1. (15%) A bill of exchange states: “To: Mr. Clean. One month after sight, pay to the order of Mr.

Breeze the amount of P100k. Signed, Mr. Tide.” The drawee, Mr. Clean accepted the bill in the
following manner: “I shall pay P50k, three months after sight.”

(a) May Mr. Clean accept the bill under such terms, which varies the order or command of the
drawer in the bill of exchange? Explain.

Answer:

Yes. Section 62 of the NIL states that the acceptor by accepting the instrument engages
that he will pay it according to the tenor of his acceptance. It is to be noted that while the
maker of a note or the drawer of a bill engages to pay according to the tenor of the
instrument, the acceptor engages to pay the tenor of his acceptance, which is not the same
as the tenor of the bill itself because the acceptance may be qualified. Hence, Mr. Clean
may accept the bill which varies the order or command of the drawer.

(b) What are the effects, if any, of such acceptance by Mr. Clean? Explain.

Answer:

Section 62 of the NIL provides that the acceptor by accepting the instrument engages that
he will pay it according to the tenor of his acceptance. In the case at bar, the drawee has
accepted the bill which varies from the order or command of the drawer. Applying Section
62, therefore, he is liable to pay according to the tenor of his acceptance, that is, three
months after sight.

(c) What are rights of the holder, Mr. Breeze under the circumstances? Why?

Answer:

If the acceptance seeks to change the agreement between the payee and the drawee, the
acceptance is said to be qualified. The law provides that a holder need not take a qualified
acceptance but instead may insist on a general or unqualified acceptance, and upon his
failure to obtain the latter, may treat the bill as dishonored. Thus, in the case at bar, Mr.
Breeze
(1) may not take a qualified acceptance but instead insist on a general or unqualified
acceptance and
(2) treat the bill as dishonored.
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2. (10%) Mr. Singhil, an Indian national, is the owner of an auto supply store. On March 1, 2019,
Mr. Tak-Boo, a Korean national and a regular customer, purchased several auto spare parts on
credit, in the total amount of P500,000.00, payable by 5 equal monthly installments by way of 5
post-dated checks (PDCs). Mr. Tak-Boo assured Mr. Singhil that all his checks are good and will
be honored upon presentment for payment. However, upon presentment of payment, each check
was dishonored one after the other, for insufficiency of funds. The corresponding notices of
dishonor were sent to Mr. Tak-Boo and all were duly received by him. One month after the receipt
of the last notice of dishonor, Mr. Singhil still remained unpaid. Consequently, a complaint for
violation of B.P. Blg. 22 was filed by Mr. Singhil against Mr. Tak-Boo. As a brilliant MLC law
student, Mr. Tak-Boo consulted you and asked you if the case filed against him will prosper. What
will be your answer or advice? Explain.

Answer:

The case will not prosper. Under Batas Pambansa Bilang 22, it must be proved not only that the
accused issued a check that was subsequently dishonored. It must also establish that the accused
was actually notified that the check was dishonored , and that he or she failed , within five banking
days from receipt of the notice, to pay the holder of the check the amount due thereon or to make
arrangement for its payment. Absent proof that the accused received such notice , a prosecution
for violation of BP 22 cannot prosper.

3. (15%) The Province of Tarlac maintains a current account with the PNB Tarlac Branch where
the provincial funds are deposited. Checks issued by the Province are signed by the Provincial
Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency Hospital (CEH)
and disbursed by way of checks drawn to the order of CEH. The Provincial Treasurer learned that
30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated
Bank as the collecting bank. It turned out that Fausto Pangilinan, administrative officer and cashier
of payee hospital, collected the questioned checks from the office of the Provincial Treasurer, even
after his retirement. He forged the signature of Dr. Adena Canlas, chief of the payee hospital, and
deposited the checks in his account with Associated Bank. All the checks bore the stamp of
Associated Bank which reads “All prior endorsements guaranteed ASSOCIATED BANK.”
Eventually, the Provincial Treasurer wrote the manager of the PNB demanding payment for the
various amounts debited from the current account of the Province. In turn, the PNB manager
demanded reimbursement from Associated Bank. As both banks resisted payment, the Province of
Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party
defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto
Pangilinan.

