in fact, had sufficient legal reasons to issue the stop payment order, he may sue BPI
for paying against his order. The waiver executed by Mr Lim did not mean that it need not exercise due diligence
to protect the interest of its account holder. It is not amiss to state that the drawee, unless the instrument has
earlier been accepted by it, is not bound to honor payment to the holder of the check that thereby excludes it
from any liability if it were to comply with its stop payment order (Sec 61 NIL)
Alternative Answer:
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.
Section 61: Liability of Drawer – The drawer by drawing the instrument admits the existence of the payee and
his then capacity to indorse; and engages that on due presentment the instrument will 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 it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability
to the holder.
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 Pablo’s 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.
Applicable Provision:
Section 23: Forged signature; effect of – When a signature is forged or made without authority of the person
whose signature it purports to be it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority.
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 Celso’s possession the PN was stolen by Dennis who forged Celso’s 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 duecourse.
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 Celso’s
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)
Section 23: Forged signature; effect of – When a signature is forged or made without authority of the person
whose signature it purports to be it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the
Section 60: Liability of maker – The maker of a negotiable instrument by making it engages that he will pay it
according to its tenor, and admits the existence of the payee and his then capacity to indorse
Section 66: Liability of general indorser – every indorser who indorses without qualification, warrants to all
subsequent holders in due course –
The matters and things mentioned in subdivisions a, b and c of the next preceding section; and
xxx
That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be,
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 it.
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)
Applicable provisions:
Section 1: Form of negotiable instruments – An instrument to be negotiable must conform to the following
requirements:
a. It must be in writing and signed by the maker or drawer;

b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
Section 2: Certainty as to sum; what constitutes – The sum payable is a sum certain within the meaning of this
Act, although it is to be paid –
a. With interest; or
b. By stated installments; or
c. By stated installments, with a provision that upon default in payment of any installment or of interest the
whole shall become due; or
d. With exchange, whether at a fixed rate or at the current rate; or
e. With costs of collection or an attorney’s fee, in case payment shall not be made at maturity.
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 P50,000 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 thatthe 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)
`Section 2: Certainty as to sum; what constitutes – The sum payable is a sum certain within the meaning of this
Act, although it is to be paid –
a. With interest; or
b. By stated installments; or
c. By stated installments, with a provision that upon default in payment of any installment or of interest the
whole shall become due; or
d. With exchange, whether at a fixed rate or at the current rate; or
e. With costs of collection or an attorney’s fee, in case payment shall not be made at maturity.
Section 52: What constitutes a holder in due course – A holder in due course is a holder who has taken the
instrument under the following conditions:
a, That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. 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.
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%)
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.
Sec. 17: Construction where instrument is ambiguous

Where the language of the instrument is ambiguous or there are omissions therein, the following rules of
construction apply:
xxx
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat
it as either at his election;
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.
Applciable Provisions:
Section 1: Form of negotiable instruments – An instrument to be negotiable must conform to the following
requirements:
It must be in writing and signed by the maker or drawer;
Must contain an unconditional promise or order to pay a sum certain in money;
Must be payable on demand, or at a fixed or determinable future time;
Must be payable to order or to bearer; and
Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
Section 9: When payable to bearer - The instrument is payable to bearer:
xxx
(d) When the name of the payee does not purport to be the name of any person
Section 128: Bill addressed to more than one drawee. - A bill may be addressed to two or more drawees jointly,
whether they are partners or not; but not to two or more drawees in the alternative or in succession.
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.
Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as
indorser to only such holders as make title through his indorsement.
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 D, 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.
Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as
indorser to only such holders as make title through his indorsement.
Negotiable Instruments; Incomplete Delivered Instruments; 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.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced against any person who became a party thereto
prior to its completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
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)
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
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.
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 Saad’s 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 dishonoured 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 (Crisologo-Jose v CA 15Sep1989)
Nora applied for a loan of P100,000 with BUR Bank. By way of accommodation, Nora’s 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)
Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation party.
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.
Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation party.
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)
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)
Eva issued to Imelda a check in the amount of P50,000 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 P40,000 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 the
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).
That it is complete and regular upon its face;
That he became the holder of it before it was overdue, and without notice that it had been previously
That he took it in good faith and for value;
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.
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. C’s 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.
That it is complete and regular upon its face;
That he became the holder of it before it was overdue, and without notice that it had been previously
That he took it in good faith and for value;
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.
BAR QUESTIONS
2000-2009
Masiga, Llana
Angit, Christine
Respicio, Leslie
Fajardo, Benjamin
NEGOTIABLE INSTRUMENTS BAR QUESTIONS 2000-2009
2000
Topic: Incomplete and Undelivered Instruments; Holder in due course
Question:
a.) PN makes a promissory note for P5000, but leaves the name of the payee in blank because he wanted to
verify its correct spelling first. He mindlessly left the note on the 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 PN’s 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 NIL. Who is correct and why?
b.) Can the payee in the promissory note be a holder in due course within the meaning of the NIL? Explain
your answer.
Suggested Answer:
a.) PN is right. The instrument is incomplete and undelivered. It did not create any contract that would bind
PN to an obligation to pay the amount thereof.
SECTION 57. RIGHTS OF A HOLDER IN DUE COURSE

A holder in due course holds the instrument free from any defect of
title of prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the instrument for
the full amount thereof against all parties liable thereon.
SECTION 15. INCOMPLETE INSTRUMENT NOT DELIVERED

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 whose signature was placed
thereon before delivery.
b.) A payee in a promissory note cannot be a holder in due course within the meaning of the NIL because a
payee is an immediate party in relation to the maker. The payee is subject to whatever defenses, real or
personal, available to the maker of the promissory note.
SECTION 52. WHAT CONSTITUTES AS A HOLDER IN DUE COURSE

(d) 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.
Alternative Answer:
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.
SECTION 191. DEFINITION and MEANING OF TERMS

“HOLDER” means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.
Topic: Place of Payment
Question:
PN is the holder of a negotiable promissory note within the meaning of NIL. 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.
Suggested Answer:
Yes. The suit will prosper as for 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 the 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 costs
of collection.
SECTION 70. EFFECT OF WANT ON DEMAND ON PRINCIPAL DEBTOR
Presentment for payment is not necessary in order to charge the person primarily
liable on the instrument; but if the instrument is, by its terms, payable at a special
place, and he is able and willing to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment upon his part. But except as
herein otherwise provided, presentment for payment is necessary in order to
charge the drawer and indorsers.
2001
Topic: Bearer Instruments; Liabilities of Maker and Indorser
Question:
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 C’s
signature. D indorsed the note to E who inturn 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 promissory note, A is directly 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.”
SECTION 60. LIABILITY OF MAKER
The maker of a negotiable instrument by making it engages that he will

pay it according to its tenor, and admits the existence of the payee and
his then capacity to indorse.
B, as a general indorser, is liable to F secondarily, and warrants that the instrument is genuine and in all
respects what it purports it 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
due on presentment, it shall be accepted or paid, or both according to its tenor, and that if it be
dishonoured and 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.
SECTION 66. LIABILITY OF GENERAL INDORSER
Every indorser who indorses without qualification warrants to all subsequent holders in
due course:
a.) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceeding section; and
b.) That the instrument is, at that time of his indorsement, valid and subsisting.
And in addition, he angages that, on due presentment, it shall be accepted or paid, or

both, as the case maybe, according to its tenor, and that if it be dishonoured and the
necessary proceedings on dishonour be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser who may be compelled to pay it.
SECTION 65. WARRANTY; WHERE NEGOTIATION BY DELIVERY, ETC.
Every person negotiating an instrument by delivery or by qualified

indorsement warrants:
a.) that the instrument is genuine and in all respects what it purports it to be;
b.) that he has good title to it.
c.) that all prior parties had capacity to contract
xxx
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.
2002
Topic: Negotiability
Question:
Which of the following stipulations or features of a promissory note affect or do not affect its
negotiability , assuming that the promissory note is otherwise negotiable?
a.) The date of the promissory note is February 30, 2002
b.) Promissory note bears interest payable on the last day of each calendar quarter at a rate
equal to 5% above the then prevailing 91 day Treasury Bill rate as published at the beginning
of each calendar quarter
c.) The promissory note gives the maker the option to make payment either in money or in
quantity of palay or equivalent value
d.) The promissory note 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 in 30 days
Suggested Answer:
a.) NOT AFFECTED- date is not one of the requirements of negotiability

b.) NOT AFFECTED- interest is to be computed at a particular time and is determinable. It does
not make the sum uncertain or promise unconditional
c.) AFFECTED- giving the maker the option renders the promise unconditional
d.) NOT AFFECTED- giving the option to the holder does not make the promise conditional
SECTION 1. FORM OF NEGOTIABLE INSTRUMENT
An instrument to be negotiable must conform to the following

requirements:
(a) It must be in writing and signed by the maker;
(b) Must contain an unconditional promise to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer;

