2000 BAR EXAMINATION IN MERCANTILE LAW

QUESTION:
PN is the holder of a negotiable promissory note within the meaning of the Negotiable
Instruments Law (Act 2031! "he note was originally issued by #P to $L as payee! $L
indorsed the note to PN for goods bought by $L! "he note mentions the place of
payment on the specified maturity date as the office of the corporate secretary of P$
%an& during ban&ing hours! 'N maturity date( #P was at the aforesaid office ready to
pay the note but PN did not show up! )hat PN later did was to sue $L for the face *alue
of the note( plus interest and costs! )ill the suit prosper+ ,-plain! (./
SUGGESTED ANSWER:
0es! "he suit will prosper as far as the face *alue of the note is concerned( but not with
respect to the interest due subse1uent to the maturity of the note and the costs of
collection! #P was ready and willing to pay the note at the specified place of payment on
the specified maturity date( but PN did not show up! PN lost his right to reco*er the
interest due subse1uent to the maturity of the note and the costs of collection!
QUESTION:
PN ma&es a promissory note for P.(000!00( but lea*es the name of the payee in blan&
because he wanted to *erify its correct spelling first! 2e mindlessly left the note on top
of his des& at the end of the wor&day! )hen he returned the following morning( the
note was missing! It turned up later when $ presented it to PN for payment! %efore $(
"( who turned out to ha*e filched the note from PN3s office( had endorsed the note after
inserting his own name in the blan& space as the payee! PN dishonored the note(
contending that he did not authori4e its completion and deli*ery! %ut $ said he had no
participation in( or &nowledge about( the pilferage and alteration of the note and
therefore he en5oys the rights of a holder in due course under the Negotiable
Instruments Law!
a )ho is correct and why+ (3/
b 6an the payee in a promissory note be a 7holder in due course8 within the meaning
of the Negotiable Instruments Law (Act 2031+ ,-plain your answer! (2/
SUGGESTED ANSWER:
a PN is right! "he instrument is incomplete and undeli*ered! It did not create any
contract that would bind PN to an obligation to pay the amount thereof!
b A payee in a promissory note cannot be a 7holder in due course8 within the meaning
of the Negotiable Instruments Law( because a payee is an immediate party in relation to
the ma&er! "he payee is sub5ect to whate*er defenses( real of personal( a*ailable to the
ma&er of the promissory note!
ALTERNATIVE ANSWER:
b A payee can be a 7holder in due course!8 A holder is defined as the payee or indorsee
of the instrument who is in possession of it! ,*ery holder is deemed prima facie to be a
holder in due course!
QUESTION:
a 9P bought a used cell phone from :#! :# preferred cash but 9P is a friend so :#
accepted 9#3s promissory note for P10(000! :# thought of con*erting the note into cash
by endorsing it to his brother ;#! "he promissory note is a piece of paper with the
following hand<printed notation= 79P )ILL PA0 :# ",N "2'>?AN@ P,?'? IN PA09,N"
A'# 2I? 6,LLP2'N, 1 ),,; A#'9 "'@A0!8 %elow this notation 9P3s signature with
7BC1C008 ne-t to it( indicating the date of the promissory note! )hen :# presented 9P3s
note to ;#( the latter said it was not a negotiable instrument under the law and so
could not be a *alid substitute for cash! :# too& the opposite *iew( insisting on the
note3s negotiability! 0ou are as&ed to referee! )hich of the opposing *iews is correct+
b "2 is an indorsee of a promissory note that simply states= 7PA0 "' :>AN "AN '#
'#@,# D00 P,?'?!8 "he note has no date( no place of payment and no consideration
mentioned! It was signed by 9; and written under his letterhead specifying the
address( which happens to be his residence! "2 accepted the promissory note as
payment for ser*ices rendered to ?2( who in turn recei*ed the note from :uan "an as
payment for a prepaid cell phone card worth D.0 pesos! "he payee ac&nowledged
ha*ing recei*ed the note on August 1( 2000! A %ar re*iewee had told "2( who happens
to be your friend( that "2 is not a holder in due course under Article .2 of the
Negotiable Instruments Law (Act 2031 and therefore does not en5oy the rights and
protection under the statute! "2 as&s for your ad*ice specifically in connection with the
note being undated and not mentioning a place of payment and any consideration!
)hat would your ad*ice be+ (2/
SUGGESTED ANSWER:
a ;# is right! "he promissory note is not negotiable! It is not issued to order or bearer!
"here is no word of negotiability containing therein! It is not issued in accordance with
?ection 1 of the Negotiable Instruments Law
b "he fact that the instrument is undated and does not mention the place of payment
does not militate against its being negotiable! "he date and place of payment are not
material particulars re1uired to ma&e an instrument negotiable!
"he fact that no mention is made of any consideration is not material! 6onsideration is
presumed!
