Ateneo De Manila University – School of Law

Negotiable Instruments Final Exam

Answer Sheet (December 2020)
Atty. Francis Joseph H. Ampil

Exam Number: 2020-S1-375

Time started exam: 1:10
Time finished exam: 3:10

I. Comprehension and Understanding (40 pts). Just answer the question.

1. An incomplete but delivered instrument is a personal defense available only against holders
not a holder in due course. The law provides that every contract on a negotiable instrument is
incomplete and revocable until delivery. That where the instrument is in the hands of a holder in
due course, a valid delivery by all parties prior to him is conclusively presumed. To compare
with a undelivered and an incomplete instrument, it will not, if completed and negotiated
without authority, be a valid contract in the hands of any holder. This is a real defense available
even against a holder in due course.

2. An instrument originally bearer is always a bearer instrument and may be negotiated by

mere delivery without indorsement. Such instrument may be indorsed specially in which only
subsequent parties who can trace their title to such indorser would grant them recourse. On the
other hand, an originally order instrument, is negotiated upon indorsement and delivery. When
the signature of the indorser is in blank, it is converted to a bearer instrument and may be
negotiated by delivery.

3. A person who negotiates by mere delivery may not be held secondarily liable but is liable
for the breach of his warranties under Sec. 65 of the NIL. Such warranty only extends in favor of
his immediate transferee. A general indorser is a person who warrants without qualifications the
warranties enumerated under Section 65 and 66 of the NIL and is thus liable to all parties
subsequent to him for such breach. As a result, such person may be held secondarily liable in
case of dishonor of the instrument.

4. The use of a false date as a defense will not avoid a holder in due course but as to him, the
date inserted is to be regarded as the true date. Material alteration as a defense will not avoid a
holder in due course who is not a party to such alteration, but he may only enforce payment
according to its original tenor.

5. A protest is made on the day and place of dishonor and is required only in cases of a
dishonor of a foreign bill which is apparent on its face. It is always written and includes
presentment, notice of dishonor and all the steps accompanying dishonor. Such is either made by
the notary public or by any respectable resident in the presence of a witness. On the other hand,
a notice of dishonor is made within the limits prescribed under the NIL and covers any
negotiable instrument other than a foreign bill. Such notice of dishonor may be oral or written
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and may be given by the party or his agent. It is only limited to the notice.

6. An acceptance for honor requires that the bill of exchange has been protested by non-
acceptance or for better security. It also requires that the bill be not overdue and must be a
stranger to the bill and must secure the consent of the holder. There can also be several acceptors
for honor. On the other hand, in a payment for honor the bill must be protested for non-payment
and that such bill be overdue. The consent of the holder is not required and his refusal would
lead to the discharge of the parties who would be discharged by such payment. There may only
be one payer for honor.

7. A crossed check is a check bearing on its face two parallel and diagonal lines. Such check
may only be deposited in the bank and cannot be encashed. It may only be negotiated once and
serves as a warning to any holder that the crossed check was issued for a definite purpose so that
the holder must inquire if he received such check pursuant to the purpose, otherwise he is not a
holder in due course. An ordinary check is always drawn on a bank and is always payable on
demand. Such check need not be presented for acceptance.

8. A negotiable instrument is one which contains an unconditional promise or order to pay a

sum certain in money which must be in writing and signed by the maker or drawer. It is deemed
as a substitute for money and must strictly conform to the NIL in order to be negotiable. A
document of title on the other hand is a commercial paper with limited negotiability. As such, it
does not contain any unconditional promise or order to pay a sum certain in money but merely
serves as an evidence of the transfer of the title to the goods covered by such receipt.

9. An opening or issuing bank is the bank which issues a letter of credit in favor of the seller-
beneficiary. A correspondent bank may either be a notifying bank, a negotiating bank, or the
confirming bank. A notifying bank only notifies the beneficiary of the existence of the letter of
credit and incurs no liability. A negotiating bank is a bank which may be usually found in the
city of the seller-beneficiary which buys or discounts the drafts. A confirming bank is primarily
liable as it confirms the letter of credit issued by a bank which may not be well known.

