ANSWERS IN ESSAY QUESTIONS

#1

D – Drawer; P – Payee
Check is for P50,000

 x
P------------B-----------A
($50,000)

a. Section 14 of NIL

b. Yes, A can enforce payment on the instrument against D. Although the

personal defense of filling out not within authority (not material alteration or
want of authority) is present, it can not be raised against A because of the
shelter rule. Hence, A, a non-HIDC, enjoys the rights of a HIDC and can
enforce payment on the instrument. He can enforce it for $50,000 because it is
the amount which was indorsed to him by B.

#2

Bill of exchange; order instrument

A – Drawer; P – payee; B – drawee

x
P--------V-------W-------X-------Y-------Z-------H
SI BI D SI SI BI

a. X’s contention is not correct. W can validly deliver the instrument since the
blank indorsement of his indorser converts the instrument into a bearer
instrument.

b. H can not hold P liable. H can not trace his title to the indorsement of P as it
was cut off by the delivery of W to D.

c. H can hold Z liable. H can trace his title to the indorsement of Z. Also, he is an
immediate party.
 d. H can either indorse or deliver the instrument. The instrument being originally
an order instrument was converted into a bearer instrument.

#3

Promissory note; order instrument

M – maker; P – payee

P-----------A / T---------B(X)-----------C------------D

a. D can not hold M liable by virtue of the cut-off rule. M is a party prior to the
forgery, hence, can not be held liable.

b. D can enforce payment against T as the forger and C and X as indorsers.

c. X can not ask reimbursement from M since he has no privity with him. His
only privy is B, the one he accommodated. X, then, should ask reimbursement
from B.

#4

Bill of exchange; order instrument

D – drawer; P – payee; X – drawee bank; Y – collecting bank;

P(T)---------Y---------X

a. X bank can not debit the amount it paid against D. D is a party prior to the
forgery. The consequence of Y and X’s negligence can not be passed to D.

b. X bank should ask reimbursement from T, forger, or Y which by forwarding

the check for clearing acted as the last indorser.

c. Y bank should bear the loss. As between two negligent parties, the one which
made the loss possible should bear the loss. Y’s recourse is to go after T, the
forger.