2001 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
@ebtor A issued a promissory note in the amount of P109 in fa*or of commercial ban& 0
secured by mortgage of his properties worth P309! )hen A failed to pay his
indebtedness( despite demands made by ban& 0( the latter instituted a collection suit to
enforce payment of the P109 account! ?ubse1uently( ban& 0 also filed foreclosure
proceedings against A for the security gi*en for the account! If you were the :udge( how
would you resol*e the two cases+ (./
SUGGESTED ANSWER:
"he case for the collection will be allowed to proceed! %ut the foreclosure proceedings
ha*e to be dismissed! In instituting a foreclosure proceedings( after filing a collection
case in*ol*ing the same account or transaction( %an& 0 is guilty of splitting a cause of
action! "he loan of P109 is the principal obligation while the mortgage securing the
same is merely an accessory to said loan obligation! "he collection of the loan and the
foreclosure of the mortgage securing said loan constitute one and the same cause of
action( the filing of the collection case bars the subse1uent filing of the foreclosure
proceedings!
QUESTION:
A issued a promissory note payable to % or bearer! A deli*ered the note to %! % indorsed
the note to 6! 6 placed the note in his drawer( which was stolen by the 5anitor $! $
indorsed the note to @ by forging 63s signature! @ indorsed the note to , who in turn
deli*ered the note to A( a holder in due course( without indorsement! @iscuss the
indi*idual liabilities to A of A( % and 6! (./
SUGGESTED ANSWER:
A is liable to A! As the ma&er of the promissory note( A is directly or primarily liable to A(
who is a holder in due course! @espite the presence of the special indorsement on the
note( these do not detract from the fact that a bearer instrument( li&e the promissory
note in 1uestion( is always negotiable by mere deli*ery( until it is indorsed restricti*ely
7Aor @eposit 'nly!8
%( as a general indorser( is liable to A secondarily( and warrants that the instrument is
genuine and in all respects what it purports to beE that he has good title to itE that all
prior parties had capacity to contractE that he has no &nowledge of any fact which would
impair the *alidity of the instrument or render it *aluelessE that at the time of his
indorsement( the instrument is *alid and subsistingE and that on due presentment( it
shall be accepted or paid( or both( according to its tenor( and that if it be dishonored and
the necessary proceedings on dishonor be duly ta&en( he will pay the amount thereof to
the holder( or to any subse1uent indorser who may be compelled to pay!
6 is not liable to A since the latter cannot trace his title to the former! "he signature of 6
in the supposed indorsement by him to @ was forged by $! 6 can raise the defense of
forgery since it was his signature that was forged!
ALTERNATIVE ANSWER:
As a general endorser( % is secondarily liable to A! 6 is liable to A since it is due to the
negligence of 6 in placing the note in his drawer that enabled $ to steal the same and
forge the signature of 6 relati*e to the indorsement in fa*or of @! As between 6 and A
who are both innocent parties( it is 6 whose negligence is the pro-imate cause of the
loss! 2ence 6 should suffer the loss!
QUESTION:
$( 0 and F signed a promissory note in fa*or of A stating= 7)e promise to pay A on
@ecember 31( 2001 the sum of P.(000!00!8 )hen the note fell due( A sued $ and 0 who
put up the defense that A should ha*e impleaded F! Is the defense *alid+ )hy+ (./
SUGGESTED ANSWER:
"he defense is not *alid! "he liability of $( 0 and F under the promissory note is 5oint!
?uch being the case( F is not an indispensable party! "he fact that A did not implead F
will not pre*ent A from collecting the proportionate share of $ and 0 in the payment of
the loan! G'bser*ation= ,*en if the liability of $( y and F is solidary( the defense would
still not be *alid!H
2002 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
A! A% issued a promissory note for P1(000 payable to 6@ or his order on ?eptember 1.(
2002! 6@ indorsed the note in blan& and deli*ered the same to ,A! I2 stole the note
from ,A and on ?eptember 1D( 2002 presented it to A% for payment! )hen as&ed by A%(
I2 said 6@ ga*e him the note in payment for two ca*ans of rice! A% therefore paid I2
P1(000 on the same date! 'n ?eptember 1.( 2002( ,A disco*ered that the note of A%
was not in his possession and he went to A%! It was then that ,A found out that A% had
already made payment on the note! 6an ,A still claim payment from A%+ )hy+ (3/
%! As a se1uel to the same facts narrated abo*e( ,A( out of pity for A% who had already
paid P1(000!00 to I2( decided to forgi*e A% and instead go after 6@ who indorsed the
note in blan& to him! Is 6@ still liable to ,A by *irtue of the indorsement in blan&+ )hy+
(2/
SUGGESTED ANSWER:
A! No! ,A cannot claim payment from A%! ,A is not a holder of the promissory note! "o
ma&e the presentment for payment( it is necessary to e-hibit the instrument( which ,A
cannot do because he is not in possession thereof!
%! No( because 6@ negotiated the instrument by deli*ery!
