ST.

MARY’S COLLEGE
COLLEGE OF LAW
NEGOTIABLE INSTRUMENTS LAW

FINAL EXAM

1. Chesca took out a loan amounting to Php 500 000.00 to Nathalia. As a security, Chesca
provided Nathalia with ABC Managers Check worth of Php 400 000.00 originally dated on
February 8, 2019 and later changed it to May 8, 2019 with the consent of Nathalia. The
check was later on dishonored for material alteration. On August 2019, Chesca paid Php
350 000.00 of her loan. The balance is to be paid on December of that year. Due to
dishonor, Nathalia filed an action for sum of money and damages against ABC Bank. (10
points)
a. Is the bank liable to Nathalia? Explain
b. Is the bank liable to Chesca? Explain
c. What is the liability of the bank if any? Explain

2. Gary maintains a current account with ABC Bank. He together with Peter signed as
endorsers of a note issued by the Veterans Bureau payable to the order of Francisco. ABC
cashed the check but was subsequently dishonored by XYZ Bank. ABC then sent notices
to Gary which could not be delivered to him at that time because he was out of the
country. ABC in the letter informed Gary the outstanding balance on his account was
applied to the part of payment of the dishonored check. (5 points)
a. Is the offsetting done by the bank proper? Explain
b. Is the bank liable to reimburse Gary?

3. ABC Company and Grace entered into an agreement on the sale of lot, as such ABC
Company issued a Cashiers check worth Php 5 000 000.00 in favor of Grace. Three years
have passed but Grace did not adhere into the agreement and even asked to nullify the
same as accordingly there was no valid sale that happened. Grace argued that there was
no valid sale as ABC paid her a check which is not a valid tender as repeatedly emphasize
by the Supreme Court in its decision, and that she was not able to encash the same,
additionally the value of the property after three years doubled, henceforth, she will be
prejudice. (10 points)
a. Compare and contrast bill of exchange and check.
b. If you will be the judge in the above-mentioned case, how will you resolve the
issue?
c. Is good faith required in the issuance of a check?

4. Roger, went to buy two garrett skidders (bulldozers) from Northwest Company
amounting to P970,000.00. To pay the bulldozers, Roger agreed to open a letter of credit
with the ABC Bank. Pursuant to this, Northwest Company shipped one of the bulldozers
to Roger. Meanwile, Roger advised Northwest Company that in order for the letter of
credit to be opened, Roger needs to deposit P427,300.00 with ABC Bank, and that since
Roger is a little short, it requested Northwest Company to pay the deposit in the
meantime. Northwest Company agreed and so it eventually sent a check in the amount
of P427,300.00. The check read: Pay to the ABC Bank Order of A/C of Roger. Northwest
Company sent the check to Roger so that it would be the latter who could send it to ABC
Bank to cover the deposit in lieu of the letter of credit. Roger received the check, he went
to ABC Bank, and the teller received the check. The teller, instead of applying the amount
as deposit in lieu of the letter of credit, credited the check to Roger’s account with ABC
Bank. Roger later withdrew all the P427,300.00 and appropriated it to himself. Northwest
sued the ABC Bank and asked for reimbursement as it was not the agreement in the
letters of credit. Is the Bank liable? If yes for how much? If No, why not? (5 points)
5. Roel, a foreigner, purchased from the Gold Palace Jewellery Co. several pieces of jewelry
valued at P258,000.00. In payment of the same, he offered Foreign Draft No. M-069670
issued by the United Overseas Bank (Malaysia) addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.

The manager of Gold Palace issued Cash Invoice, to Roel, informing him that the pieces of
jewelry would be released when the draft had already been cleared. The manager of Gold
Palace deposited the draft in the company’s Far East account. LBP cleared the draft, and
GoldPalace’s account with Far East was credited.

Roel was then able to get the goods, and because the amount in the draft was
more than the value of the goods purchased, she issued, as his change, Far East Check No.
173088 for P122,000.00. This check was later presented for encashment and was, in fact,
paid by the said bank. On June 1998, or after around three weeks, LBP informed Far East
that the amount in said Foreign Draft had been materially altered from P300.00 to
P380,000.00 and that it was returning the same. Intending to debit the amount from Gold
Palace account, Far East subsequently refunded the P380,000.00 earlier paid by LBP.
Meanwhile, Far East was able to debit only P168,053.36 from the GoldPalace’s account
as it has already utilized their funds. This was debited without their permission. The bank
informed the GoldPalace later thru a phone call. Thereafter, Far East Bank demanded
from Gold Palace the payment of P211,946. Because Gold Palace did not heed the
demand, Far East consequently instituted civil case for sum of money and damages.
(10 Points)
a. What is the liability of the acceptor?
b. Is GoldPalace liable to Far East? (Explain)

6. Noel deposited in Foreign Currency Deposit Unit (FCDU) Savings Account which he
maintained in ABC Bank a Continental Bank Manager’s Check payable to cash in the
amount of Two Thousand Five Hundred Dollars and duly endorsed by Noel on its dorsal
side. It appears that the check belonged to Harry who went to the office of Noel and
requested him to deposit the check in his dollar account. Noel agreed to deliver to Harry
a signed blank withdrawal slip with the understanding that as soon as the check is cleared,
both of them would withdraw upon Noel’s presentation of his passbook. Using the blank
withdrawal slip, one Ruben was able to withdraw the amount. It was later found out that
the check was counterfeit. ABC filed a complaint against Noel praying for the return of
the amount of $2,500.00 plus interest. (10 points)
a. Is Noel liable under his warranties as a general indorser?
b. Is ABC Bank grossly negligent in allowing the withdrawal?

