Bar Questions in Negotiable Instrument

Summary of Bar Examination Cases

is signed by two or more persons, what is

their liability, joint or solidary? Explain
[1946, Bar Examinations].

MERCANTILE LAW REVIEW

B. TESTS OF NEGOTIABILITY

Negotiable Instruments Law

09. MP bought a used cellphone from JR. JR

preferred cash but MP is a friend so JR
accepted MPs 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 MPs
signature with 8/1/00 next to it,
indicating the date of the promissory note.
When JR 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. JR 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].

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

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
CONSIDERATION

OF

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 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].
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. 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
INSTRUMENT

UNDELIVERED

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 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. 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

instrument?
Explain
[1981
Examinations].

the
Bar

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 payees 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 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. 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 Pedros name thereon
as maker without Pedros 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 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. 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 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 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. 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 drawees
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 As 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
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.
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 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 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].