QUESTION:
)hich of the following stipulations or features of a promissory note (PN affect or do not
affect its negotiability( assuming that the PN is otherwise negotiable+ Indicate your
answer by writing the paragraph number of the stipulation or feature of the PN as shown
below and your corresponding answer( either 7Affected8 or 7Not affected!8 ,-plain (./!
a "he date of the PN is 7Aebruary 30( 2002!8
b "he PN bears interest payable on the last day of each calendar 1uarter at a rate e1ual
to fi*e percent (./ abo*e the then pre*ailing J1<day "reasury %ill rate as published at
the beginning of such calendar 1uarter!
c "he PN gi*es the ma&er the option to ma&e payment either in money or in 1uantity of
palay or e1ui*alent *alue!
d "he PN gi*es the holder the option either to re1uire payment in money or to re1uire
the ma&er to ser*e as the bodyguard or escort of the holder for 30 days!
SUGGESTED ANSWER:
a Paragraph 1 K negotiability is 7N'" AAA,6",@!8 "he date is not one of the
re1uirements for negotiability!
b Paragraph 2 K negotiability is 7N'" AAA,6",@8 "he interest is to be computed at a
particular time and is determinable! It does not ma&e the sum uncertain or the promise
conditional!
c Paragraph 3 K negotiability is 7AAA,6",@!8 Ii*ing the ma&er the option renders the
promise conditional
d Paragraph D K negotiability is 7N'" AAA,6",@!8 Ii*ing the option to the holder does
not ma&e the promise conditional!
QUESTION:
A! @efine the following= (1 a negotiable promissory note( (2 a bill of e-change and (3
a chec&! (3/
%! 0ou are Pedro 6ru4! @raft the appropriate contract language for (1 your negotiable
promissory note and (2 your chec&( each containing the essential elements of a
negotiable instrument (2/
SUGGESTED ANSWER:
A! (1 A negotiable promissory note is an unconditional promise in writing made by one
person to another( signed by the ma&er( engaging to pay on demand or at a fi-ed or
determinable future time( a sum certain in money to order or bearer!
(2 A bill of e-change is an unconditional order in writing addressed by one person to
another( signed by the person gi*ing it( re1uiring the person to whom it is addressed to
pay on demand or at a fi-ed or determinable future time a sum certain in money to
order or to bearer!
(3 A chec& is a bill of e-change drawn on a ban& payable on demand!
%! (1 Negotiable promissory note <
7?eptember 1.( 2002
7Aor *alue recei*ed( I hereby promise to pay :uan ?antos or order the sum of ",N
"2'>?AN@ P,?'? (P10(000 thirty (30 days from date hereof!
(?igned Pedro 6ru48
(2 6hec& <
7?eptember 1.( 2002
7Pay to the order of :uan ?antos the sum of ",N "2'>?AN@ P,?'? (P10(000(
Philippine currency!
(?igned Pedro 6ru48
"o= Philippine National %an&
,scolta( 9anila %ranch8
2003 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
?usan ;awada borrowed P.00(000 from $0F %an& which re1uired her( together with
#ose #eyes who did not recei*e any amount from the ban&( to e-ecute a promissory
note payable to the ban&( or its order on stated maturities! "he note was e-ecuted as so
agreed! )hat &ind of liability was incurred by #ose( that of an accommodation party or
that of a solidary debtor+ ,-plain! (D/
SUGGESTED ANSWER:
#ose may be held liable! #ose is an accommodation party! Absence of consideration is in
the nature of an accommodation! @efense of absence of consideration cannot be *alidly
interposed by accommodation party against a holder in due course!
QUESTION:
A ban& issues its own chec&! 9ay the holder hold the ban& liable thereunder if he fails to
Lpro*e presentment for payment( or
L present the bill to the drawee for acceptance+ ,-plain your answers! (D/
:uan ?y purchased from 7A8 Appliance 6enter one generator set on installment with
chattel mortgage in fa*or of the *endor! After getting hold of the generator set( :uan ?y
immediately sold it without consent of the *endor! :uan ?y was criminally charged with
estafa! "o settle the case e-tra 5udicially( :uan ?y paid the sum of P20(000 and for the
balance of P.(000!00 he e-ecuted a promissory note for said amount with %en Lope4 as
an accommodation party! :uan ?y failed to pay the balance!
1 )hat is the liability of %en Lope4 as an accommodation party+ ,-plain!
2 )hat is the liability of :uan ?y+
SUGGESTED ANSWER:
1 %en Lope4( as an accommodation party( is liable as ma&er to the holder up to the sum
of P.(000 e*en if he did not recei*e any consideration for the promissory note! "his is
the nature of accommodation! %ut %en Lope4 can as& for reimbursement from :uan ?y(
the accommodation party!
2 :uan ?y is liable to the e-tent of P.(000 in the hands of a holder in due course (?ec
1D NIL! If %en Lope4 paid the promissory note( :uan ?y has the obligation to reimburse
%en Lope4 for the amount paid! If :uan ?y pays directly to the holder of the promissory
note( or he pays %en Lope4 for the reimbursement of the payment by the latter to the
holder( the instrument is discharged!
