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Bar Questions in Negotiable Instrument

Summary of Bar Examination Cases
MERCANTILE LAW REVI EW
Negotiable I nstruments Law

GENERAL PRINCIPLES

A. THEORY

01. What are the requisites of a negotiable instruments? [1953, 1954, 1964, 1968, 1989, 1991, 1996,
Bar Examinations].
02. What constitutes a holder in due course? [1996, Bar Examinations].
03. Can a bill of exchange or a promissory note qualify as a negotiable instrument if -
a.It is not dated; or
b.The date 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 [1997, Bar Examinations].
04. A promissory note reads as follows: I promise to pay Gabriela Silangan P1,000.00 three years
after the unconditional withdrawal of the U.S. of its military bases in the Philippines. Discuss the
negotiability or non-negotiability of the note above [1966 Bar Examinations].
05. Can the payee in a promissory note be a holder in due course within the meaning of the
Negotiable Instruments Law? [2000 Bar Examinations].
06. How do you treat a negotiable instrument that is so ambiguous that there is a doubt whether it is
a bill or a note? [1999, Bar Examinations].
07. When a signature is so placed upon a negotiable instrument that it is not clear in what capacity
the person making the same intended to sign, what is his liability? [1946, Bar Examinations].
08. When a negotiable instrument contains the words I promise to pay and is signed by two or
more persons, what is their liability, joint or solidary? Explain [1946, Bar Examinations].


B. TESTS OF NEGOTIABILI TY

09. MP bought a used cellphone from J R. J R preferred cash but MP is a friend so J R accepted MPs
promissory note for P10,000.00. J R though of converting the note into cash by indorsing it to his
brother KR. The promissory note is a piece of paper with the following hand-printed notation: MP
WILL PAY J R P10,000.00 I N PAYMENT FOR HI S CELLPHONE ONE WEEK FROM TODAY. Below this
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notation is MPs signature with 8/1/00 next to it, indicating the date of the promissory note. When J R
presented MPs note to KR, the latter said it was not a negotiable instrument under the law and so
could not be a valid cash substitute. J R took the opposite view, insisting on the notes negotiability.
You are asked to referee . Which of the opposing views is correct? Explain [2000 Bar Examinations].

10. Perla bought a motor car payable in installments from Automotic Company for P250,000.00 with a
P50,000.00 downpayment. She executed a promissory note for the balance which reads:

For value received, I promise to pay Automotive Company or order at its office in Legaspi City, the
sum of P200,000.00 with interest at 12% per annum, payable in equal installments of P20,000.00 for
ten (10) months starting 21 October 2002.
SGD Perla
Manila, 21 September 2002

Automotive Company subsequently indorsed the note to Reliable Finance Corporation which financed
the purchase. Perla defaulted in the payment of her installments. Is the above promissory note a
negotiable instrument? Explain [1992 Bar Examinations].

11. Romeo had P100,000.00 in his current account at Matatag Banking Corporation. Romeo learned
that his enemy had hired a contract killer to liquidate him. Fearful of his life, he mailed to his fiance,
J uliet, a check for his P100,000.00 in the bank. The check was payable to J uliet 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. J uliet presented the check for payment but
the bank refused to honor it. Does J uliet have any right of action against the bank? Because of the
humiliation she suffered from the bank, J uliet broke off her engagement with Romeo. Does Romeo
have a right of action against the bank? Explain [1986 Bar Examination].

12. Explain whether or not the following instrument is negotiable.

P1,000.00 Manila, October 5, 1970
I acknowledge to have received from J ose Cruz one thousand pesos (P1,000.00) which I promise to
pay on demand or in five months from date with one percent interest per month payable within the
first five days of every month. If the interest is not paid when due, then both principal and interest
shall become due at the option of the holder.
SGD: Pedro Garcia
[1970 Bar Examination].

