2008

A) as a rule under the Negotiable Instruments Law, a subsequent party may

hold a prior party liable but not vice-versa. Give two (2) instances where a
prior party may hold a subsequent party liable.
B) how does the "shelter principle" embodied in the NIL operate to give the
rights of a holder-in-due-course? Briefly explain.
A:
A) 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 accommodatef liable to him,
even if the party accommodated is a subsequent party. The relation between
them is that of principal and surety(Philippine National Bank v. Maza, 48 Phil.
207[1925]). For the same reason, an acceptor for honor may hold the party
for whose honor he accepted a bill of exchange liable to him (Sec. 161, NIL).
A payer 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).
B) the "sheltet principle" provides that in the hands of a holder other than a
holder in due course, a negotiable instrument is subject to the same defenses
as if it were non-negotiable. This principle is extended to a holder who is not
himself a holder in due course but derivs his title from a holder in due course,
provided he himself is not a party to any fraud or illegality affecting the
instrument. Section 58 of the NIL provides:
"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 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 the
rights of such former holder in respect of all parties prior to the latter."
Q: 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 recredit its amount. XY Bank refused.

A) if you were the judge, what issues would you consider relevant to resolve
the case? Explain.
B) How would you decide the case? Explain.
A:
A) If i were the judge, i will consider the following 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) The check was an incomplete instrument in as much as the name of the
payee was not written by the drawer, AB Corporation. However, the said
instrument has been delivered by AB Corporation to its officer. Thus, the
check became binding on AB Corporation as drawer thereof. An incomplete
instrument, if delivered, as in this case, creates liability on the part of the
drawer. Therefore, AB Corporation cannot ask XY Bank to recredit the amount
of the check to his account.
Q: Panchi 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 recredit his account. Should the bank
comply? Explain fully.
B) Based on the facts, was Pancho as drawer discharged on the instrument?
Why?
A:
A) 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 of the NIL, to wit:
"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 authority to
indorse for the others."
Since Bong forged the signature of Gerard without authority, the indorsement
was wholly inoperative.
B) Pancho was not discharged on the instrument, because the payment was
not in due course ( Secs. 119 & 120, NIL).

2009
Q: 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.
B) Does the illicit cause or consideration adversely affect the negotiability of
the bill? Explain.
A:
A) 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 therefor in good faith.
B) No. The illicit cause or consideration does not adversely affect the
negotiability of the bill, especially in the hands of a holder in due course.
Under Sec. 1 of the NIL, the bill of exchange is a negotiable instrument. Every
negotiable instrument is deemed prima facie to have been issued for
valuable consideration, and every person whose signature appears thereon is
deemed to have become a party thereto for value (Sec. 24, NIL).