Topic: Requisites
Question:
MP bought a used cellphone from JR. JR preferred cash but MP is a friend so JR accepted MR’s
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 handprinted notation:
“MP will pay JR ten thousand pesos (P10,000) in payment
for his cellphone 1 week from today.”
Below this notation, MP’s signature with “8/1/00” next to it, indicating the date of the promissory note.
When JR presented MP’s 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.
Suggested Answer:
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 NIL.
An instrument to be negotiable must conform to the following requirements:
(b) Must contain an unconditional promise to pay a sum certain in money;
Question:
TH is an indorsee of a promissory note that simply states:
“Pay to Juan Tan or order P400”
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 services rendered to SH, who in turn received the note from Juan Tan
as payment for prepaid card worth P450. 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 NIL and therefore does not enjoy the rights and protection under the
statute. TH asks for your advice specially in connection with the note being undated and not mentioning
a place of payment and any consideration. What would your advice be?
Suggested Answer:
The fact that the instrument is undated and does not mention the place of payment does not militate
against it being negotiable. The date and place of payment are not material particulars required to make
an instrument negotiable.
SECTION 6. OMISSIONS; SEAL; PARTICULAR MONEY.
The validity and negotiable character of an instrument are not

affected by the fact that-
(a) It is not dated; or
xxx
(c) Does not specify the place where it is drawn or the place where it
is payable;
Topic: Kinds of Negotiable Instruments; Words of negotiability
Question:
a.) Define the following:

1.) A negotiable promissory note
2.) A bill of exchange
3.) Check
b.) You are Pedro Cruz, draft the appropriate contract language for
1.) Your negotiable promissory note
2.) Check each containing the essential elements of negotiable instrument
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. (Section 1, NIL)
2.) A bill of exchange is an unconditional promise 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 of determinable future time a sum certain in money or order to
bearer. (Section 126, NIL)
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 (10,000) thirty (30) days from date hereof.
Signed, Pedro Cruz

To PNB, Escolta Branch
Topic: Parties; Holder in Due Course; Indorsement in Blank
Question:
a.) AB issued a promissory note for P1000 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 2
cavans of rice. AB therefore paid GH P1000 on the same date.
On September 15, 2002, EF discovered that the note of AB was not in his possession and he even 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?
b.) As a sequel to the same facts narrated above, EF, out of pity for AB who had already paid P1000 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?
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 the possession thereof.
Section Instrument must be exhibited
The instrument must be exhibited to the person from whom

payment is demanded, and when it is paid must be delivered up to
the party paying it.
2003
Topic: Accommodation Party
Question:
Susan borrowed P500,000.00 from XYZ Bank which required her, together with Rose 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?
Suggested Answer:
Rose is an accommodation party pursuant to Section 29 of the Negotiable Instruments Law. Absence of
a consideration is in the nature of an accommodation. Defense of the absence of a consideration
cannot be validly interposed by the accommodation party against a holder in due course.
Topic: Accommodation Party
Question:
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 of Estafa.
To settle the case extra-judicially, Juan Sy paid the sum of P20,000.00, and for the balance of P5,000.00,
he executed a promissory note for the said amount with Ben Lopez as an accommodation
party. However, Juan Sy failed to pay the balance.
1) What is the liability of Ben Lopez as accommodation party?
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 P5,000.00
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 accommodated party.
2) Juan Sy liable to the extent of P5,000.00 in the hands of the 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.
Sec. 29. LIABILITY OF AN ACOMMODATION PARTY –
An accommodation party is one who has signed the instrument as

maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only
an accommodation party.
2004
Topic: Forged Signature
Question:
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. 00 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 money from the bank?
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 CS. 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.
Sec. 23. FORGED SIGNATURE; EFFECT.
When a signature is forged or made without the authority of the person

whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
Topic: Crossed Checks vs Cancelled Checks
Question:
Distinguish clearly crossed checks from cancelled checks.
Answer:
A crossed check is one with two parallel lines drawn diagonally across its face or across a corner thereof.
On the other hand, a cancelled check is one marked or stamped “paid” and/or “cancelled” by or on behalf
of a drawee bank to indicate payment thereof.
Topic: Blank Negotiable Instrument
Question:
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 all 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.
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
reasonable time.
Sec. 14. BLANKS, WHEN MAY BE FILLED-
Where the instrument is wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up the blanks therein. And
a signature on a blank paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. In order, however, that any such
instrument when completed may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
2005
Topic: Negotiability of an Instrument
Question:
What is a negotiable instrument? Give the characteristics of a negotiable instrument
ANSWER:
A 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 so 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
Instruments Law to be considered negotiable.
The characteristics of a negotiable instrument are:
Negotiability- That quality or attribute whereby a bill, note or check passes or may pass from hand to
hand, similar to money, so as to give the holder in due course the right to hold the instrument and
collect the sum payable for himself free from defenses.
Accumulation of Secondary Contracts as they are transferred from one person to another.
2007
Topic: Negotiability of an Instrument
Question:
State and explain whether the following are negotiable instruments under the Negotiable Instruments
Law:
(i) Postal Money Order;
(ii) A certificate of time deposit which states “This is to certify that bearer has deposited in this bank the
sum of FOUR THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after date.”
(iii) Letters of credit;
(iv) Warehouse receipts;
(v) Treasury warrants payable from a specific fund.
ANSWER:
 A postal money order is not a negotiable instrument because of the conditions appearing at the
back thereof, thereby making the order conditional, contrary to Section 1 of NIL.
 A certificate of time deposit is a negotiable instrument, because it is an acknowledgment in

writing by the bank of the amount of the deposit with a promise to repay the same to the
depositor or bearer thereof at a specific time.
 Letters of credit are non-negotiable because it is not payable to order or bearer and is generally
conditional; therefore, it does not comply with Sec.1 of the NIL
 Warehouse receipts are not negotiable instrument, because their subject matter is things or
goods, and not a sum certain in money as required by Sec.1 of the NIL.
 Treasury warrants payable from a specific funds are not negotiable instruments as they are
payable out of a particular fund which may or may not exist, thereby making the order
conditional, in contravention of Sec. 1 of the NIL.
An instrument to be negotiable must conform to the following

requirements:
(b) Must contain an unconditional promise to pay a sum certain in

money;
(c) Must be payable on demand, or at a fixed or determinable future

time;

Topic: Negotiable documet vs Negotiable Instrument
Question: Distinguish a negotiable document from a negotiable instrument.
Topic: Accomodation Party
Question:
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.
Answer.
Dagul is not an accommodation party. An accommodation party is one who signs the instrument as a
maker, drawer, or indorser, without receiving any valuable consideration and for the purpose of lending
his name or credit to another.
Sec. 29. LIABILITY OF AN ACOMMODATION PARTY –
An accommodation party is one who has signed the instrument as maker,