2004 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
6$ maintained a chec&ing account with >%AN;( 9a&ati %ranch! 'ne of his chec&s in a
stub of fifty was missing! Later( he disco*ered that 9s! @0 forged his signature and
succeeded to encash P1.(000 from another branch of the ban&! @0 was able to encash
the chec& when ,"( a friend( guaranteed due e-ecution( saying that she was a holder in
due course!
6an 6$ reco*er the money from the ban&+ #eason briefly! (./
SUGGESTED ANSWER:
0es( 6$ can reco*er from the ban&! >nder ?ection 23 of the Negotiable Instruments Law(
forgery is a real defense!
"he forged chec& is wholly inoperati*e in relation to 6$! 6$ cannot be held liable thereon
by anyone( not e*en by a holder in due course! >nder a forged signature of the drawer(
there is no *alid instrument that would gi*e rise to a contract which can be the basis or
source of liability on the part of the drawer! "he drawee ban& has no right or authority to
touch the drawerMs funds deposited with the drawee ban&!
QUESTION:
@istinguish clearly (1 crossed chec&s from cancelled chec&sE - - -
SUGGESTED ANSWER:
A crossed chec& is one with two parallel lines drawn diagonally across its face or across a
corner thereof! 'n the other hand( a cancelled chec& is one mar&ed or stamped NpaidN
andCor 7cancelledN by or on behalf of a drawee ban& to indicate payment thereof!

QUESTION:
A$( a businessman was preparing for a business trip abroad! As he usually did( in the
past( he signed se*eral chec&s in blan& and entrusted them to his secretary with
instruction to safeguard them and fill them out only when re1uired to pay accounts
during his absence! '%( his secretary( filled out one of the chec&s by placing her name
as the payee! ?he filled out the amount( endorsed and deli*ered the chec& to ;6( who
accepted it in good faith for payment of gems that ;6 sold to '%! later( '% told A$ of
what she did with regrets! A$ timely directed the ban& to dishonor the chec&! 6ould A$
be held liable to ;6+ Answer and reason briefly (./!
SUGGESTED ANSWER:
0es! A$ could be held liable to ;6! "his is a case of an incomplete chec&( which has been
deli*ered! >nder ?ection 1D of the Negotiable Instruments Law( ;6( as a holder in due
course( can enforce payment of the chec& as if it had been filled up strictly in accordance
with the authority gi*en by A$ to '% and within a reasonable time!
2005 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
(1! )hat is a negotiable instrument+ Ii*e the characteristics of a negotiable
instrument! (2/
(2! @istinguish a negotiable document from a negotiable instrument! (2/
SUGGESTED ANSWER:
Negotiable Instrument ha*e re1uisites of ?ec! 1 of the NIL( a holder of this instrument
ha*e right of recourse against intermediate parties who are secondarily liable( 2older in
due course may ha*e rights better than transferor( its sub5ect is money and the
Instrument itself is property of *alue!
'n the other hand( negotiable document does not contain re1uisites of ?ec! 1 of NIL( it
has no secondary liability of intermediate parties( transferee merely steps into the shoes
of the transferor( its sub5ect are goods and the instrument is merely e*idence of titleE
thing of *alue are the goods mentioned in the document!
QUESTION:
?tate and e-plain whether the following are negotiable instruments under the Negotiable
Instruments Law=
(i Postal 9oney 'rderE
(ii A certificate of time deposit which states 7"his is to certify that bearer has deposited
in this ban& the sum of A'># "2'>?AN@ P,?'? (PD(000!00 only( repayable to the
depositor 200 days after date!8
(iii Letters of creditE
(i* )arehouse receiptsE
(* "reasury warrants payable from a specific fund! (./
SUGGESTED ANSWER:
1 Postal 9oney 'rder K Non<Negotiable as it is go*erned by postal rules and regulation
which may be inconsistent with the NIL and it can only be negotiated once!
2 A certificate of time deposit which states 7"his is to certify that bearer has deposited
in this ban& the sum of A'># "2'>?AN@ P,?'? (PD(000!00 only( repayable to the
depositor 200 days after date!8 K Non<Negotiable as it does not comply with the
re1uisites of ?ec! 1 of NIL
3 Letters of credit < Non<Negotiable
D )arehouse receipts < Non<Negotiable for the same as %ill of Lading it merely
represents good( not money!
. "reasury warrants payable from a specific fund < Non<Negotiable being payable out of
a particular fund!
QUESTION:
@agul has a business arrangement with Aacundo! "he latter would lend money to
another( through @agul( whose name would appear in the promissory note as the lender!
@agul would then immediately indorse the note to Aacundo!
Is @agul an accommodation party+ ,-plain! (2/
SUGGESTED ANSWER:
0,?O @agul is an accommodation party because in the case at bar( he is essentially( a
person who signs as ma&er without recei*ing any consideration( signs as an
accommodation party merely for the purpose of lending the credit of his name! And as
an accommodation party he cannot set up lac& of consideration against any holder( e*en
as to one who is not a holder in due course!