(a) Should PNB bear the loss? Why?

Answer:

Yes. Jurisprudence provides that a drawee bank is under strict liability to pay the check to
the order of the payee. The drawer's instruction are reflected on the face and by the terms
of the check. Payment under a forged indorsement is not to the drawer's order. When the
drawee bank pays a person other than the payee, it does not comply with the terms of the
check and violates its duty to charge its customers account only for properly payable items.
Since the drawee bank did not pay a holder or other person entitled to receive payment, it
has no right to reimbursement from the drawer. The general rule then is that the drawee
bank may not debit the drawer's account and is not entitled to indemnification from the
drawer. The risk of loss must perforce fall on the drawee bank.

(b) Should Associated Bank bear the loss? Why?

Answer:

Yes. By reason of the statutory warranty of a general indorser in Section 66 of the NIL, a
collecting bank which indorses a check bearing a forged indorsement and presents it to the
drawee bank, guarantees all prior indorsements, including forged indorsement. It warrants
that the instrument is genuine, and that it is valid and subsisting at the time of his
indorsement. Because the indorsement is a forgery, the collecting bank commits a breach
of this warranty and will be accountable to the drawee bank.

(c) If you were the judge, how would you decide this case?

Answer:

If I were the judge, I would decide that:

(1) The PNB, as a drawee bank, cannot debit the current account of the Province of Tarlac
because it paid checks which bore forged indorsements.
(2) The Province of Tarlac was equally negligent and should, therefore, share the burden
of the loss from the checks bearing a forged indorsement when it permitted Fausto
 Pangilinan to collect the checks when he has already retired from the government service
and no longer connected with the hospital.
(3) In cases involving checks with forged indorsements, the chain of liability does not end
with the drawee bank. The drawee bank may not debit the account of the drawer but may
generally pass liability back through the collection chain to the party who took from the
forger and to the forger himself. In other words, the drawee bank can seek reimbursement
or a return of the amount it paid from the presentor bank or person.

4. (10%) Can a drawee who accepts a materially altered check seek reimbursement or recover the
amount for which he is liable, from the holder and the drawer? Explain.

Answer:

Yes. General rule denies the drawee bank's rights to charge against the drawer's account the amount
of an altered check. However, the drawer's negligence, before or after alteration, may estop him
from setting up such alteration as against an innocent drawee bank who has paid the check. Thus,
where the drawer of a check who in filling it out negligently leaves spaces, making it possible for
another to alter the amount by inserting words and figures therein, the drawer cannot complain
should the bank pay and charge the amount as altered against his account. It was his negligence
which proximately caused its payment.

5. (10%) Enumerate the different modes on how to discharge a negotiable instrument. Give a brief
summary on the requisites of each mode.

Answer:

A negotiable instrument is discharged by

(a) payment in due course by or on behalf of the principal debtor;
(b) payment in due course by the party accommodated, where the instrument is made or accepted
for his accommodation;
(c) by the intentional cancellation thereof by the holder;
(d) by another act which will discharge a simple contract for the payment of money; and,
(e) when the principal debtor becomes the holder of the instrument at or after maturity in his own
right.

Payment is the most usual way of discharging a bill or note. It must be made by or on behalf of the
principal debtor, otherwise it would constitute a purchase or negotiation, and the instrument would
remain outstanding. Payment by the accommodated party if the instrument is made or accepted for
his accommodation is actually a payment by the principal debtor, whether or not he appears to be
a party to the instrument. If cancelled by the holder, it must be intentional and made by him.
Cancellation may be done by tearing the instrument, burning it or writing across it the word
"cancelled." There must be an intention to cancel the instrument by the holder thereof as such
intention is an essential element of discharge on a negotiable instrument and a negotiable
instrument in a torn condition is presumed cancelled by the holder thereof. By another act which
will discharge a simple contract for the payment of money includes novation and merger or legal
compensation. Where the instrument is reacquired by the principal debtor in his own right at or
after the date of maturity, the note is discharge. If the reacquisition by the principal debtor in his
own right but before maturity, the instrument is not discharged. It only constitutes a negotiation
back to the principal debtor who may renegotiate the instrument.