drawer, acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an
Topic: Crossed Check; Irregular and General Indorser
Question:
A.) What is a crossed check?
B.) What are the effects of crossing a check? Explain.
C.) Distinguish an irregular indorser from a general indorser.
Answer:
A.)
A crossed check is a check with two parallel lines, written diagonally on the upper right corner thereof.
B.)
Jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check
may not be encashed but only deposited in the bank; (b) the check may be negotiated only once —
to one who has an account with a bank; (c) and the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course.
C.)
An irregular indorser, not otherwise a party to the instrument, places his signature thereon in blank
before delivery to add credit thereto. A general indorser is a regular party to the instrument like a maker,
drawer or acceptor and he signs upon delivery of the instrument. While an irregular indorser signs for
accommodation, a regular indorser signs for valuable consideration.
Sec. 64. LIABILITY OF AN IRREGULAR INDORSER. –
Where a person, not otherwise a party to an instrument, places thereon his signature in
blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If
the instrument is payable to the order of a third person, he is liable to the payee and to all
subsequent parties. (b) If the instrument is payable to the order of the maker or drawer, or
is payable to bearer, he is liable to all parties subsequent to the maker or drawer. (c) If he
signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.
Sec. 66. LIABILITY OF A GENERAL INDORSER
Every indorser who indorses without qualification, warrants to all subsequent holders in due
course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both,
as the case may be, 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 it.
Topic: Blank Negotiable Instrument
Question:
Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to take
Brad’s life if he failed to pay. Brad and Pete went to see Señorita Isobel, Brad’s 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, Señorita 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 Señorita Isobel set up against Pete? Explain.
Suggested Answer:
Senorita Isobel can raise the personal defense of breach of trust against Pete that Brad’s authority to fill
up the amount of the promissory note was limited to P10,000.00. Pete is not a holder in due course as he was
present when Brad asked Senorita Isobel to sign the promissory note for P10, 000.00. Hence, Pete was
aware of the infirmity of the instrument.
Sec. 14. BLANKS; WHEN MAY BE FILLED
Where the instrument is wanting in any material particular, the person in

possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount. In order,
however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time. But if
any such instrument, after completion, is negotiated to a holder in due course, it is
valid and effectual for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given and within a
reasonable time.
2006
Topic: Forged Checks
Question:
Discuss the legal consequences when a bank honors a forged check.
Answer:
A bank, which honors a check wherein the drawer’s signature was forged, must bear the loss, because it
has the legal duty to ascertain that the drawer’s signature is genuine before encashing a check. The
liability chain ends with the drawee bank.
On the other hand, if the drawee bank pays under forged instrument, the drawee bank is still liable to
the payee as it has guaranteed the genuineness of all prior indorsements. However, the drawee bank
may generally pass liability back through the collection chain to the party who obtained the check from the
forger and from the forger himself (Associated Bank vs. CA, 252 SCRA 620).
Topic: Blank Instruments; Incomplete but undelivered
Question:
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?
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?
ANSWER:
Yes. Jun is liable to Marie, as she is a holder in due course. Pursuant to Section 14 of the
negotiable Instruments Law, in order that an incomplete instrument, when completed, may be enforced
against any person who became a party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within reasonable time. However, if any such
instrument, after completion, is negotiated to a holder in due course, is valid and effectual for all
purposed in his hands, and he may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.
Considering that Marie accepted the check in good faith and for value, she is a holder in due course,
who has the right to enforce payment of the check for the full amount thereof against Jun. that the
blank check was filled up not in accordance with the authority given is only a personal defense that cannot be
used against a holder in due course.
Sec. 14. BLANKS; WHEN MAY BE FILLED
Where the instrument is wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as
such for any amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and within a reasonable time. But if
any such instrument, after completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly
in accordance with the authority given and within a reasonable time.
Question:
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?
ANSWER:
No. Section 15 of the Negotiable Instruments Law provides that “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 whose signature was placed thereon before delivery”. The
want of delivery of an incomplete instrument is a real defense available against any holder, including a
holder in due course.
SECTION 15. INCOMPLETE INSTRUMENT NOT DELIVERED
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 whose signature was placed thereon before delivery.
2007
QUESTION: (10%)
R issued a check for P1M which he used to pay S for killing his political enemy.
a.Can the check be considered a negotiable instrument?
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 instrument (Sec. 1,
NIL). It merely constitutes a defect of title (Sec. 55, NIL).
Section 1. Form of negotiable instruments. - An Sec. 55. When title defective. - The title of a
instrument to be negotiable must conform to the person who negotiates an instrument is
following defective within the meaning of this Act
requirements:chanroblesvirtuallawlibrary when he obtained the instrument, or any
(a) It must be in writing and signed by the maker signature thereto, by fraud, duress, or force
or drawer; and fear, or other unlawful means, or for an
(b) Must contain an unconditional promise or illegal consideration, or when he negotiates
order to pay a sum certain in money; it in breach of faith, or under such
(c) Must be payable on demand, or at a fixed or circumstances as amount to a fraud.
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
b.Does S. have a cause of action against R in case of dishonor by the drawee bank?
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 (Sec. 58, NIL).
Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course,
a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not himself a party to any fraud or illegality
affecting the instrument, has all the rights of such former holder in respect of all parties prior to the
latter.
c.If S negotiated the check to T, who accepted it in good faith and for value, may R be held secondarily
liable by T?
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 can not raise the defense of illegality of the consideration, because T took the check free
from the defect of title of S (Sec. 57, NIL).
Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
QUESTION: (10%)
Alex deposited goods for which Billy, warehouseman, issued a negotiable warehouse receipt wherein
the goods were deliverable to Alex or order. Alex negotiated the receipt to Caloy. Thereafter, Dario, a
creditor secured judgment against Alex and served notice of levy over the goods on the
warehouseman.
a.To whom should the warehouseman deliver the goods upon demand?
ANSWER:
The warehouse man should deliver the goods upon demand to Caloy who is a holder of the receipt in
good faith and for value. The goods can not be levied upon by the creditor of Alex after it was
negotiated to Caloy (Sec. 25, NIL)
Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable
on demand or at a future time.
b. Would you answer be the same if the warehouseman issued a non-negotiable warehouse receipt?
ANSWER:
No, my answer would not be the same if the warehouse man issued a non-negotiable warehouse
receipt. In such case, the warehouseman should deliver the goods to Dario, if the notice of levy was
served on the warehouseman prior to the notification of the warehouseman by Alex or Caloy of the
transfer of the non-negotiable receipt. In such case, the title of Caloy would be defeated by the notice of
levy by Dario (Sec. 42, Warehouse Receipts Law)
2008
QUESTION:
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:
A party may hold a subsequent party liable in the following instances:
(1) in case of an accommodated party; and
(2) in case of an acceptor for honor.
An accommodation party may hold the party accommodated liable to him, even if the party
accommodated is a subsequent party. The relation between them is that of a principal and a surety
(Philippine National Bank v Maza (1925).
For the same reason, an acceptor for honor may hold the party for whose honor he has accepted a bill
of exchange liable to him (Sec. 161 & 165, NIL). A prayer for honor is subrogated to the rights of the
holder as regards the party for whose honor he paid and all parties liable to the latter (Sec. 175, NIL)
Sec. 161. When bill may be accepted for honor. - When a bill of exchange has been protested for dishonor
by non-acceptance or protested for better security and is not overdue, any person not being a party
already liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for
the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn.
The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has
been an acceptance for honor for one party, there may be a further acceptance by a different person for
the honor of another party.
Sec. 165. Acceptance for honor.- The acceptor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his acceptance provided it shall not have been paid by
the drawee and provided also that it shall have been duly presented for payment and protested for non-
payment and notice of dishonor given to him.
Sec. 175. Effect on subsequent parties where bill is paid for honor. - Where a bill has been paid for honor,
all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is
subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose
honor he pays and all parties liable to the latter.
QUESTION:
How does the “shelter principle” embodied in the Negotiable Instruments Law operate to give the rights
of a holder-in-due 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 in the hands of a holder other than a holder in due course, a
negotiable instrument is subject to the same defense as if it were non-negotiable. This principle is
extended to a holder who is not himself a holder in due course but derives his title from a holder in due
course, provided, he himself is not a party to any fraud or illegality affecting the instrument. (See Sec.
58, NIL)
Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a
negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives
his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in respect of all parties prior to the latter.
QUESTION:
AB Corporation drew a check for payment to XY Bank. The check was given to an officer of AB
Corporation who was instructed to 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 Corporation’s account. AB Corporation came to know of the
officer’s fraudulent act after he absconded. AB Corporation asked XY Bank to credit 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:
If I were the judge, I will consider the ff issues:

(1) Whether the check was a complete instrument;
(2) whether the check has been delivered; and
(3) whether AB Corporation can be held liable for the amount of the check.
b) How would you decide the case? (2%)
SUGGESTED ANSWER:
The check was an incomplete instrument in as much as the name of the payee was not written by the
drawer, AB Corp. However, the same instrument has been delivered by AB to its officer. Thus, the check
became binding on AB Corp as drawer thereof. An incomplete instrument, if delivered, as in this case,
creates a liability on the part of a drawer. Therefore, AB Corporation cannot ask XY Bank to recredit the
amount of the check to his account.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And
a signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in accordance with
the authority given and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable
time.
QUESTION:
Pancho drew a check to Bong and Gerard jointly. Bong indorsed the check and also forged Gerard’s
indorsement. The payor bank paid the check and charged Pancho’s account for the amount of the check.
Gerard received nothing from the payment.
a) Pancho asked the payor bank to credit his account. Should the bank comply? Explain fully. (3%)
SUGGESTED ANSWER:
Yes, the bank should recredit the full amount of the check to the account of Pancho. Considering that
the check was payable to Bong and Gerard jointly, the indorsement of Gerard was necessary to
negotiate the check pursuant to Sec. 41, NIL.
Since Bong forged the signature of Gerard without authority, the indorsement was wholly inoperative.
(RECALL: Sec. 23, NIL- Forged Signature; Effects)
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order
of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has
Since Bong forged
authority the for
to indorse signature of Gerard without authority, the indorsement was wholly inoperative.
the others.
QUESTION:
b) Based on the facts, was Pancho as drawer discharged on the instrument? Why? (2%)
SUGGESTED ANSWER:
Pancho was not discharged on the instrument, because the payment was not in due course.
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:chanroblesvirtuallawlibrary

(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable
on the instrument is discharged:chanroblesvirtuallawlibrary
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily
liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's
right to enforce the instrument unless made with the assent of the party secondarily liable or unless the
right of recourse against such party is expressly reserved.
RECALL: Sec. 23, NIL- Forged Signature; Effects:

- IT IS WHOLLY INOPERATIVE;
- NO RIGHT TO RETAIN THE INSTRUMENT OR TO MAKE A DISCHARGE THEREOF; and
- NO RIGHT TO ENFORCE PAYMENT.
2009
Question:
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 Lorenzo’s
paramour.
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 husband’s 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.
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) 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. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect
of title of prior parties, and free from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against all parties liable thereon.
[b] Does the illicit cause or consideration adversely affect the negotiability of the bill? Explain. (3%)
SUGGESTED ANSWER:
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 NIL< the bill of exchange is a negotiable instrument. Under Sec.24,
NIL, “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.”
QUESTION:
TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false. Explain your answer in
not more than two (2) sentences. (5%)
xxx
[d] A document, dated July 15, 2009, that reads: “Pay to X or order the sum of P5,000.00 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 Sec. 1, NIL. (Note: this answer presumes
there is a drawee)
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following
requirements:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future
time, within the meaning of this Act, which is expressed to be payable:chanroblesvirtuallawlibrary
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the
time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure
the defect.
[e] “A bank is bound to know its depositor’s 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 bank that is held liable for the loss.
PNB vs Quimpo 158 SCRA 582 : “The prime duty of a bank is to ascertain the genuineness of the
signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable
business prudence in accepting and cashing a check presented to it. A bank is bound to know the
signatures of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor
whose name was forged. This rule is absolutely necessary to the circulation of drafts and checks, and is
based upon the presumed negligence of the drawee in failing to meet its obligation to know the
signature of its correspondent.”
QUESTION:
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 15 checks received from various
customers who bought merchandise from his store. The checks were duly indorsed by Gaudencio’s customers.
The Deed of Assignment contains the following 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 (3%) of the total amount unpaid, for the period of delay until the same is fully paid.”
When the checks became due, BFC deposited them for collection, but the drawee banks dishonored all the
checks for one of the following 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.
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 Gaudencio’s defenses tenable? Explain. (5%)
SUGGESTED ANSWER:
No, Gaudencio’s defenses are untenable. The cause of action of BFC was really on the contract of loan, with the
checks merely serving as collateral to 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 can not be paid by the
obligors (Velasquez v Solidbank Corporation [2008])
BAR QUESTIONS
2010-2013
Bendejo, Franklin
Lachica, Olan Dave
Lim, Khen
Gutierez
2010 MERCANTILE LAW BAR QUESTIONS
VIII
Marlon deposited with LYRIC Bank a money market placement of P1 million for a term of 31 days. On maturity
date, one claiming to be Marlon called up the LYRIC Bank account officer and instructed him to give the
manager’s check representing the proceeds of the money market placement to Marlon’s girlfriend Ingrid.
The check, which bore the forged signature of Marlon, was deposited in Ingrid’s 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 two banks.
ANSWERS: Since the money market placement 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 check bearing the forged indorsement, when it presented the check to LYRIC Bank.
It should be lliable to it. However, since the insurance of the was attended wit the negligence of LYRIC Bank, it
should share the loss with YAMAHA Bank on fifty percent(50%) basis.(allied banking corp. v. Lim Sio wan 549 S
504)
2011 Mercantile law Bar questions
3) A writes a promissory note in favor of his creditor, B. It says: "Subject to my option, I promise to pay B Php1
Million or his order or give Php1 Million worth of cement or to authorize him to sell my house worth Php1
Million. Signed, A." Is the note negotiable?
(A) No, because the exercise of the option to pay lies with A, the maker and debtor.
Sec. 5(d) of NIL: gives the holder an election to require something to be done in lieu of payment of money.
(B) No, because it authorizes the sale of collateral securities in case the note is not paid at maturity.
(C) Yes, because the note is really payable to B or his order, the other provisions being merely optional.
(D) Yes, because an election to require something to be done in lieu of payment of money does not affect
negotiability.
(5) M makes a promissory note that states: "I, M, promise to pay Php5,000.00 to B or bearer. Signed, M." M
negotiated the note by delivery to B, B to N, and N to O. B had known that M was bankrupt when M issued the
note. Who would be liable to O?
(A) M and N since they may be assumed to know of M's bankruptcy
(B) N, being O's immediate negotiator of a bearer note
Sec. 65 of NIL: every person person negotiating an instrument by delivery or by a qualified indorsement
warrants: par.d that he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee. The provisions of subdivision © of this section do not apply to a person negotiating public
or corporation securities other than bill and notes.
(C) B, M, and N, being indorsers by delivery of a bearer note
(D) B, having known of M's bankruptcy
(8) A negotiable instrument can be indorsed by way of a restrictive indorsement, which prohibits further
negotiation and constitutes the indorsee as agent of the indorser. As agent, the indorsee has the right, among
others, to
(A) demand payment of the instrument only.
(B) notify the drawer of the payment of the instrument.
(C) receive payment of the instrument.
Sec. 37 par. A :a restrictive indorsement confers upon the indorsee the right :
a. to receive payment of the instrument.
But a;; subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.
(D) instruct that payment be made to the drawee
(9) Under the Negotiable Instruments Law, a signature by procuration operates as a notice that the agent has
but a limited authority to sign. Thus, a person who takes a bill that is drawn, accepted, or indorsed by
procuration is duty-bound to inquire into the extent of the agent's authority by:
(A) examining the agent’s special power of attorney.
(B) examining the bill to determine the extent of such authority.
Sec. 21of NIL: a signature by “procuration: operates as notice that the agent has but a limited authority to sign
and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.
(C) asking the agent about the extent of such authority.
(D) asking the principal about the extent of such authority.