13. For value received, X executed a promissory note in favor of Y for P10,000.00 agreeing to pay
interest thereon but without specifying the rate thereof. Can Y collect interest on the note? Why?
Explain [1964 Bar Examination].
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DEFENSES

C. FAILURE/ABSENCE OF CONSI DERATION

14. I n payment of canned goods he had purchased, Pedro Flores of Cabanatuan drew a check upon
PNB for P1,000.00 payable to the order of Veraz and Co., the seller in Manila. He sent the check
without recourse to J uan Santos. The latter indorsed it in blank, for consideration, to Pablo Reyes,
who, in turn, sold it for P800.00, by delivery to Antonio Gomez. The canned goods were never
forwarded to Flores. Gomez presented the check to the bank, but payment was refused because
Reyes had not put his name on it. Is the bank right in so refusing? Why? I f Gomez gave due notice to
Veraz and Co., may he recover from the latter? May Gomez recover from Santos? Why? May he
recover from Reyes? Why? [1968 Bar Examination].

15. Eva issued to Imelda a check in the amount of P50,000.00 post-dated September 19, as security
for a diamond ring to be sold on commission. On September 15, Imelda negotiated the check to MT
Investment which paid the amount of P40,000.00 to her. Eva failed to sell the ring, so she returned it
to Imelda on September 19. 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 [1996, Bar Examination].

16. A and B executed and delivered to C a promissory note which reads: I promise to pay C or
bearer the sum of P2,000.00 with interest at 12% per annum on or before J une 30, 1960. Manila,
February 1, 1969. SGD A and B. Two months later, for value received, C delivered to D the aforesaid
note with the indorsement: Pay to D; and on April 15, 1969, the said note was indorsed in blank by
D and delivered to X, without consideration. Upon As refusal to pay despite demand, X filed an action
to collect from A the total amount of the promissory note, with 12% interest per annum from
February 1, 1969, and the costs. As defenses are that the note is null and void because the same
was issued to pay a gambling debt and that in any event, his liability cannot exceed more than one-
half of the amount due. Are As defenses valid? Is X entitled to the whole amount of the note?
Explain. [1969 Bar Examination].

17. For the purpose of lending his name without receiving value therefor, Pedro makes a note for
P20,000.00 payable to the order of X who in turn negotiates it to Y, the latter knowing that Pedro is
not a party for value. May Y recover from Pedro if the latter imterposes absence of consideration?
Supposing under the same facts, Pedro pays the said P20,000.00, may he recover the same amount
from X? Explain [1998 Bar Examination].

18. Nora applied for a loan of P100,000.00 with BUR Bank. By way of accommodation, Noras sister,
Vilma, executed a promissory note in favor of BUR Bank. When Nora defaulted, BUR Bank sued
Vilma, despite its knowledge that Vilma received no part of the loan. May Vilma be held liable?
Explain [1996 Bar Examination].
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19. Santos purchased Veras car for P50,000.00. Not having enough cash on hand, Santos offered to
pay in check. Vera refused to accept the check unless it is indorsed by Reyes, their mutual friend.
Reyes indorsed Santos check and Vera, knowing that Reyes had not received any value for indorsing
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. Is Reyes liable to Vera? In the event Reyes
voluntarily pays Vera, does Reyes have the right to recover from Santos? Explain [1985 Bar
Examination].


D. I NCOMPLETE DELIVERED INSTRUMENT

20. 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 P1,000.00. However, Evelyn inserted P5,000.00 in
violation of the instruction. She negotiated the note to J ulie who had knowledge of the infirmity. J ulie,
in turn, negotiated said note to Devi for value and who had no knowledge of the infirmity. Can Devi
enforce the note against Larry, and if she can, for how much? Supposing Devi indorses the note to
Baby for value but who has knowledge of the infirmity, can the latter enforce the note against Larry?
Explain [1993 Bar Examination].
21. Maria issued a negotiable promissory note and authorized Pilar to fill-up the amount in blank up
to P2,000.00. However, Pilar filled it up to P4,000.00 and negotiated the note to Pepe. For what
amounts are Maria and Pilar liable to Pepe? Explain [1972 Bar Examinations].


