ATENEO LAW SCHOOL

COMMERCIAL LAW REVIEW

Examination for Part I

INSTRUCTIONS
This examination consists of THREE (3) PROBLEMS in THREE (3)
PAGES, with SEVERAL QUESTIONS for each. Read each item carefully.
Answer the questions SEQUENTIALLY, concisely, clearly. Start every answer to
a question (e.g., I[1], II[2], III[3], etc.) on a SEPARATE PAGE. You can write on
the back of the pages. Do not repeat the question. A mere YES or NO or
mere conclusion of law will be given little credit, if at all. Your answers should be
based on facts given in each of the problems. Do not presume the existence of
facts which are not given, and do not go against the given facts. You must
address in your answers all issues raised in the questions. GOOD LUCK!

PROBLEM I
Common Facts:
a. On 7 December 2009, A issues an undated Promissory Note (PN) in favor
of B, which reads:
For and in consideration of goods delivered by B, I promise to pay
to the order of B the amount of ________________ Pesos (P__________)
thirty (30) days after date. (Signed) A.
b. A and B agreed that the amount of the PN shall be equivalent to the value
of the goods delivered by B to A, subject to the reconciliation by their
respective accountants, but that the amount shall in no case exceed One
Million Pesos (P1,000,000.00).
c. A and B further agreed that the PN shall be dated as of the date of
completion of such reconciliation, which shall in no case be later than 14
December 2009.
d. On 10 December 2009, but before the completion of the reconciliation, B:
(i) fills up the PN for the amount of One Million Pesos (P1,000,000.00); (ii)
dates the PN 14 November 2009; (iii) indorses and delivers the PN to C,
who pays for it at a ten percent (10%) discount.
e. On 11 December 2009, C indorses the PN in blank and delivers the same
to D, who pays for the PN at a five percent (5%) discount, but who knows
that B only delivered goods to A valued at Five Hundred Thousand Pesos
(P500,000.00).
f. On 14 December 2009, D presents the PN to A for payment, who calls his
accountant and is informed that the goods delivered by B to him are only
valued at Five Hundred Thousand Pesos (P500,000.00).
Questions:
1. Can A validly refuse to pay D on the ground that the PN is not a negotiable
instrument (since its issuance is subject to the reconciliation between the
accountants of A and B based on the underlying transaction and therefore
conditional) and is therefore subject to the defenses available to prior
parties? Discuss with reasons. (5 points)
2. Can A validly refuse to pay D on the ground that the PN has not yet
matured, since it was actually issued only on 7 December 2009 and, being
payable thirty (30) days after date, would mature at the earliest only on 6
January 2010? Discuss with reasons. (5 points)
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3. Can A validly refuse to pay D on the ground that the insertion of the wrong
date (ante-dating of the PN for a fraudulent purpose) avoids the PN?
Discuss with reasons. (5 points)
4. Would your answer to Question No. 3 above be different if D knew that the
PN was ante-dated? Discuss with reasons. (5 points)
5. Can A validly refuse to pay D on the ground that the PN was incomplete
(wanting in a material particular) and undelivered (the amount was still
subject to reconciliation)? Discuss with reasons. (5 points)
6. Can A validly refuse to pay D the entire amount of One Million Pesos
(P1,000,000.00), on the ground of want of authority of B in filling up the
amount? Discuss with reasons. (5 points)
7. Can A validly refuse to pay D the entire amount of One Million Pesos
(P1,000,000.00) on the ground of failure of consideration to the extent of
Five Hundred Thousand Pesos (P500,000.00)? Discuss with reasons. (5
points)
8. Would your answer to Question No. 7 above be different if D did not know
that B only delivered goods to A valued at Five Hundred Thousand Pesos
(P500,000.00)? Discuss with reasons. (5 points)
9. Can A validly refuse to pay D on the ground that the PN, being an
instrument payable to order, was not specifically indorsed to D and that D
should therefore have first obtained the indorsement of C? Discuss with
reasons. (5 points)
10. If A refuses to pay, can D claim the full value of the PN against B?
Discuss with reasons. (5 points)

