Negotiable Instruments 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 NEGOTIABILITY

09. MP bought a used cellphone from JR. JR preferred cash but MP is a friend so JR accepted
MP’s promissory note for P10,000.00. JR 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 JR P10,000.00 IN PAYMENT FOR HIS CELLPHONE ONE WEEK FROM
TODAY”. Below this notation is 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 cash substitute. JR took the
opposite view, insisting on the note’s 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, Juliet, a check for his P100,000.00 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. Juliet
presented the check for payment but the bank refused to honor it. Does Juliet have any right
of action against the bank? Because of the humiliation she suffered from the bank, Juliet
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

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].

DEFENSES

C. FAILURE/ABSENCE OF CONSIDERATION

14. In 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 Juan 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? If 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 June 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 A’s 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. A’s 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 A’s 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, 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 [1996 Bar Examination].

19. Santos purchased Vera’s 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. INCOMPLETE 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 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. 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. 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 Negotiable Instruments Law. Who is correct and why? [2000 Bar
Examination].

23. Jose 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 Jose 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].
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. In 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. Jose 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 payee’s name and
passed it to Roldan. Thereafter, Roldan endorsed the check to Dantes. Can Dantes enforce
the check against Jose 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 payee’s 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. If, for any
reason, the drawee bank refuses to honor the check, can F enforce the instrument against the
drawer? 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? [1997 Bar Examinations].

28. Juan makes a promissory note payable to his order, signing Pedro’s name thereon as
maker without Pedro’s knowledge and consent. Juan then indorses the note to Jose, 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 Juan and Jose liable on their respective indorsements? Reason out your answers [1989
Bar Examinations].

29. 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 [1984 Bar Examinations].
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 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. Explain briefly [1981 Bar Examinations].

31. Juan 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
Juana Bond, for value, by forging the signature of Pedro Lim. May Juana Bond hold Juan 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 B’s 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 payee’s 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 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 William’s 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. In 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? If 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 Jose or order against his current
account with the Bank of America. Juan steals the check, erases the name of Jose and
superimposes his own name. Juan deposits the check at Citibank and after clearing, Juan
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 drawee’s contention
tenable? Can the drawee debit the amount of A, and if so, to what extent? Reasons [1971 Bar
Examinations].

I. MINORITY

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 A’s minority. If C presents the note to X for payment, what are the
possible defenses to be interposed by X? If C sues X on the note, can X set up the defense of
minority and lack of consideration? Explain [1989 Bar Examinations].

WARRANTIES/LIABILITIES

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 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
[1998 Bar Examinations].

K. NEGOTIATOR BY DELIVERY

44. Anna makes a promissory note payable to bearer and delivers it to Bing. In 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 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 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 D’s request, A ordered payment stopped by notifying B. The stop payment order was
overlooked and the check was 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 January 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].