1. Company X issued a Bank A Check No. 12345 in the amount of P500,000.

00 payable to
the Bureau of Internal Revenue (BIR) for the company's taxes for the third quarter of 1997.
The check was deposited with Bank B, the collecting bank with which the BIR has an
account. The check was subsequently cleared and the amount of P500,000.00 was
deducted from the company's balance. Thereafter, Company X was notified by the BIR of
its non-payment of its unpaid taxes despite the P500,000.00 debit from its account. This
prompted the company to seek assistance from the proper authorities to investigate on the
matter.
The results of the investigation disclosed that unknown then to Company X, its chief
accountant Bonifacio Santos is part of a syndicate that devised a scheme to syphon its
funds. It was discovered that though deposited, the check was never paid to the BIR but
was passed on by Santos to Winston Reyes, Bank B's branch manager and Santos' co-
conspirator. Instead of bringing the check to the clearing house, Reyes replaced Check No.
12345 with a worthless check bearing the same amount, and tampered documents to cover
his tracks. No amount was then credited to the BIR. Meanwhile, Check No. 12345 was
subsequently cleared and the amount therein credited into the accounts of fictitious persons,
to be later withdrawn by Santos and Reyes.
Company X then sued Bank B for the amount of P500,000.00 representing the amount
deducted from its account. Bank B interposed the defense that Company X was guilty of
contributory negligence since its confidential employee Santos was an integral part of the
scheme to divert the proceeds of Check No. 12345. Is Company X entitled to reimbursement
from Bank B, the collecting bank? Explain. (5%)

2. X owns 10,000 shares in Z Telecoms Corp. As he is in immediate need of money, he

offered to sell all his shares to his friend, Y, at a bargain price. Upon receipt of the purchase
price from Y, X proceeded to indorse in blank the certificates of shares and delivered these
to Y. The latter then went to the corporate secretary of Z Telecoms Corp. and requested the
transfer of the shares in his name. The corporate secretary refused since X merely indorsed
the certificates in blank to Y. According to the corporate secretary, the certificates should
have been specifically indorsed to the purchaser, Y. Was the corporate secretary justified in
declining Y's request? Discuss. (5%)

3. After securing a Pl million loan from B, A drew in B's favor a bill of exchange with C as
drawee. The bill reads: "October 1, 2016. Pay to the order of B the sum of P1 million. To: C
(drawee). Signed, A." A then delivered the bill to B who, however, lost it. It turned out that it
was stolen by D, B's brother. D lost no time in forging B's signature and negotiated it to E
who acquired it for value and in good faith.
May E recover on the bill from C, the drawee? Explain. (5%)

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].
K. NEGOTIATOR BY DELIVERY

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].

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].
46. A drew a check for P1,000.00 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 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].

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].

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].

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].