PROBLEM II
Common Facts:
a. On 7 December 2009, B asked his friend A to issue him a check which will
be used solely as a security for B to be able to buy-in and participate at a
PAGCOR-authorized poker tournament to be held on 9 December 2009.
b. On the same day, acting on such request, A, as accommodation drawer,
issues a postdated check drawn against X Bank, thus:
Date: 9 December 2009
Payable to the order of B in the amount of One Million Pesos
(P1,000,000.00) only.
(Signed) A.
c. On 8 December 2009, B indorses the check in blank and delivers the
same to C as security for Bs buy-in in order for B to participate in the
poker tournament.
d. On the same day, C, the organizer of the poker tournament asks his
assistant, D, a minor, to safekeep the check.
e. On 15 December 2009, D changes the date of the check to 19 December
2009 and negotiates the check to E by delivery.
f. On 19 December 2009, E presents the check to X Bank for acceptance
and payment, but X Bank dishonors the check because of a stop payment
order by A.
Questions:
1. If E claims against A, can A validly refuse to pay on the ground that the
check was materially altered? Discuss with reasons. (5 points)
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2. Would your answer to Question No. 1 above be the same if E had

knowledge that the date was altered, although E was not a party to the
alteration? Discuss with reasons. (5 points)
3. If E claims against A, but knows that A is a mere accommodation party,
can A refuse to pay E solely on the ground of want of consideration?
Discuss with reasons. (5 points)
4. Is B liable in any way to E? Discuss with reasons. (5 points)
5. If E claims against D, can D validly raise the defense of minority to avoid
liability to E? Discuss with reasons. (5 points)
6. Assuming X Bank did not receive the stop payment order and it accepts
the check and pays E, can A refuse to reimburse X Bank on the ground
that he is an accommodation party? Discuss with reasons. (5 points)

PROBLEM III
Common Facts:
a. Banking on the popularity of the film New Moon, ABC Corp. (ABC), a
domestic corporation, sought to import 10,000 New Moon shirts (the
Goods) from XYZ Ltd. (XYZ), the official manufacturer thereof based in
the United States of America, for sale to local retailers.
b. ABC applied for and secured the issuance of an irrevocable letter of credit
(L/C) from Philippine National Bank (PNB), with XYZ as the beneficiary.
c. After shipment of the Goods, XYZ submitted the shipping documents to
PNB, although XYZ remained unpaid on the L/C.
d. Meanwhile, PNB released the Goods to ABC upon the latters execution of
the proper trust receipt under the Trust Receipts Law.
e. ABC thereafter stored the Goods in a warehouse for which the
warehouseman issued a warehouse receipt (the Warehouse Receipt)
which states that the Goods are deliverable to the order of ABC,
pursuant to the Warehouse Receipts Act.
f. Thereafter, ABC indorsed and delivered the Warehouse Receipt in favor of
E, who took the same in good faith and paid the full value therefor.
g. However, ABC defaulted in its payment to PNB of the amount owing to the
latter as entruster of the Goods.
Questions:
1. Since XYZ already agreed to the issuance of a L/C in its favor as payment
for the Goods, does it thereby lose any and all rights to the Goods as
unpaid seller? Discuss with reasons. (5 points)
2. Under the Warehouse Receipts Act, is the warehouseman justified in
delivering the Goods to:
a. XYZ? Discuss with reasons. (2.5 points)
b. ABC? Discuss with reasons. (2.5 points)
c. PNB? Discuss with reasons. (2.5 points)
d. E? Discuss with reasons. (2.5 points)
3. If PNB claims title over the Goods as entruster, while E claims title over
the Goods holder of the Warehouse Receipt, who has the better right to
the Goods? Discuss with reasons (5 points)

- NOTHING FOLLOWS -