10) Under the Negotiable Instruments Law, if the holder has a lien on the instrument which arises either from a
contract or by implication of law, he would be a holder for value to the extent of
(A) his successor's interest.
(B) his predecessor's interest.
(C) the lien in his favor.
Sec. 27 where the holder has alien on the instrument, the holder is deemed a holder for value in respect to all
parties who become such prior to that time.
(D) the amount indicated on the instrument's face
(13) X executed a promissory note with a face value of Php50,000.00, payable to the order of Y. Y indorsed the
note to Z, to whom Y owed Php30,000.00. If X has no defense at all against Y, for how much may Z collect from
X?
(A) Php20,000.00, as he is a holder for value to the extent of the difference between Y's debt and the value of
the note.
(B) Php30,000.00, as he is a holder for value to the extent of his lien.
(C) Php50,000.00, but with the obligation to hold Php20,000.00 for Y's benefit.
Sec.60 the maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor and
admits the existence of the payee and his the capacity to indorse.
(D) None, as Z's remedy is to run after his debtor, Y.
16) P sold to M 10 grams of shabu worth Php5,000.00. As he had no money at the time of the sale, M wrote a
promissory note promising to pay P or his order Php5,000. P then indorsed the note to X (who did not know
about the shabu), and X to Y. Unable to collect from P, Y then sued X on the note. X set up the defense of
illegality of consideration. Is he correct?
(A) No, since X, being a subsequent indorser, warrants that the note is valid and subsisting.
(B) No, since X, a general indorser, warrants that the note is valid and subsisting.
Sec. 66 every indorser who indorses without qualification , warrants to all subsequent holders in due course.
Par.b that the instrument is at the time if his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, It shall be accepted or paid or both as the case may be ,
according to its tenor and that if it be dishonored and the necessary proceeding 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 it.
(C) Yes, since a void contract does not give rise to any right.
(D) Yes, since the note was born of an illegal consideration which is a real defense.
(18) A holder in due course holds the instrument free from any defect of title of prior parties and free from
defenses available to prior parties among themselves. An example of such a defense is -
(A) fraud in inducement.
Sec.58 in the hands of any holder in due course, a negotiable instrument is subject to the same defenses as if it
were non negotiable. But a holder who derives his title through a holder in due course and who is not himself a
party to any fraud or illegally affecting the instrument has all the rights of such former holder in respect of all
parties prior to the latter.
Shelter principle.
(B) duress amounting to forgery.
(C) fraud in essecontractus.
(D) alteration.
(24) X is the holder of an instrument payable to him (X) or his order, with Y as maker. X then indorsed it as
follows: "Subject to no recourse, pay to Z. Signed, X." When Z went to collect from Y, it turned out that Y's
signature was forged. Z now sues X for collection. Will it prosper?
(A) Yes, because X, as a conditional indorser, warrants that the note is genuine.
(B) Yes, because X, as a qualified indorser, warrants that the note is genuine.
Sec.38 .qualified indorsement- a qualified indorsement constitutes the indorser a mere assignor of the title to
the instrument. It may be made by adding to the endorser’s signature the words without recourse or any words
of similar import. Such an indorsement does not impair the negotiable character of the instrument.
(C) No, because X made a qualified indorsement.
(D) No, because a qualified indorsement does not include the warranty of genuineness
(25) A bill of exchange has T for its drawee, U as drawer, and F as holder. When F went to T for presentment, F
learned that T is only 15 years old. F wants to recover from U but the latter insists that a notice of dishonor must
first be made, the instrument being a bill of exchange. Is he correct?
(A) Yes, since a notice of dishonor is essential to charging the drawer.
(B) No, since T can waive the requirement of notice of dishonor.
(C) No, since F can treat U as maker due to the minority of T, the drawee.
Sec.130. When bill may be treated as promissory note – where in a bill the drawer and drawee are the same
person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may
treat the instrument at his option either as a bill of exchange or as a promissory note.
(D) Yes, since in a bill of exchange, notice of dishonor is at all times required
(28) X, drawee of a bill of exchange, wrote the words: "Accepted, with promise to make payment within two
days. Signed, X." The drawer questioned the acceptance as invalid. Is the acceptance valid?
(A) Yes, because the acceptance is in reality a clear assent to the order of the drawer to pay.
Sec.132 Acceptance; how made, by and so forth- the acceptance of a bill is the signification by the drawee of
assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not
express that the drawee will perform his promise by any other means than the payment.
(B) Yes, because the form of the acceptance is really immaterial.
(C) No, because the acceptance must be a clear assent to the order of the drawer to pay.
(D) No, because the document must not express that the drawee will perform his promise within two days.
(30) D, debtor of C, wrote a promissory note payable to the order of C. C's brother, M, misrepresenting himself
as C’s agent, obtained the note from D, then negotiated it to N after forging C's signature. N indorsed it to E,
who indorsed it to F, a holder in due course. May F recover from E?
(A) No, since the forgery of C's signature results in the discharge of E.
(B) Yes, since only the forged signature is inoperative and E is bound as indorser.
Sec. 23 Forged signature; effect of- when a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative and no right to retain the instrument or to give a
discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under
such signature unless the party against whom it is sought to enforce such right is precluded from setting up the
(C) No, since the signature of C, the payee, was forged.
(D) Yes, since the signature of C is immaterial, he being the payee.
(36) If the drawer and the drawee are the same person, the holder may present the instrument for payment
without need of a previous presentment for acceptance. In such a case, the holder treats it as a
(A) non-negotiable instrument.
(B) promissory note.
Sec. when bill may be treated as promissory note.- where in a bill the drawer and drawee are the same person
or where the drawee isa fictitious person or a person not having capacity to contract the holder may treat the
instrument at his option either as a bill of exchange or as a promissory note.
(C) letter of credit.
(D) check.
(37) D draws a bill of exchange that states: "One month from date, pay to B or his order Php100,000.00. Signed,
D." The drawee named in the bill is E. B negotiated the bill to M, M to N, N to O, and O to P. Due to non-
acceptance and after proceedings for dishonor were made, P asked O to pay, which O did. From whom may O
recover?
(A) B, being the payee
(B) N, as indorser to O
(C) E, being the drawee
(D) D, being the drawer
Sec.61 the drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse
and engages that on due presentment, the instrument will 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 it. But the drawer may insert
in the instrument an express stipulation negativing or limiting his own liability to the holder.
(41) Any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to
enforce the instrument results in the discharge of the party secondarily liable unless made with the latter's
consent. This agreement refers to one which the holder made with the
(A) principal debtor.
Sec. 120 par E-a person secondarily liable on the instrument is discharged.
(e) by a release of the principal debtor unless the holders right of recourse against the party secondarily liable is
expressly reserved.
(B) principal creditor.
(C) secondary creditor.
(D) secondary debtor.
(45) A bill of exchange has D as drawer, E as drawee and F as payee. The bill was then indorsed to G, G to H, and
H to I. I, the current holder presented the bill to E for acceptance. E accepted but, as it later turned out, D is a
fictitious person. Is E freed from liability?
(A) No, since by accepting, E admits the existence of the drawer.
Sec.62- the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance and admits:
Par.(a) the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the
instrument
(B) No, since by accepting, E warrants that he is solvent.
(C) Yes, if E was not aware of that fact at the time of acceptance.
(D) Yes, since a bill of exchange with a fictitious drawer is void and inexistent.
(46) Due to his debt to C, D wrote a promissory note which is payable to the order of C. C's brother, M,
misrepresenting himself as agent of C, obtained the note from D. M then negotiated the note to N after forging
the signature of C. May N enforce the note against D?
(A) Yes, since D is the principal debtor.
(B) No, since the signature of C was forged.
Sec. 23 when a signature is forged or made without authority of the person whose signature it purports to be. It
is wholly inoperative and no right to retain the instrument or to give a discharge therefor or to enforce payment
thereof against any party thereto can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.
(C) No, since it is C who can enforce it, the note being payable to the order of C.
(D) Yes, since D, as maker, is primarily liable on the note.
(50) M, the maker, issued a promissory note to P, the payee which states: "I, M, promise to pay P or order the
amount of Php1 Million. Signed, M." P negotiated the note by indorsement to N, then N to O also by
indorsement, and O to Q, again by indorsement. But before O indorsed the note to Q, O's wife wrote the figure
"2" on the note after "Php1" without O's knowledge, making it appear that the note is for Php12 Million. For
how much is O liable to Q?
(A) Php1 Million since it is the original tenor of the note.
(B) Php1 Million since he warrants that the note is genuine and in all respects what it purports to be.
(C) Php12 Million since he warrants his solvency and that he has a good title to the note.
(D) Php12 Million since he warrants that the note is genuine and in all respects what it purports to be.
Sec.66 par(b) every indorser who indorses without qualification, warrants to all subsequent holders in due
course:
(b) that the instrument is at the time of his indorsement, valid and subsisting. And in addition, he engages that
on due presentment, it shall be accepted or paid or both as the case may be, 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 it.
(52) Notice of dishonor is not required to be made in all cases. One instance where such notice is not necessary
is when the indorser is the one to whom the instrument is suppose to be presented for payment. The rationale
here is that the indorser
(A) already knows of the dishonor and it makes no sense to notify him of it.
Sec.114-notice of dishonor is not required to be given to the drawer in either of the following cases:
(a) where the drawer and drawee is the same person

