1. Discuss the legal consequences when a bank honors a forged check.

5%

2. Jun was about to leave for a business trip. As his usual practice, he signed several blank checks.
He instructed Ruth, his secretary, to fill them as payment for his obligations. Ruth filled one
check with her name as payee, placed P30,000.00 thereon, endorsed and delivered it to Marie.
She accepted the check in good faith as payment for goods she delivered to Ruth. Eventually,
Ruth regretted what she did and apologized to Jun. Immediately he directed the drawee bank to
dishonor the check. When Marie encashed the check. it was dishonored.
Is Jun liable to Marie? 5%
Supposing the check was stolen while in Ruth's possession and a thief filled the blank check,
endorsed and delibvered it to Marie in payment for the goods he purchased from her, is Jun
liable to Marie if the check is dishonored? 5%

3. R issued a check for P1M which he used to pay S for killing his political enemy.
a. Can the check be considered a negotiable instrument?
b. Does S. have a cause of action against R in case of dishonor by the drawee bank?
c. If S negotiated the check to T, who accepted it in good faith and for value, may R be held
secondarily liable by T?
Reason briefly in (a), (b) and (c).
4. As a rule under the Negotiable Instruments Law, a subsequent party may hold a prior party liable
but not vice-versa. Give two (2) instances where a prior party may hold a subsequent party
liable. (2%)
5. How does the "shelter principle" embodied in the Negotiable Instruments Law operate to give the
rights of a holder-in-due course to a holder who does not have the status of a holder-in-due
course? Briefly explain. (2%
6. AB Corporation drew a check for payment to XY Bank. The check was given to an officer of AB
Corporation who was instructed to deliver it to XY Bank. Instead, the officer, intending to defraud
the Corporation, filled up the check by making himself as the payee and delivered it to XY Bank
for deposit to his personal account. AB Corporation come to know of the officer's fraudulent act
after he absconded. AB Corporation asked XY Bank to recredits its amount. XY Bank refused.
If you were the judge, what issues would you consider relevant to resolve the case? Explain
(3%) How would you decide the case? Explain. (2%)
7. Pancho drew a check to Bong and Gerard jointly. Bong indorsed the check and also forged
Gerard's endorsement. The payor bank paid the check and charged Pancho's account for the
amount of the check. Gerard received nothing from the payment.
a. Pancho asked the payor bank to recredit his account. Should the bank comply? Explain fully.
(3%)
b. Based on the facts, was Pancho as drawerdischarged on the instrument? Why?(2%)
8. Lorenzo drew a bill of exchange in the amount of P100,000.00 payable to Barbara or order, with
his wife, Diana, as drawee. At the time the bill was drawn, Diana was unaware that Barbara is
Lorenzos paramour.
Barbara then negotiated the bill to her sister, Elena, who paid for it for value, and who did not know
who Lorenzo was. On due date, Elena presented the bill to Diana for payment, but the latter
promptly dishonored the instrument because, by then, Diana had already learned of her husbands
dalliance.
Was the bill lawfully dishonored by Diana? Explain. (3%)
Does the illicit cause or consideration adversely affect the negotiability of the bill? Explain. (3%)
9. When is there an ultra vires act on the part of [a] the corporation; [b] the board of directors; and
[c] the corporate officers. (3%
10. A document, dated July 15, 2009, that reads: "Pay to X or order the sum of P5,000.00 five days
after his pet dog, Sparky, dies. Signed Y." is a negotiable instrument. T/F
11. "A bank is bound to know its depositors signature" is an inflexible rule in determining the liability
of a bank in forgery cases. T/F

12. Gaudencio, a store owner, obtained a P1-million loan from Bathala Financing Corporation (BFC).
As security, Gaudencio executed a "Deed of Assignment of Receivables," assigning 15 checks
received from various customers who bought merchandise from his store. The checks were duly
indorsed by Gaudencios customers.
The Deed of Assignment contains the following stipulation:
"If, for any reason, the receivables or any part thereof cannot be paid by the obligors, the
ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by
way of penalty, three percent (3%) of the total amount unpaid, for the period of delay until the same
is fully paid."
When the checks became due, BFC deposited them for collection, but the drawee banks dishonored
all the checks for one of the following reasons: "account closed," "payment stopped," "account under
garnishment," or "insufficiency of funds." BFC wrote Gaudencio notifying him of the dishonored
checks, and demanding payment of the loan. Because Gaudencio did not pay, BFC filed a collection
suit.
In his defense, Gaudencio contended that [a] BFC did not give timely notice of dishonor (of the
checks); and [b] considering that the checks were duly indorsed, BFC should proceed against the
drawers and the indorsers of the checks.
Are Gaudencios defenses tenable? Explain. (5%)
13. Marlon deposited with LYRIC Bank a money market placement of P1 million for a term of 31
days. On maturity date, one claiming to be Marlon called up the LYRIC Bank account officer and
instructed him to give the managers check representing the proceeds of the money market
placement to Marlons girlfriend Ingrid. The check, which bore the forged signature of Marlon,
was deposited in Ingrids account with YAMAHA Bank. YAMAHA Bank stamped a guaranty on
the check reading: "All prior endorsements and/or lack of endorsement guaranteed." Upon
presentment of the check, LYRIC Bank funds the check. Days later, Marlon goes to LYRIC Bank
to collect his money market placement and discovers the foregoing transactions. Marlon
thereupon sues LYRIC Bank which in turn files a third-party complaint against YAMAHA Bank.
Discuss the respective rights and liabilities of the two banks. (5%)
14. What is a negotiable instrument? Give the characteristics of a negotiable instrument. (2%)
15. Distinguish a negotiable document from a negotiable instrument. (2%)
16. State and explain whether the following are negotiable instruments under the Negotiable
Instruments Law:cralaw
(i) Postal Money Order;
(ii) A certificate of time deposit which states This is to certify that bearer has deposited in this bank
the sum of FOUR THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after
date.
(iii) Letters of credit;
(iv) Warehouse receipts;
(v) Treasury warrants payable from a specific fund. (5%)
17. Dagul has a business arrangement with Facundo. The latter would lend money to another,
through Dagul, whose name would appear in the promissory note as the lender. Dagul would then
immediately indorse the note to Facundo.
Is Dagul an accommodation party? Explain. (2%)
17. What is a crossed check?
18. What are the effects of crossing a check? Explain.
19. Distinguish an irregular indorser from a general indorser. (3%)
20. Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to
take Brads life if he failed to pay. Brad and Pete went to see Seorita Isobel, Brads rich cousin,
and asked her if she could sign a promissory note in his favor in the amount of P10,000.00 to
pay Pete. Fearing that Pete would kill Brad, Seorita Isobel acceded to the request. She affixed
her signature on a piece of paper with the assurance of Brad that he will just fill it up later. Brad
then filled up the blank paper, making a promissory note for the amount of P100,000.00. He then
indorsed and delivered the same to Pete, who accepted the note as payment of the debt. What
defense or defenses can Seorita Isobel set up against Pete? Explain. (3%)