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 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].

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 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 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 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 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 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].