1979 BAR EXAMINATION

Negotiable Instruments: LIABILITIES OF PARTIES

PROBLEM/QUESTION:

A makes a promissory note payable to bearer and delivers it to B. In turn, B negotiates it by

mere delivery to C, who indorses it specially to D. D negotiates it by special indorsement to E,
who negotiates it to F my delivery. A did not pay. To whom are B, C, D, and E liable? Explain
your answer.

SUGGESTED ANSWER:

B, C, D, and E are not liable. According to Sec. 61 of the Negotiable Instruments Law, the
drawer by drawing the instrument admits the existence of the payee and his then capacity to
indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both,
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who
may be compelled to pay it. But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.” B and E being negotiators by mere
delivery are not liable unless they made a breach of their warranties, and it appeared that they
had not. On the other hand, C and D are also not liable to F, since the latter did not make title
through the special indorsements of C and D.Therefore, B,C, D and E should not be liable.
 1979 BAR EXAMINATION

Negotiable Instruments: When check operates as an assignment

PROBLEM/QUESTION:

A drew a check for P1,000 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 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, B, for the amount of the check. Decide the case with brief reasons.

SUGGESTED ANSWER:

D may not sue the bank. According to Sec. 189 of the Negotiable Instruments Law, a check of
itself does not operate as an assignment of any part of the funds to the credit of the drawer with
the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check
and D was not even the holder of the check in question, he having lost the same. Therefore, D
may not be able to have a course against the bank.