1 Bar Questions in Negotiable Instrument
Summary of Bar Examination Cases
MERCANTILE LAW REVIEW
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
I acknowledge to have received from Jose 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].
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].