(b) when the drawer is 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 has no right to expect or require that the drawee or acceptor will honor the instrument.
(e) Where the drawer has countermanded payment.
(B) is bound to make the acceptance in all cases.
(C) has no reason to expect the dishonor of the instrument.
(D) must be made to account for all his actions.
(59) Which of the following indorsers expressly warrants in negotiating an instrument that 1) it is genuine and
true; 2) he has a good title to it; 3) all prior parties have capacity to negotiate; and 4) it is valid and subsisting at
the time of his indorsement?
(A) The irregular indorser.
(B) The regular indorser.
(C) The general indorser.
Sec.66par(b) that the instrument is at the time of his indorsement is valid and subsisting.
(D) The qualified indorser.
(63) Forgery of bills of exchange may be subdivided into, a) forgery of an indorsement on the bill and b) forgery
of the drawer's signature, which may either be with acceptance by the drawee, or
(A) with acceptance but the bill is paid by the drawee.
(B) without acceptance but the bill is paid by the drawer.
(C) without acceptance but the bill is paid by the drawee.
Sec. 23- when a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative and no right to retain the instrument or to give a discharge therefor or to enforce
payment thereof against any party thereto can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.
(D) with acceptance but the bill is paid by the drawer.
(65) X found a check on the street, drawn by Y against ABC Bank, with Z as payee. X forged Z's signature as an
indorser, then indorsed it personally and delivered it to DEF Bank. The latter, in turn, indorsed it to ABC Bank
which charged it to the Y’s account. Y later sued ABC Bank but it set up the forgery as its defense. Will it
prosper?
(A) No, since the payee's signature has been forged.
(B) No, since Y’s remedy is to run after the forger, X.
(C) Yes, since forgery is only a personal defense.

(D) Yes, since ABC Bank is bound to know the signature of Y, its client.
Se.62 the acceptor by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature and his capacity and authority to draw the
instrument.
71) Can a drawee who accepts a materially altered check recover from the holder and the drawer?
(A) No, he cannot recover from either of them.
Sec.132- the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The
acceptance must be in writing and signed by the drawee. It must not express that the drawee. It must not
express that the drawee will perform his promise by any other means that the payment of money.
(B) Yes from both of them.
(C) Yes but only from the drawer.
(D) Yes but only from the holder
(72) The rule is that the intentional cancellation of a person secondarily liable results in the discharge of the
latter. With respect to an indorser, the holder's right to cancel his signature is:
(A) without limitation.
(B) not limited to the case where the indorsement is necessary to his title.
(C) limited to the case where the indorsement is not necessary to his title.
Sec. 120b-a person secondarily liable on the instrument is discharged

(b) by the intentional cancellation of his signature by the holder.
(D) limited to the case where the indorsement is necessary to his title
(75) X executed a promissory note in favor of Y by way of accommodation. It says: "Pay to Y or order the amount
of Php50,000.00. Signed, X." Y then indorsed the note to Z, and Z to T. When T sought collection from Y, the
latter countered as indorser that there should have been a presentment first to the maker who dishonors it. Is Y
correct?
(A) No, since Y is the real debtor and thus, there is no need for presentment for payment and dishonor by the
maker.
Sec80-presentment is not required in order to charge an indoser where the instrument was made or accepted
for his accommodation and he has no reason to expect that the instrument will be paid if presented.
(B) Yes, since as an indorser who is secondarily liable, there must first be presentment for payment and dishonor
by the maker.
(C) No, since the absolute rule is that there is no need for presentment for payment and dishonor to hold an
indorser liable.
(D) Yes, since the secondary liability of Y and Z would only arise after presentment for payment and dishonor by
the maker.
(85) A promissory note states, on its face: "I, X, promise to pay Y the amount of Php 5,000.00 five days after
completion of the on-going construction of my house. Signed, X." Is the note negotiable?
(A) Yes, since it is payable at a fixed period after the occurrence of a specified event.
(B) No, since it is payable at a fixed period after the occurrence of an event which may not happen.
Sec. 4-an instrument is payable at a determinable future time, within the meaning if this act, which s expressed
to be payable.
(c)on or at a fixed or determinable future time specified therein.
(C) Yes, since it is payable at a fixed period or determinable future time.
(D) No, since it should be payable at a fixed period before the occurrence of a specified event.
86) P sold to M a pair of gecko (tuko) for Php50,000.00. M then issued a promissory note to P promising to pay
the money within 90 days. Unknown to P and M, a law was passed a month before the sale that prohibits and
declares void any agreement to sell gecko in the country. If X acquired the note in good faith and for value, may
he enforce payment on it?
(A) No, since the law declared void the contract on which the promissory note was founded.
(B) No, since it was not X who bought the gecko.
(C) Yes, since he is a holder in due course of a note which is distinct from the sale of gecko.
Sec.52- a holder in due course is a holder who has taken the instrument under the following conditions:
(a)that it is complete and regular upon its face
(b) that be became the holder of it holder of it before it was overdue and without notice that it has been
previously dishonored, if such was the fact.
(c) that he took it in good faith and for value
(d) 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.
(D) Yes, since he is a holder in due course and P and M were not aware of the law that prohibited the sale of
gecko.
(87) P authorized A to sign a bill of exchange in his (P’s) name. The bill reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The bill was drawn on P. B indorsed the bill to C, C to D, and D to E.
May E treat the bill as a promissory note?
(A) No, because the instrument is payable to order and has been indorsed several times.
(B) Yes, because the drawer and drawee are one and the same person.
Sec. 130- where in a bill the drawer and drawee are the same person or where the drawee is fictitious person or
a person not having capacity to contract, the holder may treat instrument at his option either as a bill of
exchange or as a promissory note
(C) No, because the instrument is a bill of exchange.
(D) Yes, because A was only an agent of P
(88) Z wrote out an instrument that states: "Pay to X the amount of Php1 Million for collection only. Signed, Z." X
indorsed it to his creditor, Y, to whom he owed Php1 million. Y now wants to collect and satisfy X's debt through
the Php1 million on the check. May he validly do so?
(A) Yes, since the indorsement to Y is for Php1 Million.
(B) No, since Z is not a party to the loan between X and Y.
(C) No, since X is merely an agent of Z, his only right being to collect.
Sec.44-where any person is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability.
(D) Yes, since X owed Y Php1 Million.
(92) In a signature by procuration, the principal is bound only in case the agent acted within the actual limits of
his authority. The signature of the agent in such a case operates as notice that he has
(A) a qualified authority to sign.
(B) a limited authority to sign.
Sec21- A signature by procuration operates as notice that the agent has but a limited authority to sign and the
principal is bound only in case the agent in so signing acted within the actual limits of his authority.
(C) a special authority to sign.
(D) full authority to sign.
(94) A bill of exchange states on its face: "One (1) month after sight, pay to the order of Mr. R the amount of
Php50,000.00, chargeable to the account of Mr. S. Signed, Mr. T." Mr. S, the drawee, accepted the bill upon
presentment by writing on it the words "I shall pay Php30,000.00 three (3) months after sight." May he accept
under such terms, which varies the command in the bill of exchange?
(A) Yes, since a drawee accepts according to the tenor of his acceptance.
Sec.60- the maker of a negotiable by making it, engages that he will pay it according to its tenor and admits the
existence of the payee and his then capacity to indorse.
(B) No, since, once he accepts, a drawee is liable according to the tenor of the bill.
(C) Yes, provided the drawer and payee agree to the acceptance.
(D) No, since he is bound as drawee to accept the bill according to its tenor
95) May the indorsee of a promissory note indorsed to him "for deposit" file a suit against the indorser?
(A) Yes, as long as the indorser received value for the restrictive indorsement.
Sec.36-an indorsement is restrictive which either:
(a) prohibits the further negotiation of the instrument.