QUESTION:
)hat is a crossed chec&+ )hat are the effects of crossing a chec&+ ,-plain!
SUGGESTED ANSWER:
6rossing a chec& is done by writing two parallel lines diagonally on the left top portion of
the chec&s! "he crossing is special where the name of the ban& or a business institution
is written between the two parallel lines( which means that the drawee should pay only
with the inter*ention of that company!
,ffects of 6rossed 6hec&s=
1 "he chec& may not be encashed but only deposited in the ban&!
2 "he chec& may be negotiated only onceP to one who has an account with a ban&!
3) The act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose, so that he must inquire if he has received the check pursuant to
that purpose; otherwise, he is not a holder in due course.
QUESTION:
Distinguish an irregular indorser from a general indorser. (3)
SUGGESTED ANSWER:
Irregular Indorser is not a party to the instrument but he places his signature in blan&
before deli*ery! 2e is not a party but he becomes one because of his signature in the
instrument! %ecause his signature he is considered an indorser and he is liable to the
parties in the instrument!
A Ieneral Indorser warrants that the instrument is genuine( that he has a good title to
it( that all prior parties had capacity to contractE that the instrument at the time of the
indorsement is *alid and subsistingE and that on due presentment( the instrument will be
accepted or paid or both accepted and paid according to its tenor( and that if it is
dishonored( he will pay if the necessary proceedings for dishonor are made!
QUESTION:
%rad was in desperate need of money to pay his debt to Pete( a loan shar&! Pete
threatened to ta&e %rad3s life if he failed to pay! %rad and Pete went to see ?eQorita
Isobel( %rad3s rich cousin( and as&ed her if she could sign a promissory note in his fa*or
in the amount of P10(000!00 to pay Pete! Aearing that Pete would &ill %rad( ?eQorita
Isobel acceded to the re1uest! ?he affi-ed her signature on a piece of paper with the
assurance of %rad that he will 5ust fill it up later! %rad then filled up the blan& paper(
ma&ing a promissory note for the amount of P100(000!00! 2e then indorsed and
deli*ered the same to Pete( who accepted the note as payment of the debt!
)hat defense or defenses can ?eQorita Isobel set up against Pete+ ,-plain! (3/
SUGGESTED ANSWER:
"he defense (personal defense which ?eQorita Isobel can set up against Pete is that the
amount of P100(000!00 is not in accordance with the authority gi*en to her to %rad (in
the presence of Pete and that Pete was not a holder in due course for acting in bad faith
when accepted the note as payment despite his &nowledge that it was only 10(000!00
that was allowed by ?eQorita Isobel during their meeting with %rad!
2006 BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
@iscuss the legal conse1uences when a ban& honors a forged chec&! ./
SUGGESTED ANSWER:
"he legal conse1uences when a ban& honors a forged chec& are as follows=
(a )hen @rawerMs ?ignature is Aorged= @rawee<ban& by accepting the chec& cannot set
up the defense of forgery( because by accepting the instrument( the drawee ban& admits
the genuineness of signature of drawer (%PI Aamily %an& *s! %uena*entura I!#! No!
1DB1JR( ?eptember 30( 200.E ?ection 23( Negotiable Instruments Law!
>nless a forgery is attributable to the fault or negligence of the drawer himself( the
remedy of the drawee<ban& is against the party responsible for the forgery! 'therwise(
drawee<ban& bears the loss (%PI Aamily %an& *! %uena*entura( I!#! No! 1DB1JR(
?eptember 30( 200.! A drawee<ban& paying on a forged chec& must be considered as
paying out of its funds and cannot charge the amount to the drawer (?amsung
6onstruction 6o! Phils( *! Aar ,ast %an&( I!#! No! 12J01.( August 13( 200D! If the
drawee<ban& has charged drawerMs account( the latter can reco*er such amount from the
drawee<ban& (Associated %an& *! 6ourt of Appeals( I!#! No! 10S3B2( :anuary 31( 1JJRE
%an& of P! I! *! 6ase 9ontessori Internationale( I!#! No! 1DJD.D( 9ay 2B( 200D!
2owe*er( the drawer may be precluded or estopped from setting up the defense of
forgery as against the drawee ban&( when it is shown that the drawer himself had been
guilty of gross negligence as to ha*e facilitated the forgery (9etropolitan )aterwor&s *!
6ourt of Appeals( I!#! No! LR2JD3( 1D3 ?6#A 20( :uly 1D( 1JBR!
(N'"A %,N,= "he 1uestion does not 1ualify the term Nforged chec&N! An answer
addressing the liabilities of a drawer should be deemed sufficient! Answers addressing
liabilities of parties should li&ewise be gi*en full credit
@rawee %an& *ersus 6ollecting %an& P )hen the signature of the drawer is forged( as
between the drawee ban& and collecting ban&( the drawee<ban& sustains the loss( since
the collecting ban& does not guarantee the signature of the drawer! "he payment of the
chec& by the drawee ban& constitutes the pro-imate negligence since it has the duty to
&now the signature of its client<drawer! (Philippine National %an& *! 6ourt of Appeals(
I!#! No! L<2R001( 'ctober 2J( 1JRB!
