Problem #1.

In payment of goods he had purchased, PF drew a check upon PNB for P100,000 payable to the
order of V and Co., the seller in Manila. He sent the check without recourse to JS. The latter
indorsed it in blank, for consideration, to PR, who, in turn, sold it for P80,000, by delivery to
AG. The goods were never forwarded to PF. AG presented the check to the bank, but payment
was refused because PR had not put his name on it. (original ORDER CHECK: PF---V and Co
-----JS ------ PR ------ AG------ PNB)

a. What kind of indorsement was made by the payee? What is the effect of the indorsement
made?

- The indorsement made was a blank indorsement which specifies no indorsee. Section 34
of the Nefotiable Instruments Law provides that an instrument indorsed in blank is payable to
bearer, and may be negotiated by delivery.

b. Is the bank right in so refusing? Why?

- No, the bank has no right to refuse payment to AG on the ground that PR had not put his
name on it. The holder before PR who was JS, indorsed the check to PR in blank hence PR could
negotiate it further by delivery.

c. If AG gave due notice to V and Co., may he recover from the latter?

- No, AG cannot recover from V and Co. since the company made a qualified
indorsement when the check was sent and therefore does not answer for the failure to pay of the
party primarily liable.

By using the phrase: without recourse,

the endorser does not assume any responsibility by virtue of the
endorsement alone and, in effect, becomes merely the assignor of the title to the paper.

d. May AG recover from JS? Why? May he recover from PR? Why?

- Yes, AG may recover from JS because he is secondarily liable by virtue of his

indorsement. AG may also recover from PR because AG is an immediate transferee of PR The
recovery by AG from any one of the secondary parties liable will bar him from recovery from the
other secondary parties.

Problem #2:
E issued to IU a check in the amount of P50,000 post-dated September 19, as security for a
diamond ring to be sold on commission. On September 15, IU negotiated the check to MT
Investment which paid the amount of P40,000 to her. E failed to sell the ring, so she returned it to
IU on September 19. Unable to retrieve her check, E 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, E raised the defense of absence of consideration, the
check having been issued merely as security for the ring that she could not sell.

(check: E ---- IU ----- MT Investment ----drawee bank)

a. Does E have a valid defense? Explain

- No, E does not have a valid defense because MT Investment is a holder in due course
and as such, holds the post-dated check free from any defect of title of prior parties and from
defenses available to prior parties among themselves.

b. What kind of defense is your answer in (a), if any?

- E can invoke the defense of absence of absence of consideration against MT Investment

only if the latter was privy to the purpose for which the checks were issued and therefore, not a
holder in due course. Moreover, it is not a ground for the discharge of the post-dated check as
against a holder in due course that it was issued merely as security. The only grounds for the
discharge of the negotiable instruments are those set forth in section 119 of the NIL and none of
those grounds are available to E. E may not unilaterally discharge herself from her liability by
the mere expedience of withdrawing her funds from the drawee bank. (Basis: State investments
v. CA, G.R. 101163, January 11, 1993)

Problem #3:

A and B executed and delivered to C a promissory note which reads:

I promise to pay C or bearer the sum of P20,000.00 with interest at 12% per annum on or before
June 30, 2016.

Manila, February 1, 2016.

(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, 2016, 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, 2016, 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.

a. Are As defenses valid?

- the defense of A that the note is null and void for having been issued to pay a gambling
debt is a valid defense and can free him from liability to X because it is a real defense, and
therefore available against all holders including even holders in due course.

- As defense that he is liable for of the note only will not hold. When he together with
B signed on a promissory note worded I promise to pay XXX he became solidarily liable with
B, meaning that a holder could sue either A or B for the full amount of the obligation.

b. Is X entitled to the whole amount of the note? Explain.

- Yes, X is entitled to the whole amount of the note. The fact that X may have received
the note without consideration from D does not entitle A or B to utilize that defense against X, as
this defense is a personal defense, hence, available only against immediate parties. Even if As
defense that the note is void because paid for a gambling debt will prosper, B is still liable for the
whole amount as a solidary maker.

Problem #4:

For the purpose of lending his name without receiving value therefor, Peter makes a note for
P20,000.00 payable to the order of Xander who in turn negotiates it to Yvan, the latter knowing
that Peter is not a party for value.

a. May Yvan recover from Peter if the latter interposes absence of consideration?

- Yes, Yvan can recover from Peter. Peter is considered as an accommodation party since
the absence of consideration is in the nature of accommodation. Defense of absence of
consideration cannot be validly interposed by accommodation party against a holder in due
course.

b. Supposing under the same facts, Peter pays the said P20,000.00, may he recover the same
amount from Xander? Explain
 - If Peter pays the said P20,000, he may still recover the same amount from Xander.
Xander is the accommodated party or the party ultimately liable for the instrument. Peter is only
an accommodation party. Otherwise, it would be unjust enrichment on the part of Xander if he is
not to pay Peter.

Problem #5:

Nora applied for a loan of P100,000 with RUB Bank. By way of accommodation, Robert,
executed a promissory note in favor of RUB Bank. When Nora defaulted, RU B Bank sued
Robert, despite its knowledge that Robert received no part of the loan.

a. May Robert be held liable? Explain.

- Yes, Robert may be held liable because he is considered as an accommodation party. As

such, he is liable on the instrument to a holder for value such as the RUB bank. This is true even
if RUB bank was aware at the time it took the instrument, that Robert Robert is merely an
accommodation party and received no part of the loan. (Sec 29 NIL, Elualio v. CA, G.R. L-
34539)

Problem #6:

S purchased Vs car for P500,000. Not having enough cash on hand, S offered to pay in check. V
refused to accept the check unless it is indorsed by R, their mutual friend. R indorsed S check
and V, knowing that R had not received any value for indorsing the check, accepted it. The next
day, V presented the check to the drawee bank for payment. Payment was refused for lack of
funds. V gave notice of dishonor to R, but R refused to pay, saying that he indorsed merely as a
friend.

a. Is R liable to V?

- Yes, R is liable to V. R is not an irregular indorser, but an accommodation indorser for S,

and liable as a regular indorser, provided there is presentment, dishonour, and notice of
dishonour to R. (Sec 29, 64 and 66 NIL; Ang Tiong v. Lorenzo Ting, Feb 22, 1968)

b. In the event R voluntarily pays V, does R have the right to recover from S? Explain.

- Yes, R can recover from S after voluntarily paying V, since the relation between S and R
is in effect that of the principal and surety, the accommodation party, R, being the surety. (PNB v.
Maza and Macenas 48 Phil 207; Sec 29 NIL)