(b) Constitute the indorsee the agent of the indorser.
(c) Vests the title in the indorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement restrictive.
(B) Yes, as long as the indorser received value for the conditional indorsement.
(C) Yes, whether or not the indorser received value for the conditional indorsement.
(D) Yes, whether or not the indorser received value for the restrictive indorsement.
(96) X issued a check in favor of his creditor, Y. It reads: " Pay to Y the amount of Seven Thousand Hundred Pesos
(Php700,000.00). Signed, X". What amount should be construed as true in such a case?
(A) Php700,000.00.
(B) Php700.00.
(C) Php7,000.00.
Sec17-where the language of the instrument is ambiguous or there are omissions therein the following rules of
contruction apply
(a) where the sum payable is expressed in words and also in figures and there is discrepancy between the two,
the sum denoted by the words is the sum payable, but if the words are ambiguous or uncertain reference may
be had to the figures to fix the amount.
(D) Php700,100.00.
(99) P authorized A to sign a negotiable instrument in his (P’s) name. It reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The instrument shows that it was drawn on P. B then indorsed to C, C
to D, and D to E. E then treated it as a bill of exchange. Is presentment for acceptance necessary in this case?
(A) No, since the drawer and drawee are the same person.
(B) No, since the bill is non-negotiable, the drawer and drawee being the same person.
(C) Yes, since the bill is payable to order, presentment is required for acceptance.
(D) Yes, in order to hold all persons liable on the bill.
Sec.70-presentment for payment is not necessary in order to charge the person primarily liable on the
instrument, but if the instrument is by its terms payable at a special place and he is able and willing to pay it
there at maturity such ability and willingness are equivalent to a tender of payment upon his part. But except as
herein otherwise provided presentment for payment is necessary in order to charge the drawer and indorsers.
2012 MERCANTILE LAW BAR QUESTION.
X acted as an accommodation party in signing as a maker of a promissory note. Which phrase best completes
the sentence - This means that X is liable on the instrument to any holder for value:
a. for as long as the holder does not know that X is only an accommodation party.
b. even though the holder knew all along that X is only an accommodation party.
Sec.29- an accommodation party is one who has signed the instrument as make, drawer,acceptor or
indorser without receiving value therefor and for the purpose of lending his name to some other person.
such a person is liable on the instrument to holder for value, notwithstanding such holder at the time of
taking the instrument, knew him to be only an accommodation party.
c. for as long as X did not receive any consideration for acting as accommodation party.
d. provided X received consideration for acting as accommodation party.
X issued a promissory note which states, "I promise to pay Y or order Php100,000.00 or one (1) unit Volvo
Sedan." Which statement is most accurate?
a. The promissory note is negotiable because the forms of payment are clearly stated.
b. The promissory note is non-negotiable because the option as to which form of payment is with the
maker. Sec.5-an instrument which contains an order or promise to do any act in addition to the payment
of money is not negotiable
(d)gives the holder an election to require something to be done in lieu of payment of money.
c. The promissory note is an invalid instrument because there is more than one form of payment.
d. The promissory note can be negotiated by way of delivery
X issued a promissory note which states "I promise to pay Y or bearer the amount of HK$50,000 on or before
December 30, 2013." Is the promissory note negotiable?
a. No, the promissory note becomes invalid because the amount is in foreign currency.
b. Yes, the promissory note is negotiable even though the amount is stated in foreign currency.
Sec.2- the sum payable is a sum certain within the meaning of this act, although it is to be paid (d)with
exchange, whether at a fixed rate or at the current rate
c. No, the promissory note is not negotiable because the amount is in foreign currency.
d. Yes, the promissory note is negotiable because the Hong Kong dollar is a known foreign currency in the
Philippines.
X delivered a check issued by him and payable to the order of CASH to Y in payment for certain obligations
incurred by X in favor of Y. Y then delivered the check to Z in payment for certain obligations. Which statement is
most accurate?
a. Z canencash the check even though Y did not indorse the check.
Sec.30-an instrument is negotiated when it is transferred from one person to another in such manner as
to constitute the trabsferee the holder thereof. If payable to beare it is negotiaqted by delivery, if
payable to order, it is negotiated by the indorsement of the holder and completed by delivery.
b. Z cannot encash the check for lacking in proper endorsement.
c. Y is the only one liable because he was the one who delivered the check to Z.
d. The negotiation is not valid because the check is an instrument payable to order.
A stale check is a check -
a. that cannot anymore be paid although the underlying obligation still exists.
Sec.186-a check must be presented for payment within a reasonable time after its issue or the drawer
will be discharged from liability thereon to the extent of the loss caused by the delay.
b. that cannot anymore be paid and the underlying obligation under the check is also extinguished.
c. that can still be negotiated or indorsed so that whoever is the holder can
d. which has not been presented for payment within a period of thirty (30) days
In payment for his debt in favor of X, Y gave X a Manager's Check in the amount of Php100,000 dated May 30,
2012. Which phrase best completes the statement - A Manager's Check:
a. is a check issued by a manager of a bank for his own account.

b. is a check issued by a manager of a bank in the name of the bank against the bank itself for the account
of the bank.
G.R. No. L-16106 December 30, 1961
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK, ET AL., defendants,
THE FIRST NATIONAL CITY BANK OF NEW YORK, defendant-appelA cashier's check issued by a bank,
however, is not an ordinary draft. The latter is a bill of exchange payable demand. It is an order upon a
third party purporting to drawn upon a deposit of funds. Drinkall v. Movious State Bank, 11 N.D. 10, 88
N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler County State Bank (Tex. Com. App.) 277 S.W.
625, 42 A.L.R. 1347. A cashier's check is of a very different character. It is the primary obligation of the
bank which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its written promise
to pay upon demand (Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734)....lawphil.net A cashier's check is
a check of the bank's cashier on his or another bank. It is in effect a bill of exchange drawn by a bank on
itself and accepted in advance by the act of issuance (10 C.J.S. 409).
A cashier's check issued on request of a depositor is the substantial equivalent of a certified check and
the deposit represented by the check passes to the credit of the checkholder, who is thereafter a
depositor to that amount (Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala. 552).
A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in advance by
the act of issuance, is not subject to countermand by the payee after indorsement, and has the same
legal effects as a certificate deposit or a certified check (Walker v. Sellers, 77 So. 715, 201 Ala. 189).
c. is like any ordinary check that needs to be presented for payment also.
d. is better than a cashier's check in terms of use and effect.
7. Which phrase best completes the statement -- A check which is payable to bearer is a bearer instrument
and:
a.negotiation can be made by delivery only;
sec. 30-an instrument is negotiated when it is transferred from one person to another in such manner as to
constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery, if payable to order,
it is negotiated by delivery, if payable to order it is negotiated by the indorsement of the holder abd completed
by delivery.
b.negotiation must be by written indorsement;
c.negotiation must be by specific indorsement;
d.negotiation must be by indorsement and delivery.
8. As payment for a debt, X issued a promissory note in favor of Y but the promissory note on its face was
marked non-negotiable. Then Y instead of indorsing the promissory note, assigned the same in favor of Z to
whom he owed some debt also. Which statement is most accurate?
a.Z cannot claim payment from X on the basis of the promissory note because it is marked non-negotiable.
b.Z can claim payment from X even though it is marked non-negotiable.
Sec.5-an instrument which contains an order or promise to do any act in addition to the payment of money is
noy negotiable.
(d) gives the holder an election to require something to be done in lieu of payment of money.
c.Z can claim payment from Y because under the Negotiable Instrument Law, negotiation and assignment is one
and the same.
d.Z can claim payment from Y only because he was the endorser of the promissory note.
9. Negotiable instruments are used as substitutes for money, which means -
a.that they can be considered legal tender.
b.that when negotiated, they can be used to pay indebtedness.
Sec.2 –the sum payable is a sum certain within the meaning of this act, although it is to be paid:
(d) with exchange, whether at a fixed rate or at the current rate.
c.that at all times the delivery of the instrument is equivalent to delivery of the cash.
d.that at all times negotiation of the instruments requires proper indorsement.
10. The signature of X was forged as drawer of a check. The check was deposited in the account of Y and
when deposited was accepted by AAA Bank, the drawee bank. Subsequently, AAA Bank found out that the
signature of X was actually forged. Which statement is most accurate?
a. The drawee bank can recover from Y, because the check was deposited in his account.
b. The drawee bank can recover from X, because he is the drawer even though his signature was forged.
c. The drawee bank is estopped from denying the genuineness of the signature of the X, the drawer of the
check.
Gempesawv.sca
Gen Rule: drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer's account for the amount of said check
Exception: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.
Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive
indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual law library
(a) Prohibits further negotiation of the instrument; or
In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words
at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable.
However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any
indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not
authorize him to do so.
When it violated its internal rules that second endorsements are not to be accepted without the approval of its
branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it
contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence
drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement
for deposit even without the approval of the branch manager despite periodic inspection conducted by a team
of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to
its depositors
d. The drawee bank can recover from Y because as endorser he warrants the genuineness of the signature
11. A issued a check in the amount of Php20,000 payable to B. B endorsed the check but only to the extent
of Php1 0,000. Which statement is most accurate?
a. The partial indorsement is not a valid indorsement, although will result in the assignment of that part.
Sec.32-indorsement must be an indorsement of the entire instrument. An indorsement which purports to

transfer to the indorsee a part only of the amount payable or which purports to transfer the instrument to two
or more indorsees severally does not operate as a negotiation of the instrument. But where the instrument has
been paid in part, it may be indorsed as to the residue.
b. The partial indorsement will invalidate the whole instrument.
c. The endorsee will be considered as a holder in due course.
D. The partial indorsement is valid indorsement up to the extent of the Php10,000.
12. A promissory note which does not have the words "or order" or "or bearer" will render the promissory
note non-negotiable, and therefore -
a. it will render the maker not liable;
b. the note can still be assigned and the maker made liable;
sec.,1-an instrument to be negotiable must conform to the following requirements:
(a) it must be in writing and signed by the maker or drawer.

