Nego Bar Question
Nego Bar Question
Nego Bar Question
Tugelida
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%)
Suggested Answer:
Since the money market placement of Marlon is in the nature of a loan to LYRIC Bank, and since
he did not authorize the release of the money market placement to Ingrid, the obligation of LYRIC Bank
to him has not been paid. LYRIC Bank still has the obligation to pay him.
Since YAMAHA Bank indorsed the check bearing the forged indorsement of marlon and
guaranteed all indorsements, including the forged indorsement, when it presented the check to LYRIC
Bank, it should be held liable to it.
However, since the insurance of the check was attended with the negligence of LYRIC Bank, it
should share the loss with YAMAHA Bank on fifty percent (50%) basis. (Allied Banking Corp. v. Lim Sio
Wan, 549 SCRA 504)
Jennilyn V. Tugelida
The Supreme Court has held that fraud is an exception to the independence principle governing
letters of credit. Explain this principle and give an example of how fraud can be an exception. (3%)
Suggested Answer:
The independence principle posits that the obligations of the parties to a letter of credit are
independent of the obligations of the parties to the underlying transaction. Thus, the beneficiary of the
letter of credit, which is able to comply with the documentary requirements under the letter of credit, must
be paid by the issuing or confirming bank, notwithstanding the existence of a dispute between the parties
to the underlying transaction, say a contract of sale of goods where the buyer is not satisfied with the
quality of the goods delivered by the seller.
The Supreme Court in the case of Transfield Phils., Inc. v. Luzon Hydro Corp., 443 SCRA 307
(2004) for the first time declared that fraud is an exception to the independence principle. For instance, if
the beneficiary fraudulently present to the issuing or confirming bank documents that contain material
facts that. To his knowledge, are untrue, then payment under the letter of credit may be prevented through
a court injunction.
Jennilyn V. Tugelida
A writes a promissory note in favor of his creditor, B. It says: Subject to my option, I promise to pay B
Php1 Million or his order or give Php1 Million worth of cement or to authorize him to sell my house
worth Php1 Million. Signed, A. Is the note negotiable?
A. No, because the exercise of the option to pay lies with A, the maker and debtor.
B. No, because it authorizes the sale of collateral securities in case the note is not paid at maturity.
C. Yes, because the note is really payable to B or his order, the other provisions being merely optional.
D. Yes, because an election to require something to be done in lieu of payment of money does not affect
negotiability.
Suggested Answer:
A. No, because the exercise of the option to pay lies with A, the maker and debtor.
Jennilyn V. Tugelida
M makes a promissory note that states: I, M, promise to pay Php5,000.00 to B or bearer. Signed, M. M
negotiated the note by delivery to B, B to N, and N to O. B had known that M was bankrupt when M
issued the note. Who would be liable to O?
A. M and N since they may be assumed to know of M's bankruptcy
B. N, being O's immediate negotiator of a bearer note
C. B, M, and N, being indorsers by delivery of a bearer note
D. B, having known of M's bankruptcy
Suggested Answer:
B. N, being O's immediate negotiator of a bearer note
Jennilyn V. Tugelida
A negotiable instrument can be indorsed by way of a restrictive indorsement, which prohibits further
negotiation and constitutes the indorsee as agent of the indorser. As agent, the indorsee has the right,
among others, to:
A. demand payment of the instrument only.
B. notify the drawer of the payment of the instrument.
C. receive payment of the instrument.
D. instruct that payment be made to the drawee.
Suggested Answer:
C. receive payment of the instrument.
Jennilyn V. Tugelida
Under the Negotiable Instruments Law, a signature by procuration operates as a notice that the agent has
but a limited authority to sign. Thus, a person who takes a bill that is drawn, accepted, or indorsed by
procuration is duty-bound to inquire into the extent of the agent's authority by:
A. examining the agents special power of attorney.
B. examining the bill to determine the extent of such authority.
C. asking the agent about the extent of such authority.
D. asking the principal about the extent of such authority.
Suggested Answer:
B. examining the bill to determine the extent of such authority.
Jennilyn V. Tugelida
Under the Negotiable Instruments Law, if the holder has a lien on the instrument which arises either from
a contract or by implication of law, he would be a holder for value to the extent of
A. his successor's interest.
B. his predecessor's interest.
C. the lien in his favor.
D. the amount indicated on the instrument's face.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
A holder in due course holds the instrument free from any defect of title of
prior parties and free from defenses available to prior parties among themselves.
An example of such a defense is A. fraud in inducement.
B. duress amounting to forgery.
C. fraud in esse contractus.
D. alteration.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
A bill of exchange has T for its drawee, U as drawer, and F as holder. When
F went to T for presentment, F learned that T is only 15 years old. F wants to
recover from U but the latter insists that a notice of dishonor must first be made,
the instrument being a bill of exchange. Is he correct?
A. Yes, since a notice of dishonor is essential to charging the drawer.
B. No, since T can waive the requirement of notice of dishonor.
C. No, since F can treat U as maker due to the minority of T, the drawee.
D. Yes, since in a bill of exchange, notice of dishonor is at all times required.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
B borrowed Php1 million from L and offered to him his BMW car worth Php1
Million as collateral. B then executed a promissory note that reads: I, B, promise
to pay L or bearer the amount of Php1 Million and to keep my BMW car (loan
collateral) free from any other encumbrance. Signed, B. Is this note negotiable?
