1988 Bar Question

Question:

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.

Answer:

Bing, not being an indorser, may only be held liable for breach of warranty but the facts in the
problem do not disclose any such breach.

Carmen, under her special indorsement, may be held secondarily liable by Dong and
Emma since the latter (Dong and Emma) derived title under Carmen’s special indorsement.
Carmen is not secondarily liable to Fe since the latter obtained it by mere delivery from Emma
and therefore did not obtain title through Carmen’s special indorsement.

Dong holds himself secondarily liable to Emma since the latter derived title under
Dong’s special indorsement but not to Fe who acquired the instrument only by delivery.

Emma, not being an indorser, is not secondarily liable to Fe. Emma’s only possible
source of liability to Fe would be for a breach of warranty but the facts in the problem do not
disclose any such breach.

Secondary liability requires due notice of dishonor, unless excused, which we assume
had properly been observed.

Doctrine:

Topic: NEGOTIATOR BY DELIVERY