QUIZ

A issued a promissory note payable to B or bearer. A delivered the note to B. B indorsed the note to C. C placed
the note in his drawer, which was stolen by the janitor X. X indorsed the note to D by forging C’s signature. D
indorsed the note to E who in turn delivered the note to F, a holder in due course, without indorsement. Discuss
the individual liabilities to F of A, B and C.

A: A is primarily and unconditionally liable to F as the maker of the promissory note. Section 60 provides that, by
making the instrument, the maker obliges himself to pay according to the tenor of the instrument. He is liable to
both payee and subsequent holder in due course. Despite the presence of the special indorsements on the note,
these do not detract from the fact that a bearer instrument, like the promissory note in question, is always
negotiable by mere delivery, until it is indorsed restrictively “For Deposit Only.” B as a general indorser is
secondarily liable to F. By placing his signature on the bearer instrument, he warrants that the instrument is
genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity
to contract; that he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless; that at the time of indorsement, the instrument is valid and subsisting; 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 taken, he will pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay. C, however, cannot be held liable because the signature purporting to
be his is a product of forgery. C can raise the defense of forgery since it his signature that was forged.

2. Q: On the right bottom margin of a PN appeared the signature of the corporation’s president and treasurer
above their printed names with the phrase “and in his personal capacity.” The corporation failed to pay its
obligation. Are the officers liable?

A: YES, persons who sign their names on the face of promissory notes are makers and liable as such. As the
promissory notes are stereotype ones issued by the bank in printed form with blank spaces filled up as per
agreed terms of the loan, following customary procedures, leaving the debtors to do nothing but read the terms
and conditions therein and to sign as makers or co-makers. The officers are co-makers and as such, they cannot
escape liability arising therefrom (Republic Planters Bank v. CA, G.R. No. 93073, December 21, 1992).

3. Q: Richard Clinton makes a promissory note payable to bearer and delivers the same to Aurora Page. Aurora
Page, 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?

A: YES, Richard Clinton is liable for the promissory note. Under Section 60 of the NIL, the maker of a negotiable
instrument, by making the same, engages that he will pay according to its tenor, and admits the existence of the
payee and his then capacity to indorse. The liability of the maker is primary which means he is absolutely and
unconditionally required to pay. He engages to pay the instrument according to its terms without any condition.
He is not only liable to the payee but also to the subsequent holder in due course. Since the instrument is a
bearer instrument (which nature was not changed even if it was specially indorsed by Aurora), Napoleon
became a legal holder thereof by mere delivery from X to him. Thus, as a legal holder of the promissory note, he
is entitled to proceed against the maker thereof, Richard Clinton.
4. Q: 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 instrument of D, succeeds in "negotiating" it to F who acquires the
instrument in good faith and for value. a. If for any reason, the drawee bank refuses to honor the check, can F
enforce the instrument against the drawer? b. 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?

YES, F can proceed against the drawer, A, in case of dishonor by the drawee bank. Section 61 of the NIL provides
that by drawing the instrument, the drawer engages that the instrument will be accepted or paid or both
according to its tenor. Not only is the drawer obliged to pay the amount of the instrument to the holder, but he
shall likewise be liable to the subsequent indorser who was compelled to pay it. The forged signature is
unnecessary to presume the juridical relation between or among the parties prior to the forgery and the parties
after the forgery. Moreover, the only party who can raise the defense of forgery against a holder in due course is
the person whose signature is forged. b. Only B and C can be held liable by F. According to Section 67, when a
person puts his signature on a bearer instrument as a form of indorsement, he becomes subject to all liabilities
of an indorser. D cannot be held liable as an indorser because his signature is forged by E, hence, there was no
consent from D. The forged signature is deemed inoperative and no right can arise out of it. However, the effect
of being inoperative affects only the signature which is the product of forgery. It will not deem to affect other
signatures subscribed with knowledge and voluntariness. Therefore, B and C are liable as indorsers.

5. Q: Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to take Brad’s
life if he failed to pay. Brad and Pete went to see Señorita Isobel, Brad’s rich cousin, and asked her if she could
sign a promissory note in his favor in the amount of P10,000.00 to pay Pete. Fearing that Pete would kill Brad,
Señorita Isobel acceded to the request. She affixed her signature on a piece of paper with the assurance of Brad
that he will just fill it up later. Brad then filled up the blank paper, making a promissory note for the amount of
P100,000.00. He then indorsed and delivered the same to Pete who accepted the note as payment of the debt.
What defense or defenses can Señorita Isobel set up against Pete? Explain.

a. Incomplete but delivered instrument. The authority she gave Brad was to fill up the note for P10,000.00 only
and not P100,000.00. This is a personal defense that may be raised against Pete who is clearly not a holder in
due course. b. Force and intimidation. Señorita Isobel was forced and intimidated into writing and issuing the
note as she was threatened that Pete would kill Brad, her cousin if the debt is not paid.