(b Aorged PayeeMs ?ignature= )hen drawee<ban& pays the forged chec&( it must be
considered as paying out of its funds and cannot charge the amount so paid to the
account of the depositor! In such case( the ban& becomes liable since its primary duty is
to *erify the authenticity of the payeeMs signature ("raders #oyal %an& *! #adio
Philippines Networ&( I!#! No! 13B.10( 'ctober 10( 2002E )estmont %an& *! 'ng( I!#!
No! 132.R0( :anuary 30( 2002!
(c Aorged Indorsement= @rawerMs account cannot be charged( and if charged( he can
reco*er from the drawee<ban& (Associated %an& *! 6ourt of Appeals( I!#! No! 10S3B2
:anuary 31(1JJR!
L @rawer has no cause of action against collecting ban&( since the duty of collecting ban&
is only to the payee! A collecting ban& is not guilty of negligence o*er a forged
indorsement on chec&s for it has no way of ascertaining the authority of the
endorsement and when it caused the chec&s to pass through the clearing house before
allowing withdrawal of the proceeds thereof (9anila Lighter "ransportation( Inc! *! 6ourt
of Appeals( I!#! No! .03S3( Aebruary 1.( 1JJ0! 'n the other hand( a collecting ban&
which endorses a chec& bearing a forged endorsement and presents it to the drawee
ban& guarantees all prior endorsements including the forged endorsement itself and
should be held liable therefore ("raders #oyal %an& *! #PN( I!#! No! 13B.10( 'ctober
10( 2002!
L @rawee<ban& can reco*er from the collecting ban& (Ireat ,astern Life Ins! 6o! *!
2ong&ong T ?hanghai %an&( I!#! No! 1BR.S( August 23(1J22 because e*en if the
indorsement on the chec& deposited by the ban&Ms client is forged( collecting ban& is
bound by its warranties as an indorser and cannot set up defense of forgery as against
drawee ban& (Associated %an& *! 6ourt of Appeals( I!#! No! 10S3B2( :anuary 31( 1JJR!
QUESTION:
:un was about to lea*e for a business trip! As his usual practice( he signed se*eral blan&
chec&s! 2e instructed #uth( his secretary( to fill them as payment for his obligations!
#uth filled one chec& with her name as payee( placed P30(000!00 thereon( endorsed and
deli*ered it to 9arie! ?he accepted the chec& in good faith as payment for goods she
deli*ered to #uth! ,*entually( #uth regretted what she did and apologi4ed to :un!
Immediately he directed the drawee ban& to dishonor the chec&! )hen 9arie encashed
the chec&( it was dishonored!
Is :un liable to 9arie+ ./
SUGGESTED ANSWER:
0es! "his co*ers the deli*ery of an incomplete instrument( under ?ection 1D of the
Negotiable Instruments Law( which pro*ides that there was prima facie authority on the
part of #uth to fill<up any of the material particulars thereof! 2a*ing done so( and when
it is first completed before it is negotiated to a holder in due course li&e 9arie( it is *alid
for all purposes( and 9arie may enforce it within a reasonable time( as if it had been
filled up strictly in accordance with the authority gi*en!
QUESTION:
?upposing the chec& was stolen while in #uthMs possession and a thief filled the blan&
chec&( endorsed and deli*ered it to 9arie in payment for the goods he purchased from
her( is :un liable to 9arie if the chec& is dishonored+ ./
SUGGESTED ANSWER:
No! ,*en though 9arie is a holder in due course( this is an incomplete and undeli*ered
instrument( co*ered by ?ection 1. of the Negotiable Instruments Law! )here an
incomplete instrument has not been deli*ered( it will not( if completed and negotiated
without authority( be a *alid contract in the hands of any holder( as against any person(
including :un( whose signature was placed thereon before deli*ery! ?uch defense is a
real defense e*en against a holder in due course( a*ailable to a party li&e :un whose
signature appeared prior to deli*ery!
2007 BAR EXAMINATION IN MERCANTILE LAW
QUESTION: (10%
# issued a chec& for P19 which he used to pay ? for &illing his political enemy!
!" 6an the chec& be considered a negotiable instrument+
SUGGESTED ANSWER:
0es( the chec& can be considered a negotiable instrument e*en if it was issued to pay
? to &ill his political enemy! "he *alidity of the consideration is not one of the
re1uisites of a negotiable instrument (?ec! 1( NIL! It merely constitutes a defect of
title (?ec! ..( NIL!
#" @oes ?! ha*e a cause of action against # in case of dishonor by the drawee ban&+
SUGGESTED ANSWER:
No( ? does not ha*e a cause of action against # in case if dishonor of the chec& by
the drawee ban&! ? is not a holder in due course( thus( # can raise the defense that
the chec& was issued for an illegal consideration (?ec! .B( NIL!
