GENERAL PRINCIPLES 4. A promissory note reads as follows: “I promise to pay Gabriela 7.

s: “I promise to pay Gabriela 7. When a signature is so placed upon a negotiable instrument that it is
A. THEORY Silangan P1,000.00 three years after the unconditional withdrawal of the not clear in what capacity the person making the same intended to sign,
U.S. of its military bases in the Philippines.” Discuss the negotiability or what is his liability? [1946, Bar Examinations].
1. What are the requisites of a negotiable instruments? [1953, 1954, non-negotiability of the note above [1966 Bar Examinations].
1964, 1968, 1989, 1991, 1996, Bar Examinations].

2. What constitutes a holder in due course? [1996, Bar Examinations]. 5. Can the payee in a promissory note be a ‘holder in due course’ within 8. When a negotiable instrument contains the words “I promise to pay”
the meaning of the Negotiable Instruments Law? [2000 Bar and is signed by two or more persons, what is their liability, joint or
Examinations]. solidary? Explain [1946, Bar Examinations].

3. Can a bill of exchange or a promissory note qualify as a negotiable

instrument if –
A .It is not dated; or B. TESTS OF NEGOTIABILITY
B. The date and the month, but not the year of its maturity is given; or
C. It is payable to cash; or 6. How do you treat a negotiable instrument that is so ambiguous that 9. MP bought a used cellphone from JR. JR preferred cash but MP is a
D. It names two alternative drawees [1997, Bar Examinations]. there is a doubt whether it is a bill or a note? [1999, Bar Examinations]. 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].
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].
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].

I. MINORITY

41. X makes a promissory note for P10,000.00 payable to A, a minor, to

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].
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].
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].

42. X, without receiving consideration therefor, makes a promissory note

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].
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].
 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].
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].
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].

N. DISHONOR

49. When is notice of dishonor not required to be given to the drawer?

46. A drew a check for P1,000.00 on B, the Bank payable to the order of C [1996, Bar Examinations].
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].

50. A issued a promissory note to B dated January 1, 2002, in the

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].
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].