2009 Bar Examination in Mercantile Law Negotiable Instruments Law

VI. Lorenzo drew a bill of exchange in the amount of P100,000.00 payable to Barbara or order, with his wife, Diana, as drawee. At the time the bill was drawn, Diana was unaware that Barbara is Lorenzos paramour. Barbara then negotiated the bill to her sister, Elena, who paid for it for value, and who did not know who Lorenzo was. On due date, Elena presented the bill to Diana for payment, but the latter promptly dishonored the instrument because, by then, Diana had already learned of her husbands dalliance.

[a] Was the bill lawfully dishonored by Diana? Explain. (3%) [b] Does the illicit cause or consideration adversely affect the negotiability of the bill? Explain. (3%)

SUGGESTED ANSWER: [a] No, the bill was not lawfully dishonored by Diana. Elena is a holder in due course under Sec. 52 of Act No. 2031 inasmuch as she paid value therefore in good faith when the bill was negotiated to her. [b] The illicit cause or consideration does not adversely affect the negotiability of the bill, especially in the hands of a holder in due course. Under Sec. 24 of Act no. 2031, every negotiable instrument is deemed prima facie to have been issued for valuable consideration, and every person whose signature appears thereon is deemed to have become a party thereto for value.

Part II XI. TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false. Explain your answer in not more than two (2) sentences. (5%)

[d] A document, dated July 15, 2009, that reads: Pay to X or order the sum of P5,000.00 five days after his pet dog, Sparky, dies. Signed Y. is a negotiable instrument.

[e] A bank is bound to know its depositors signature is an inflexible rule in determining the liability of a bank in forgery cases.

SUGGESTED ANSWER: [d] True. The instrument is negotiable since it complies with Sec. 1 of Act No. 2031. The order to pay is unconditional under Sec. 1(b) since the instrument is subject to a term and not to a condition. The dying of the dog is an event that is certain to happen, even though the time of its happening is not known.

[e] False. In cases of forgery, the forger may not necessarily be a depositor of the bank, especially in the case of a drawee bank. Yet, in many cases of forgery, it is the drawee bank that is held liable for the loss.

XII. Gaudencio, a store owner, obtained a P1-million loan from Bathala Financing Corporation (BFC). As security, Gaudencio executed a Deed of Assignment of Receivables, assigning 15 checks received from various customers who bought merchandise from his store. The checks were duly indorsed by Gaudencios customers. The Deed of Assignment contains the following stipulation: If, for any reason, the receivables or any part thereof cannot be paid by the obligors, the ASSIGNOR unconditionally and irrevocably 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.

When the checks became due, BFC deposited them for collection, but the drawee banks dishonored all the checks for one of the following reasons: account closed, payment stopped, account under garnishment, or insufficiency of funds. BFC wrote Gaudencio notifying him of the dishonored checks, and demanding payment of the loan. Because Gaudencio did not pay, BFC filed a collection suit. In his defense, Gaudencio contended that [a] BFC did not give timely notice of dishonor (of the checks); and [b] considering that the checks were duly indorsed, BFC should proceed against the drawers and the indorsers of the checks. Are Gaudencios defenses tenable? Explain. (5%)

SUGGESTED ANSWER: No, Gaudencios defenses are untenable. The cause of action of BFC was really on the contract of loan, with the checks merely serving as collateral to secure the payment of the loan. By virtue of the Deed of Assignment which he signed, Gaudencio undertook to pay for the receivables if for any reason they cannot be paid by the obligors. Liability under the deed of assignment was not extinguished by untimely giving of notice of dishonor by BFC because the liability under the deed of assignment is direct, primary, and independent from the liability under the check. (Velasquez vs. Solidbank Corporation, G.R. No. 157309, March 28, 2008)