E. INCOMPLETE UNDELIVERED INSTRUMENT

22. PN makes a promissory note for P5,000.00, but leaves the name of the payee in blank because he
wanted to verify its correct spelling first. He mindlessly left the note on top of his desk at the end of
the workday. When he returned the following morning, the note was missing. I t turned up later when
X presented it to PN for payment. Before X, T, who turned out to have filched the note from PNs
office, had endorsed the note after inserting his own name in the blank space as the payee. PN
dishonored the note, contending that he did not authorize its completion and delivery. But X said he
had no participation in, or knowledge about, the pilferage and alteration of the note and therefore he
enjoys the rights of a holder in due course under the Negotiable Instruments Law. Who is correct and
why? [2000 Bar Examination].

23. J ose makes a negotiable note payable to bearer with the amount in blank and delivers it to Karen
for safekeeping. Marina fills up the note for P20,000.00 and negotiates it to Adriano, a holder in due
course. If you were J ose and Adriano presented to you the note for payment, what defense or
defenses are you going to interpose to negate liability on the instrument? Explain [1981 Bar
Examinations].
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24. A entrusted to B, his secretary, a blank check drawn on X bank, signed by him, with instructions
to fill up the check in favor of D for the amount of P1,000.00 and to thereafter deliver the said check
to D. I n breach of trust, B filled up the check by writing the name of E, and the amount of P2,000.00
on the check and delivered the same to E, who accepted it in payment of certain goods sold by E to
B. Before E could encash the check, A learned of the misdeed of B and issued a stop-payment order
to X bank as a result of which X bank refused to honor the check presented to it by E. Can E now
hold X bank and A liable? Reason [1971 Bar Examinations].

25. J ose Reyes signed a blank check, and in his hasted to attend a party, left the check on top of his
executive desk in his office. Later, Nazareno forced the door to Reyes office and stole the blank
check. Nazareno immediately filled in the amount of P50,000.00 and a fictitious name as payee on
the said check. Nazareno then endorsed the check in the payees name and passed it to Roldan.
Thereafter, Roldan endorsed the check to Dantes. Can Dantes enforce the check against J ose Reyes?
If Dantes is a holder in due course, will your answer be the same? [1985 Bar Examinations].

26. A signed a blank check which he inadvertently left at his desk at his Escolta Office. The same was
later stolen by B, who filled in the amount of P22,300.00 and a fictitious name as payee. B then
endorsed the check in the payees name and passed the check to C; thereafter C passed it to D; then
D to E; and E to F. Can F enforce the instrument against A? Suppose that F is a holder in due course,
what will be your answer? Can F enforce the instrument against B? Against C. Give reasons [1978 Bar
Examinations].


F. FORGERY

27. 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. I f, for any reason, the drawee bank
refuses to honor the check, can F enforce the instrument against the drawer? I n 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? [1997 Bar Examinations].

28. J uan makes a promissory note payable to his order, signing Pedros name thereon as maker
without Pedros knowledge and consent. J uan then indorses the note to J ose, who, in turn, indorses it
to Carlos under circumstances which make Carlos a holder in due course. May Carlos enforce the note
against Pedro? And if the note is dishonored by Pedro, may Carlos hold J uan and J ose liable on their
respective indorsements? Reason out your answers [1989 Bar Examinations].

29. J uan makes a promissory note payable to the order of Pedro, who indorses it to J ose. Somehow,
Roberto obtains possession of the note and, forging the signature of J ose, indorses it to Amado.
Amado then indorses the note to Nilo, the holder. State the rights and liabilities of the parties [1984
Bar Examinations].
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30. A makes a negotiable promissory note payable to B or bearer. A 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 forcing Cs 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. Explain briefly [1981
Bar Examinations].

31. J uan de la 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 J uana Bond, for value, by
forging the signature of Pedro Lim. May J uana Bond hold J uan de la Cruz liable on the note? Explain
[1980 Bar Examinations].

32. Fernando forged the name of Daniel, manager of a Trading Company, as the drawer of a check.
The Bank of 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? Explain [1977 Bar
Examinations].