6. Q: AB issued a promissory note for P1,000 payable to CD or his order on September 15, 2002. CD indorsed the
note in blank and delivered the same to EF. GH stole the note from EF and on September 14, 2002 presented it
to AB for payment. When asked by AB, GH said CD gave him the note in payment for two cavans of rice. AB
therefore paid GH P1,000 on the same date. On September 15, 2002, EF discovered that the note of AB was not
in his possession and he went to AB. It was then that EF found out that AB had already made payment on the
note. a. Can EF still claim payment from AB? Why? b. As a sequel to the same facts narrated above, EF, out of
pity for AB who had already paid P1,000 to GH, decided to forgive AB and instead go after CD who indorsed the
note in blank to him. Is CD still liable to EF by virtue of the indorsement in blank? Why? (2002 Bar)

A: a. Since the instrument became a bearer instrument, EF could no longer claim payment from AB. EF is not a
holder of the promissory note. To make the presentment for payment, it is necessary to exhibit the instrument,
which EF cannot do because he is not in possession thereof. b. NO, because CD negotiated the instrument by
delivery.

7. Q: Gemma drew a check on September 13, 2010. The holder presented the check to the drawee bank only on
March 5, 2012. The bank dishonored the check on the same date. After dishonor by the drawee bank, the holder
gave a formal notice of dishonor. a. What is meant by reasonable time as applied to presentment? b. Is Gemma
still liable to the holder?

A: a. Reasonable time is relative. Regard is to be had to the facts of each case, usage of business and trade, and
the nature of the instrument (FUN). b. With respect to checks, current banking practice dictates that the check
becomes stale if it is not presented for payment within 6 months from issuance. c. NO. Gemma is discharged
from secondary liability under the check because presentment and notice of dishonor were made after an
unreasonable length of time. The check was already stale at the time of presentment.

8. Q: Notice of dishonor is not required to be made in all cases. One instance where such notice is not necessary
is when the indorser is the one to whom the instrument is supposed to be presented for payment. (2011 Bar)

A: The rationale here is that the indorser already knows of the dishonor and it makes no sense to notify
him of it.

9. Q: A bill of exchange states on its face: “One (1) month after sight, pay to the order of Mr. R the amount of
Php 50,000.00, chargeable to the account of Mr. S. Signed, Mr. T.” Mr. S, the drawee, accepted the bill upon
presentment by writing on it the words “I shall pay Php 30,000.00 three (3) months after sight.” May he accept
under such terms, which varies the command in the bill of exchange?

A: YES, since a drawee is allowed to effect a qualified acceptance in which case he shall be liable
according to the tenor of his acceptance.

10. Q: X, drawee of a bill of exchange, wrote the words: “Accepted, with promise to make payment within two
days. Signed, X.” The drawer questioned the acceptance as invalid. Is the acceptance valid?

A: YES, because the acceptance is in reality a clear assent to the order of the drawer to pay. Qualified
acceptance as to time is allowed [NIL, Sec. 141 (d)]

11. Instances when a bill of exchange may be treated as a promissory note

A: 1. The drawer and the drawee are the same person 2. The drawee is a fictitious person 3. The drawee
has no capacity to contract 4. The instrument is so ambiguous that there is doubt whether it is a bill or a note
(Sundiang Sr. & Aquino, 2014, citing NIL, Secs. 17[e] and 130).

12. Q:

14. Q: P authorized A to sign a negotiable instrument in his (P’s) name. It reads: “Pay to B or order the sum of
Php1 million. Signed, A (for and in behalf of P).” The instrument shows that it was drawn on P. B then indorsed
to C, C to D, and D to E. E then treated it as a bill of exchange. Is presentment for acceptance necessary in this
case? (

A: NO, since the drawer and drawee are the same person

15. Q: Juben issued to Y two post-dated checks as security for pieces of jewelry to be sold. Y negotiated the
check to S. When Juben failed to sell the jewelry, he withdrew all his funds from the drawee bank. After
dishonor, Juben contends that the holder failed to give him a notice of dishonor. Is notice of dishonor
necessary?

A: NO, Juben was responsible for the dishonor of his checks, hence, there was no need to serve him notice of
dishonor
16. What are the effects of failure to give notice of dishonor?

17. How shall notice of dishonor be given?

18. W, drawer, and X, drawee of a bill of exchange payable to Y or order. The bill was dishonored by non-
acceptance by X. Y failed to give notice of dishonor to W within the prescribed time. Before maturity, Y indorsed
the bill of Z, a holder in due course. State the liability of W as to Y, and of W and Y as to Z.

19. W, drawer, and X, drawee, and Y, payee, of a bill of exchange. X informed W by letter of his acceptance. W,
in turn, sent a telegram to Y notifying him of the acceptance. X changed his mind. Is X released from liability to
Y?

20. . W, drawer, and X, drawee, and Y, payee and indorser, and Z indorsee and present holder of a bill of
exchange. The bill was dishonored by non-acceptance by X before maturity.

A. Does Z has a right to proceed immediately against W and Y. Why?

B. Same problem. The bill was presented for acceptance one day late. Is this sufficient ground to discharge W
and Y?