A. Yes, since it is payable to bearer.
B. Yes, since it contains an unconditional promise to pay a sum certain in money.
C. No, since the promise to just pay a sum of money is unclear.
D. No, since it contains a promise to do an act in addition to the payment of
money.
Jennilyn V. Tugelida
If the drawer and the drawee are the same person, the holder may present
the instrument for payment without need of a previous presentment for
acceptance. In such a case, the holder treats it as a
A. non-negotiable instrument.
B. promissory note.
C. letter of credit.
D. check.
Jennilyn V. Tugelida
D draws a bill of exchange that states: One month from date, pay to B or his
order Php100,000.00. Signed, D. The drawee named in the bill is E. B
negotiated the bill to M, M to N, N to O, and O to P. Due to non-acceptance and
after proceedings for dishonor were made, P asked O to pay, which O did. From
whom may O recover?
A. B, being the payee
B. N, as indorser to O
C. E, being the drawee
D. D, being the drawer
Jennilyn V. Tugelida
E received goods from T for display and sale in E's store. E was to turn over
to T the proceeds of any sale and return the ones unsold. To document their
agreement, E executed a trust receipt in Ts favor covering the goods. When E
failed to turn over the proceeds from his sale of the goods or return the ones
unsold despite demand, he was charged in court for estafa. E moved to dismiss
on the ground that his liability is only civil. Is he correct?
A. No, since he committed fraud when he promised to pay for the goods and did
not.
B. No, since his breach of the trust receipt agreement subjects him to both civil
and criminal liability for estafa.
C. Yes, since E cannot be charged with estafa over goods covered a trust
receipt.
D. Yes, since it was merely a consignment sale and the buyer could not pay.
Jennilyn V. Tugelida
The authorized alteration of a warehouse receipt which does not change its
tenor renders the warehouseman liable according to the terms of the receipt
A. in its original tenor if the alteration is material.
B. in its original tenor.
C. as altered if there is fraud.
D. as altered
Jennilyn V. Tugelida
Any agreement binding upon the holder to extend the time of payment or to
postpone the holder's right to enforce the instrument results in the discharge of
the party secondarily liable unless made with the latter's consent. This
agreement refers to one which the holder made with the
A. principal debtor.
B. principal creditor.
C. secondary creditor.
D. secondary debtor.
Jennilyn V. Tugelida
Upon execution of a trust receipt over goods, the party who is obliged to
release such goods and who retains security interest on those goods, is called
the
A. holder.
B. shipper.
C. entrustee.
D. entrustor
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Due to his debt to C, D wrote a promissory note which is payable to the order
of C. C's brother, M, misrepresenting himself as agent of C, obtained the note
from D. M then negotiated the note to N after forging the signature of C. May N
enforce the note against D?
A. Yes, since D is the principal debtor.
B. No, since the signature of C was forged.
C. No, since it is C who can enforce it, the note being payable to the order of C.
D. Yes, since D, as maker, is primarily liable on the note.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Can a drawee who accepts a materially altered check recover from the holder
and the drawer?
A. No, he cannot recover from either of them.
B. Yes from both of them.
C. Yes but only from the drawer.
D. Yes but only from the holder.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
Jennilyn V. Tugelida
P authorized A to sign a bill of exchange in his (Ps) name. The bill reads:
Pay to B or order the sum of Php1 million. Signed, A (for and in behalf of P).
The bill was drawn on P. B indorsed the bill to C, C to D, and D to E. May E treat
the bill as a promissory note?
A. No, because the instrument is payable to order and has been indorsed several
times.
B. Yes, because the drawer and drawee are one and the same person.
C. No, because the instrument is a bill of exchange.
D. Yes, because A was only an agent of P.
Jennilyn V. Tugelida
Z wrote out an instrument that states: Pay to X the amount of Php1 Million
for collection only. Signed, Z. X indorsed it to his creditor, Y, to whom he owed
Php1 million. Y now wants to collect and satisfy X's debt through the Php1
million on the check. May he validly do so?
A. Yes, since the indorsement to Y is for Php1 Million.
B. No, since Z is not a party to the loan between X and Y.
C. No, since X is merely an agent of Z, his only right being to collect.
D. Yes, since X owed Y Php1 Million.
Jennilyn V. Tugelida
Jennilyn V. Tugelida
A bill of exchange states on its face: One (1) month after sight, pay to the
order of Mr. R the amount of Php50,000.00, chargeable to the account of Mr. S.
Signed, Mr. T. Mr. S, the drawee, accepted the bill upon presentment by writing
on it the words I shall pay Php30,000.00 three (3) months after sight. May he
accept under such terms, which varies the command in the bill of exchange?
A. Yes, since a drawee accepts according to the tenor of his acceptance.
B. No, since, once he accepts, a drawee is liable according to the tenor of the
bill.
C. Yes, provided the drawer and payee agree to the acceptance.
D. No, since he is bound as drawee to accept the bill according to its tenor
Jennilyn V. Tugelida
May the indorsee of a promissory note indorsed to him for deposit file a suit
against the indorser?
A. Yes, as long as the indorser received value for the restrictive indorsement.
B. Yes, as long as the indorser received value for the conditional indorsement.
C. Yes, whether or not the indorser received value for the conditional
indorsement.
D. Yes, whether or not the indorser received value for the restrictive indorsement.
Jennilyn V. Tugelida
Jennilyn V. Tugelida