G. FRAUD

33. A succeeded in making B affix his signature on a check without Bs knowing that it was a check.
At the time of signing, the check was complete in all respects. A intended to cash the check the
following morning, but that night, it was stolen by C who succeeded in negotiating the same to D, a
holder in due course. D cashed the check the following morning. B refused to have the amount of the
check deducted from his bank deposit. Who may properly be charged with the amount of the check?
Explain your answer [1961 Bar Examinations].

34. A induces B by fraud to make a promissory note payable on demand to the order of A in the sum
of P5,000.00. Can A file an action successfully against the maker B for the amount of the note?
Reasons. Going further, A transfers the note to C who pays P5,000.00 therefor and acquires the note
under circumstances that make him (C) as holder in due course. Can C file an action successfully
against B, the maker of the note, for the amount of the note? What defense/defenses can B
interpose? Explain [1978 Bar Examinations].


H. MATERIAL ALTERATION

35. A check for P50,000.00 was drawn against drawee bank and made payable to XYZ Marketing or
order. The check was deposited with payees account at ABC Bank which then sent the check for
clearing to drawee bank. Drawee bank refused to honor the check on the ground that the serial
number thereof had been altered. XYZ Marketing sued drawee bank. Is it proper for the drawee bank
to dishonor the check for the reason that it had been altered? In instant suit, drawee bank contended
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that XYZ Marketing as payee could not sue the drawee bank as there was no privity between them.
Drawee theorized that there was no basis to make it liable for the check. Is this contention correct?
Explain [1999 Bar Examinations].

36. William issued to Albert a check for P10,000.00 drawn on XM Bank. Albert altered the amount of
the check to P210,000.00 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 amount of P210,000.00 and closed his account. When the check was returned to him
after a month, William discovered the alteration. XM Bank recredited P210,000.00 to Williams current
account and sought reimbursement from ND Bank. ND Bank refused, claiming that XM Bank failed to
return the altered check within the 24 hour clearing period. Who, as between XM Bank and ND Bank,
should bear the loss? Explain [1996 Bar Examinations].

37. I n consideration of some goods he bought, A issued to B a personal check in the amount of
P280.00 which B altered to P2,800.00 without the knowledge of A. The alteration is not apparent to
the naked eye. B then deposited the altered check in his account with PNB, which released it for
clearing. The BPI, the drawee bank, did not notice the alteration and the check therefore cleared. B
was able to withdraw the P2,800.00, after which, he closed his account. When A received his bank
statement and cancelled checks, he noticed the discrepancy in the amount when he compared the
altered check with his check stub. He immediately notified BPI and demanded a recredit. BPI, in turn,
demanded recredit from PNB which cannot now locate B. Can A compel BPI to recredit his account? I f
so, how much? Can PNB be compelled to reimburse BPI of the amount the latter may have recredit to
the account of A? Explain [1986 Bar Examinations].

38. Pedro writes out a check for P1,000.00 in favor of J ose or order against his current account with
the Bank of America. J uan steals the check, erases the name of J ose and superimposes his own
name. J uan deposits the check at Citibank and after clearing, J uan withdraws the amount and
absconds. Upon discovery by Pedro of the material alteration, he lodged a complaint at the Bank of
America, who debited the amount to Pedro. Bank of America demands reimbursement for Citibank
which refuses on the ground that it only acted as an agent for collection. Who bears the loss? Why?
[1977 Bar Examinations].

39. Maria issued a negotiable promissory note and authorized Pilar to fill up the amount in blank up to
P2,000.00 only. However, Pilar filled it up to P4,000.00 and negotiated the note to Pepe. For what
amount are Maria and Pilar liable to Pepe? Explain [1972 Bar Examinations].

40. A executed a bill of exchange for P500.00 in favor of B, who altered the amount to P5,000.00 and
presented the bill to the drawee for acceptance. The drawee, not knowing of the alteration which was
neatly done, accepted the bill. Thereafter, N negotiated the bill to C, who now seeks to hold the
drawee liable for P5,000.00. The drawee contends that under the rule on alteration, he can only be
liable up to P500.00. Is the drawees contention tenable? Can the drawee debit the amount of A, and
if so, to what extent? Reasons [1971 Bar Examinations].