7. Chesca issued a check in favor of Nathalia containing a specific serial number, drawn
against PNB. The check was deposited by Nathalia in its account with BDO and the latter
consequently deposited the same with its account with PBCOM which later deposited it
with PNB for clearing. The check was thereafter cleared. However, on a relevant date,
PNB returned the check on account that there had been a material alteration on it.
Subsequent debits were made but BDO cannot debit the account of Nathalia any longer
for the latter had withdrawn all the money already from the account. This prompted BDO
to seek reclarification from PBCOM and demanded the recrediting of its account. PBCOM
followed suit by doing the same against PNB. Demands unheeded, it filed an action
against PBCOM and the latter filed a third-party complaint against PNB. (10 points)
a. What is material alteration? State its effect.
b. When is alteration material?
c. Is the alteration in the above-stated facts material? Why?
8. On 12 November 1994, Cherry issued a Metrobank Check, payable to “CASH” and
postdated on 24 November 1994 in the amount of One Thousand Pesos (P 1,000.00). The
check was drawn against Cherry’s Account with Metrobank Rizal Branch and was paid by
Cherry to a certain Mr. Marquez, as his sales commission. Subsequently, the check was
presented to BDO Bank for payment. BDO Bank, in turn, indorsed the check to Metrobank
for appropriate clearing. After the entries thereon were examined, including the
availability of funds and the authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules. When Metrobank called Cherry, she negated issuing the said
check to Mr. Marquez. Cherry discovered that Metrobank Check No. 985988 which he
issued on 12 November 1994 was altered in the amount of P 91,000.00 and the date 24
November 1994 was changed to 14 November 1994. (10 points)
a. Was the alteration made on the check issued by Cherry material? What is the
effect of the alteration?
b. Who shall bear the lost in the above-given statement?

9. In a case for collection of sum of money filed by Ricardo against New Pacific Timber, a compromise
judgment was rendered against the latter. For it’s failure to comply with judgment obligation, a
writ of execution was issued for the amount of P63,130.00 pursuant to which, the Ex-Officio
Sheriff levied on the personal properties of the petitioner. Before the date of the auction sale,
petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in
Cashier's Check of the Equitable Banking Corporation and P13,130.00 in cash. Private respondent
refused to accept the check and the cash and requested for the auction sale to proceed. The
properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00.

New Pacific subsequently filed an ex-parte motion for issuance of certificate of satisfaction of
judgment which was denied by the Judge. (5 points)
a. What is the effect of issuance of cashier’s check?
b. Is the denial of the judge in the issuance of certificate of satisfaction correct? Why?

10. PRMI entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile
machineries under a 5-year deferred payment plan. To effect the payment, PRMI applied for a
commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Against
this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential
Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were
accepted by PRMI through its president, Anacleto R. Chi, while the others were not. PRMI was
able to take delivery of the textile machineries and installed the same at its factory site. Chi argued
that presentment for acceptance was necessary to make PRMI liable. (5 points)
a. When is presentment for acceptance necessary?
b. In the above-given statement, is presentment for acceptance necessary?

11. Jose Ponce De Leon and Francisco Soriano requested for a loan from the Rehabilitation Finance
Corporation (RFC) for P495, 000.00. The loan was secured by a parcel of land owned by Soriano.
A deed of mortgage was then executed as security for the loan. Soriano and Ponce de Leon also
executed a promissory note in the amount of P495, 000.00 payable in monthly installments. Part
of the P495, 000.00 was used to pay off the previous encumbrances amounting to P135, 000.00
on the property of Soriano. The rest were released to Ponce de Leon in various amounts from
December 1951 to July 1952, still pursuant to the deed of mortgage. De Leon and Soriano failed
to pay their loan obligation. Consequently, RFC initiated a foreclosure proceeding on the
mortgaged property. According to RFC, the monthly payments were supposed to be due in
October 1952. In his defense, Ponce de Leon insists that the amortizations never became due
because allegedly, RFC did not complete the disbursement of the loan to him, alleging that P19,
000.00 was withheld. He also argued that on the face of the promissory note it was written that
the installments have “no fixed or determined dates of payment”. Hence, the monthly payments
were never due therefore the foreclosure is void. He insists that the court should first determine
the date of maturity of the loan. (10 points)
a. Is the promissory note executed by De Leon and Soriano in favor of RFC negotiable
instrument?
b. Is the loan is due and demandable despite the absence of an express time for payment?
12. Answer the following for 10 points
a. What is the effect of a forged document?
b. Differentiate Material alteration from forgery as to its effect and validity