(b) Must contain an unconditional promise or order to pay a sum certain in money.
(c) Must be payable on demand or at a fixed or determinable future time.
(d) Must be payable to order or to bearer
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
c. the holder can become holder in due course;
d. the promissory note can just be delivered and the maker will still be liable
13. A check is -
a. a bill of exchange;
sec.126-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 money to order or to bearer.
b. the same as a promissory note;
c. is drawn by a maker;
d. a non-negotiable instrument.
14. A check was issued to Tiger Woods. But what was written as payee is the word "Tiger Woods". To validly
endorse the check -
a. Tiger Woods must sign his real name.
b. Tiger Woods must sign both his real name and assumed name.
c. Tiger Woods can sign his assumed name.
sec. 18-no person is liable on the instrument whose signature does not appear thereon except as herein
otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as
if had signed in his own name
d. the check has become non-negotiable
27. Y, as President of and in behalf of AAA Corporation, as a way to accommodate X, one of its stockholders,
endorsed the check issued by X. Which statement is most accurate?
a. It is an ultra vires act.
b. It is a valid indorsement.
Sec.22-the indorsement or assignment of the instrument by a corporation or by an infant passes the property
therein notwithstanding that from want of capacity the corporation or infant may incur no liability thereon.
c. The corporation will be held liable to any holder in due course.
d. It is an invalid indorsement.
29. A promissory note which is undated is presumed to be -
a. dated as of the date of issue;
sec. 11-where the instrument or an acceptance or any indorsement thereon is dated such date is deemed prima
facie to be the true date of the making, drawing, acceptance or indorsement as the case may be
b. dated as of the date of the first indorsement;
c. promissory note is invalid because there is no date;
d. dated on due date.
SET B
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%)
b. Who is liable on the check.The drawer or the indorser? Explain your answer. (5%)
A. 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 of NIL)
B. X, as drawer will be liable. As drawer, X engaged that on due presentment the check would be paid according
to the tenor and that if it is dishonored and he is given notice of dishonor, he will pay the amount to the
holder(Sec61 of NIL).
No notice of dishonor need be given to X if he is aware that he has insufficient funds on 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.
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%)
b. I promise to pay A or bearer Php100,000 plus the interest rate of ninety (90) – day treasury bills. (2%)
c. I promise to pay A or bearer the sum of Php100,000 if A passes the 2012 bar exams. (2%)
d. I promise to pay A or bearer the sum of Php100.000 on or before December 30, 2012. (2%)
e. I promise to pay A or bearer the sum of Php100,000. (2%)
A. Not negotiable. There is no unconditional promise to pay sum certain in money(sec.1(b) of NIL, as the promise
is to pay the amount out of a particular fund. i.e the inheretance from the father of the promissor.
B. Not negotiable. There is no unconditional promise to pay a sum certain in money. The promise to pay “ the
interest rate of 90 day treasury bills is vague bacause. 1st there are no 90 day treasury bills. (although there are
91, 182, 364 day bills.) the promise does not specify whether the interest rate is that established at the primary
market or secondary market . And third t-bills are conventionally quoted in terms of there discount rate rather
that their interest rate.
C. Not negotiable. The promise to pay is subject to a condition. i.e., that A will pass the 2012 bar exams.
(sec1(b). NIL)
D. Negotiable. It conforms fully with the requirements of negotiability under sec.1 of NIL. It is payable on
demand because the note does not express a time for its payment (sec.7(b) of NIL).
2013 MERCANTILE LAW BAR QUESTION
V. Arnold, representing himself as an agent of Brian for the sale of Brian's car, approached Dennis who appeared
interested in buying the car. At Arnold's prodding, Dennis issued a crossed check payable to Brian for P25,000.00
on the understanding that the check would only be shown to Brian as evidence of Dennis' good faith and
interest in buying the car. Instead, Arnold used the check to pay for the medical expenses of his wife in Brian's
clinic after Brian, a doctor, treated her.
Is Brian a holder in due course (HI DC)? (1%)
(A) Yes, Brian is a HIDC because he was the payee of the check and he received it for services rendered.
(B) Yes, Brian is a HIDC because he did not need to go behind the check that was payable to him.
(C) No, Brian is not a HIDC because Dennis issued the check only asevidence of good faith and interest in buying
the car.
(D) No, Brian is not a HIDC because Brian should have been placed on notice: the check was crossed in his favor
and Arnold was not the drawer
(E) No, Brian is not a HIDC because the requisite consideration to Dennis was not present.
VICENTE R. DE OCAMPO & CO vs. ANITA GATCHALIAN, ET AL., the payee acquired the check under
circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own
personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in
good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the
conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a
holder in due course thereof. the express provisions of the Negotiable Instruments Law pertinent to the matter
to find if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one who takes the
instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in
due course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the
time the instrument was negotiated to him "he had no notice of any . . . defect in the title of the person
negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due course.

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Negotiable Instruments Law (BAR QUESTIONS) |1

1976 BAR EXAMINATION

1977 BAR EXAMINATION

1978 BAR EXAMINATION

1979 BAR EXAMINATION

1980 BAR EXAMINATION

1981 BAR EXAMINATION

1982 BAR EXAMINATION

1984 BAR EXAMINATION

1985 BAR EXAMINATION

1986 BAR EXAMINATION

1987 BAR EXAMINATION

I. A promissory note reads as follows:

I. What is the test to determine whether an instrument is negotiable or not?

Checks; Crossed Check (1994)

1) What are the effects of crossing a check?

1) The effects of crossing a check are:

a. The check is for deposit only in the account of the payee

Checks; Crossed Check (1995)

Rule on the complaint of Dragon. Give your legal basis.

Checks; Crossed Check (1996)

What are the effects of crossing a check?

The effects of crossing a check are as follows:

a. The check may not be encashed but only deposited in a bank;

Checks; Crossed Check (1996)

Checks; Effect; Acceptance by the drawee bank (1998)

Checks; Effects; Alterations; Prescriptive Period (1996)

Checks; Liability; Drawee Bank (1995)

Checks; Material Alterations; Liability (1999)

Checks; Presentment (1994)

1) What is meant by “unreasonable time” as applied to presentment?

2) Is Gemma liable to the holder?

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

Forgery; Liabilities; Prior & Subsequent Parties (1990)

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?

Forgery; Liabilities; Prior & Subsequent Parties (1995)

Discuss the negotiability or non-negotiability of the following notes:

1) Manila, September 1, 1993

I promise to pay Pedro San Juan or order the sum of P2,500.

(Sgd.) Noel Castro

2) Manila, June 3, 1993

(Sgd.) Lito Villa

 The promissory note is negotiable as it complies with Sec 1, NIL.:

a. It must be in writing and signed by the maker or drawer;

c. Must be payable on demand, or at a fixed or determinable future time;

d. Must be payable to order or to bearer; and

d. With exchange, whether at a fixed rate or at the current rate; or

Negotiability; Holder in Due Course (1992)

Manila September 21, 1991.

Pay to the order of Reliable Finance Corporation. Automotive Company

By: (Sgd) Manager

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.

d. With exchange, whether at a fixed rate or at the current rate; or

a, That it is complete and regular upon its face;

c. That he took it in good faith and for value;