I. MINORI TY
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41. X makes a promissory note for P10,000.00 payable to A, a minor, to help him to 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? Explain
[1998 Bar Examinations].

42. X, without receiving consideration therefor, makes a promissory note for P500.00 payable to A, a
minor, to help him buy school books. A indorses the note to B, who, in turn, indorses the note to C. C
knows As minority. If C presents the note to X for payment, what are the possible defenses to be
interposed by X? I f C sues X on the note, can X set up the defense of minority and lack of
consideration? Explain [1989 Bar Examinations].


WARRANTIES/LIABILI TIES

J . ACCEPTOR

43. X draws a check against his current account with Ortigas Branch of Bonifacio Bank in favor of B.
Although X does not have sufficient funds, the bank honors the check when it was presented to
payment. Apparently, X has conspired with the banks bookkeeper so that his ledger card would show
that he still has sufficient funds. The bank files an action for recovery of the amount paid to B
because the check presented has no sufficient funds. Decide the case [1998 Bar Examinations].

K. NEGOTIATOR BY DELIVERY
44. Anna makes a promissory note payable to bearer and delivers it to Bing. I n turn, Bing negotiates
it by mere delivery to Carmen, who indorses 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
and Carmen liable? To whom are Dong and Emma liable? Explain [1988 Bar Examinations].

L. INDORSERS
45. Alex issued a negotiable promissory note (PN) payable to Benito or order in payment of certain
goods. Benito indorsed the PN to Celso in payment of an existing obligation. Later, Alex found the
goods to be defective. While in Celsos possession, the PN was stolen by Dennis who forged Celsos
signature and discounted it with Edgar, a money lender who did not make inquiries about the PN.
Edgar indorsed the PN to Felix, a holder in due course. When Felix demanded payment of the PN
from Alex, the latter refused to pay. Dennis could no longer be located. What are the rights of Felix, if
any, against Alex, Benito, Celso and Edgar? Explain. Does Celso have any right of action against Alex,
Benito and Felix? Explain [1995 Bar Examinations].
46. A drew a check for P1,000.00 on B, the Bank payable to the order of C and delivered the check to
the latter for value. C indorsed the check in blank and negotiated it to D, who lost it. At Ds request, A
ordered payment stopped by notifying B. The stop payment order was overlooked and the check was
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paid to E, who had taken the check, without actual knowledge of the loss, in payment of merchandise
sold to a stranger whom he thought owned the check. D now sues the bank. Decide the case with
brief reasons [1979 Bar Examinations].

INCIDENTS

M. NEGOTIATION
47. Richard Clinton makes a promissory note payable to bearer and deliverrs the same to Autora
Page. The latter, 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? [1998 Bar Examinations].
48. On November 3, as payment for goods received, A gave to B his check drawn on PNB, Manila. B
thereafter negotiated the check to C. On November 10, C could not encash the check because the
Bangko Sentral had forbidden PNB to do business on grounds of insolvency. Can C hold A liable on
the uncashed check? Can C hold B liable instead on the uncashed check? Explain. If you were B, how
would you negotiate the check to negate future liability thereon? Explain [1987 Bar Examinations].

N. DISHONOR
49. When is notice of dishonor not required to be given to the drawer? [1996, Bar Examinations].

50. A issued a promissory note to B dated J anuary 1, 2002, in the following tenor: I promise to pay
to the order of B P1,000.00 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 a 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? Explain [1984 Bar Examinations].

51. X draws a bill of exchange against Y in favor of W for P1,000.00, requesting the drawee to pay on
December 24, 1962. W indorses the instrument to P on September 1 and on September 15 presents
it for acceptance. The bill is dishonored. P promptly sues W for payment. Will the case prosper? Give
reasons for your answer [1963 Bar Examinations].