$" If ? negotiated the chec& to "( who accepted it in good faith and for *alue( may #
be held secondarily liable by "+
SUGGESTED ANSWER:
0es( # may be held secondarily liable by " who too& the chec& in good faith and for
*alue! " is a holder in due course! # can not raise the defense of illegality of the
consideration( because " too& the chec& free from the defect of title of ? (?ec! .S(
NIL!
QUESTION: (10%
Ale- deposited goods for which %illy( warehouseman( issued a negotiable warehouse
receipt wherein the goods were deli*erable to Ale- or order! Ale- negotiated the receipt
to 6aloy! "hereafter( @ario( a creditor secured 5udgment against Ale- and ser*ed notice
of le*y o*er the goods on the warehouseman!
a! "o whom should the warehouseman deli*er the goods upon demand+
SUGGESTED ANSWER:
"he warehouse man should deli*er the goods upon demand to 6aloy who is a holder
of the receipt in good faith and for *alue! "he goods can not be le*ied upon by the
creditor of Ale- after it was negotiated to 6aloy (?ec! 2.( NIL
b! )ould you answer be the same if the warehouseman issued a non<negotiable
warehouse receipt+
SUGGESTED ANSWER:
No( my answer would not be the same if the warehouse man issued a non<negotiable
warehouse receipt! In such case( the warehouseman should deli*er the goods to
@ario( if the notice of le*y was ser*ed on the warehouseman prior to the notification
of the warehouseman by Ale- or 6aloy of the transfer of the non<negotiable receipt!
In such case( the title of 6aloy would be defeated by the notice of le*y by @ario (?ec!
D2( )arehouse #eceipts Law
200% BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
As a rule under the Negotiable Instruments Law( a subse1uent party may hold a prior
party liable but not *ice *ersa! Ii*e two (2 instances where a prior party may hold a
subse1uent party liable! (2/
SUGGESTED ANSWER:
A party may hold a subse1uent party liable in the following instances= (1 in case of an
accommodated partyE and (2 in case of an acceptor for honor!
An accommodation party may hold the party accommodated liable to him( e*en if the
party accommodated is a subse1uent party! "he relation between them is that of a
principal and a surety (Philippine National %an& * 9a4a (1J2.! Aor the same reason( an
acceptor for honor may hold the party for whose honor he has accepted a bill of
e-change liable to him (?ec! 1R1( NIL! A prayer for honor is subrogated to the rights of
the holder as regards the party for whose honor he paid and all parties liable to the
latter (?ec! 1S.( NIL
QUESTION:
2ow does the 7shelter principle8 embodied in the Negotiable Instruments Law operate to
gi*e the rights of a holder<in<due course to a holder who does not ha*e the status of a
holder<in<due course+ %riefly e-plain! (2/
SUGGESTED ANSWER:
"he 7shelter principle8 pro*ides that in the hands of a holder other than a holder in due
course( a negotiable instrument is sub5ect to the same defense as if it were non<
negotiable! "his principle is e-tended to a holder who is not himself a holder in due
course but deri*es his title from a holder in due course( pro*ided( he himself is not a
party to any fraud or illegality affecting the instrument! (?ee ?ec! .B( NIL
QUESTION:
A% 6orporation drew a chec& for payment to $0 %an&! "he chec& was gi*en to an officer
of A% 6orporation who was instructed to deli*er it to $0 %an&! Instead( the officer(
intending to defraud the 6orporation( filled up the chec& by ma&ing himself as the payee
and deli*ered it to $0 ban& for deposit to his personal account! $0 %an& debited A%
6orporation3s account! A% 6orporation came to &now of the officer3s fraudulent act after
he absconded! A% 6orporation as&ed $0 %an& to credit its amount! $0 %an& refused!
a If you were the 5udge( what issues would you consider rele*ant to resol*e the case+
,-plain! (3/
SUGGESTED ANSWER:
If I were the 5udge( I will consider the ff issues= (1 )hether the chec& was a complete
instrumentE (2 whether the chec& has been deli*eredE and (3 whether A% 6orporation
can be held liable for the amount of the chec&!
b 2ow would you decide the case+ (2/
SUGGESTED ANSWER:
"he chec& was an incomplete instrument in as much as the name of the payee was not
written by the drawer( A% 6orp! 2owe*er( the same instrument has been deli*ered by A%
to its officer! "hus( the chec& became binding on A% 6orp as drawer thereof! An
incomplete instrument( if deli*ered( as in this case( creates a liability on the part of a
drawer! "herefore( A% 6orporation cannot as& $0 %an& to recredit the amount of the
chec& to his account!
QUESTION:
Pancho drew a chec& to %ong and Ierard 5ointly! %ong indorsed the chec& and also
forged Ierard3s indorsement! "he payor ban& paid the chec& and charged Pancho3s
account for the amount of the chec&! Ierard recei*ed nothing from the payment!
a Pancho as&ed the payor ban& to credit his account! ?hould the ban& comply+ ,-plain
fully! (3/
SUGGESTED ANSWER:
0es( the ban& should recredit the full amount of the chec& to the account of Pancho!
