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Negotiable Instruments Law

Mid-Term Pointers / Reviewer
LL.B. II, SY 2018-19

PART I [Assume that all names are refer to real and legitimate persons]

1. Alpo drew a check for P10k payable to the order of Bravo and Charlie
jointly. Bravo indorsed it and forged the signature of Charlie. Upon
presentment, the bank paid the check and debited Alpo’s account. Bravo
pocketed the money and squandered all of it in the casino. Later Alpo
learned about what happened and asked the bank to credit back the amount
of P10k to his account. (a) Can the bank validly refuse to comply? Explain.
(b) If Charlie claims for his share, can Antonio validly refuse to pay him?

2. Delta deposited with Pangako Bank a Treasury Bill placement of 1 Million.

Upon its maturity, somebody called the bank, pretending to be Delta and
gave the bank instructions to pay the proceeds, by way of a Manager’s
Check (MC), to his best friend Foxtrot. Thereafter, the MC which bore the
forged signature of Delta was deposited in Foxtrot’s account with Tupad
Bank, which processed the same and stamped it with “all prior indorsements
and/or lack of indorsements guaranteed”. Upon processing of the MC for
clearing, Pangako Bank clears and pays the check. Subsequently, Delta
discovers the unauthorized payment and forgery and sues Pangako Bank,
which, in turn, files a third party complaint against Tupad Bank. Discuss the
respective rights and liabilities of both banks.

3. Explain whether the instrument is negotiable or not.

(a) I promise to pay De Lima or bearer P100k from the inheritance that I will
get upon the death of my wife. Signed: Sweetie
(b) I promise to pay Juliet or order P100k if my father dies. Signed: Lima
(c) I promise to pay P100k to the order of Rodrigo 10 days after I pass the
Bar Exams. SIGNED: Antonio
(d) I promise to pay P100k to Ping or bearer on or before 31 December
2017. SIGNED: Tito
(e) I promise to pay P100k to Koko or bearer. SIGNED: Dick.

4. Bruno issued a bearer check for P1.0M to a hired killer, as payment for
the assassination of his political enemy.
(a) Is the check a negotiable instrument, under the circumstances? Explain.
(b) If the check is dishonored by the drawee bank, would the bearer have a
cause of action against Bruno? Explain.

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(c) If the hired killer negotiates the check to Bebang, who accepts it in good
faith and for value, may Bruno be held liable to Bebang? Explain.

5. An instrument reads as follows: To: Bong. Pay to the order of Bang the
sum of P50k five days after the death of his pet fish, Nemo. SIGNED: Bing.
A few days later, Nemo dies.
(a) Is the instrument negotiable? Explain.
(b) Is the instrument subject to a term or a condition? Why?
(c) If the name of the fish “Nemo” is not specified. Would your answer be
the same as in letter (a) above? Explain.

6. Ping borrowed P1.0 Million from Pong and issued a check for the same
amount as payment. Pong indorsed the check to Pang without consideration.
When deposited to the latter’s account, the check was dishonored for
insufficiency of funds.
(a) Is Pang a holder in due course? Explain.
(b) Who is liable on the check? Explain
(c) Identify the drawer, drawee, payee and holder.

7. Under the NIL, a subsequent party may hold a prior party liable, but NOT
vice-versa. What are the instances when a prior party may hold a
subsequent party liable on the negotiable instrument? Explain.

8. Under the NIL, how can a holder (not in due course) acquire the rights
and status of a holder in due course? Explain.

9. Paolo bought 3k kilos of rice from Paola for P300k. He paid by way of LBP
check drawn by Paulino but indorsed by Paulina. Upon presentment, the
check was dishonored for the reason: Closed Account. As a replacement,
Paolo indorsed a crossed check drawn by Paulino against BPI for P300k.
Upon presentment, the check was again dishonored for insufficient funds.
Paola sued Paolo and Paulino on the dishonored BPI check. Paolo interposed
the defense that the LBP check was discharged by novation when Paola
accepted the crossed BPI check as replacement of the LBP check, citing Sec.
119 of the NIL (discharge of negotiable instruments). Is Paolo correct?

10. Under the NIL, the intentional cancellation of the signature of a person
secondarily liable will discharge such person. With respect to an indorser, is
the holder’s right to cancel his signature absolute or subject to limitations?

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PART II – Discuss fully. Mere re-statement of the codal provisions will not
suffice. You may use illustrations or examples.

11. What are the effects of forgery of a negotiable instrument?

12. What is the rule on material alteration of a negotiable instrument?

13. Who is a holder in due course?

14. Outline the incidents in the life of a negotiable bill of exchange where:
(a) It is accepted and paid.
(b) Not accepted but paid.
(c) Not accepted. Not paid.

15. Outline the incidents in the life of a negotiable promissory note, where:
(a) It is paid.
(b) It is dishonored.

16. Discuss the respective rights and liabilities of the drawer, drawee bank,
collecting bank & payee in case of forgery of a check:

(a) In the signature of the drawer.

(b) In the signature of an indorser.

17. Distinguish a negotiable PN from a negotiable Bill of Exchange.

18. Distinguish a negotiable Bill of Exchange from a Check.

19. Under the NIL, how would you classify a check? Explain.

20. What do you understand form the term “Per Proc.”?

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