10. A letter of credit is one which the buyer-applicant secures one in a bank in favor of the
seller-beneficiary. It is an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with
the conditions specified in the letter of credit. On the other hand, a Trust Receipt transaction is
one where an importer as an entrustee secures with the entruster bank said trust receipt in which
the Bank holds a security title over the goods. The entrustee being obligated to deliver the
proceeds of the goods sold or if unsold, to deliver said goods. In effect, the entrustee binds
himself to hold the goods, documents, or instruments in trust for the entruster.

II. Application Analysis Synthesis (40 pts). Be responsive to the question/s. Explain your answer/s
as briefly as possible.

1. A. Yes. C can be considered a holder in due course and proceed against A since the latter is
an accommodation party and is liable on the instrument to a holder for value. As such the
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defense of want of consideration will not prosper.

B. No, it is of no moment if A received consideration. The fact remains that under the law, A is
an accommodation party. It must be noted that the valuable consideration received for lending
his name is different from that for the instrument itself. Hence, A remains liable to the holder.

C. Yes A may recover from B because of the accommodation. The accommodated party, B, is
the actual principal debtor and A acting as a surety to the instrument.

2. A. X bank should be liable for the loss of P80,000 because the said bank violated the
instructions of the drawer, A. Given that X bank did not pay the payee, said Bank had no right to
debit the account of A and should shoulder the loss.

B. Z bank, as the collecting bank, indorsed the check to X bank and hence is liable for its
warranties. It should pay the drawee bank, X, the amount of P80,000. There is also a 24-hour
clearing rule and failure to notify the collecting bank of the forgery within 24 hours would bar
Bank X’s claim.

C. Z bank as the collecting bank may go after the forger C because they have privity and the
bank has the records of the forget and would be best suitable to go after C to collect the amount
of P80,000.

D. B and X bank have no rights and liabilities because they don’t have privity of contract.

E. B and Z bank also have no rights and liabilities as they also don’t have privity of contract.

F. A’s obligation to B remains outstanding because A suffered no loss as a result of the

transaction. A is still liable to B for P20,000.

G. B and C the forger also have no privity.

3. A. X should not surrender the BTS Funko Pop to either of the parties. It should file for an
interpleader and should let the Court decide on the rightful owner of the said goods. If X
surrenders the said item to the wrong party, he would be liable to the rightful owner.

B. B as the rightful and true owner is entitled to the BTS Funko Pop. In this case, the item was
stolen from B’s house and in effect renders the negotiable receipt worthless. The law prevents
the warehouseman from becoming a haven of stolen goods. The remedy of D here is to sue C for
a breach of his warranties.

4. No, PM’s lawyer may sue but his cases would fail.
PM’s case will not prosper against X as the opening bank because it will not be liable for the
goods for the reason that banks only deal with the documents. Neither does it warrant the goods.
It merely ascertained the compliance with the required documents under the letter of credit and
paid Z bank.
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PM’s case against Z bank as a notifying bank would also not prosper. PM and Z bank have no
privity of contract and likewise Z bank only deals with documents.

PM’s case against CC as the carrier would also fail as it was shown in the facts the CC was not
guilty of fault nor negligence in the carriage of the fruits.

PM may be able to recover from IC, as the insurer of the goods, if he could prove that he is
entitled to the insurance.

III. Knowledge and Memory (20 pts). Write the letter of the correct answer in the booklet. If you do
not follow these instructions, you will not get any credit even if your answer is correct for failure
to follow instructions. No reconsideration.

1. d
2. d
3. b
4. b
5. a
6. c
7. b
8. d
9. a
10. c

IV. Bonus. Take the Risk (+5 or -1). If all your answers are correct, you will receive 5 additional
points. If one answer is wrong, you will receive no additional credit and will lose 1 point. If you
do not answer, you will receive no additional points and no loss of points.

1.
2.
3.
4.
5.

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