6onsidering that the chec& was payable to %ong and Ierard 5ointly( the indorsement of
Ierard was necessary to negotiate the chec& pursuant to ?ec! D1( NIL!
?ince %ong forged the signature of Ierard without authority( the indorsement was wholly
inoperati*e!

QUESTION: b %ased on the facts( was Pancho as drawer discharged on the
instrument+ )hy+ (2/
SUGGESTED ANSWER:
Pancho was not discharged on the instrument( because the payment was not in due
course! (?ecs! 11J and 120( NIL
200& BAR EXAMINATION IN MERCANTILE LAW
QUESTION:
Loren4o drew a bill of e-change in the amount of P100(000!00 payable to %arbara or
order( with his wife( @iana( as drawee! At the time the bill was drawn( @iana was
unaware that %arbara is Loren4o3s paramour!
%arbara then negotiated the bill to her sister( ,lena( who paid for it for *alue( and who
did not &now who Loren4o was! 'n due date( ,lena presented the bill to @iana for
payment( but the latter promptly dishonored the instrument because( by then( @iana
had already learned of her husband3s dalliance!
GaH )as the bill lawfully dishonored by @iana+ ,-plain! (3/
SUGGESTED ANSWER:
No( the bill was not lawfully dishonored by @iana! ,lena( to whom the instrument was
negotiated( was a holder in due course inasmuch as she paid *alue therefore in good
faith!
GbH @oes the illicit cause or consideration ad*ersely affect the negotiability of the bill+
,-plain! (3/
SUGGESTED ANSWER:
"he illicit cause or consideration does not ad*ersely affect the negotiability of the bill(
especially in the hands of a holder in due course! >nder ?ec! 1 of the NILU the bill of
e-change is a negotiable instrument! ,*ery negotiable instrument is deemed prima facie
to ha*e been issued for *aluable consideration( and e*ery person whose signature
appears thereon is deemed to ha*e become a party thereto for *alue (?ec! 2D( NIL!

QUESTION:
"#>, or AAL?,! Answer "#>, if the statement is true( or AAL?, if the statement is false!
,-plain your answer in not more than two (2 sentences! (./
---
GdH A document( dated :uly 1.( 200J( that reads= 7Pay to $ or order the sum of
P.(000!00 fi*e days after his pet dog( ?par&y( dies! ?igned 0!8 is a negotiable
instrument!
SUGGESTED ANSWER:
"rue! "he document is sub5ect to a term and not a condition! "he dying of the dog is a
day which is certain to come! "herefore( the order to pay is unconditionalE in compliance
with ?ec! 1( NIL! (Note= this answer presumes there is a drawee

GeH 7A ban& is bound to &now its depositor3s signature8 is an infle-ible rule in
determining the liability of a ban& in forgery cases!
SUGGESTED ANSWER:
Aalse! In cases of forgery( the forger may not necessarily be a depositor of the ban&(
especially in the case of a drawee ban&! 0et( in many cases of forgery( it is the drawee
ban& that is held liable for the loss!
QUESTION:
Iaudencio( a store owner( obtained a P1<million loan from %athala Ainancing 6orporation
(%A6! As security( Iaudencio e-ecuted a 7@eed of Assignment of #ecei*ables(8
assigning 1. chec&s recei*ed from *arious customers who bought merchandise from his
store! "he chec&s were duly indorsed by Iaudencio3s customers!
"he @eed of Assignment contains the following stipulation=
7If( for any reason( the recei*ables or any part thereof cannot be paid by the obligors(
the A??IIN'# unconditionally and irre*ocably agrees to pay the same( assuming the
liability to pay( by way of penalty( three percent (3/ of the total amount unpaid( for the
period of delay until the same is fully paid!8
)hen the chec&s became due( %A6 deposited them for collection( but the drawee ban&s
dishonored all the chec&s for one of the following reasons= 7account closed(8 7payment
stopped(8 7account under garnishment(8 or 7insufficiency of funds!8 %A6 wrote
Iaudencio notifying him of the dishonored chec&s( and demanding payment of the loan!
%ecause Iaudencio did not pay( %A6 filed a collection suit!
In his defense( Iaudencio contended that GaH %A6 did not gi*e timely notice of dishonor
(of the chec&sE and GbH considering that the chec&s were duly indorsed( %A6 should
proceed against the drawers and the indorsers of the chec&s!
Are Iaudencio3s defenses tenable+ ,-plain! (./
SUGGESTED ANSWER:
No( Iaudencio3s defenses are untenable! "he cause of action of %A6 was really on the
contract of loan( with the chec&s merely ser*ing as collateral to secure the payment of
the loan! %y *irtue of the @eed of Assignment which he signed( Iaudencio undertoo& to
pay for the recei*ables if for any reason they can not be paid by the obligors (Velas1ue4
* ?olidban& 6orporation G200BH