1999 bar exam question on Negotiable Instruments.

A check for 50k was drawn against drawee bank and made payable to XYZ marketing or order. The check was
deposited with payee's account at ABC bank which the sent the check for clearing to drawee bank. Drawee bank
refused to honor the check on ground that the serial number was altered.
XYZ marketing sued drawee bank.

A. Is it proper for the drawee bank to dishonor the check for the reason that is had been altered?
B. In instant suit, drawee bank contended that XYZ marketing as payee could not sue drawee bank as there was no
privity between them. Drawee theorized that there was no basis to make it liable for the check. Is this contention
correct? Explain.

ANSWERS:

A. No, it is not proper for the drawee bank to dishonor the instrument. The alteration is not material as to
change the effect of the instrument. The serial number does not effect the negotiability of an instrument.
B. The bank is correct. XYZ marketing cannot sue the bank as it has not yet accepted the instrument. It is
still a drawee and not liable to XYZ. There is although a case decided by the Supreme Court that abuse of
right can be used, if proven, to sue a bank. But this is based on quasi delict.

Multiple Choice Questions:

A check for 50k was drawn against drawee bank and made payable to XYZ marketing or order. The check was
deposited with payee's account at ABC bank which the sent the check for clearing to drawee bank. Drawee bank
refused to honor the check on ground that the serial number was altered.
XYZ marketing sued drawee bank.

Is it proper for the drawee bank to dishonor the check for the reason that is had been altered?

A. No, although there is an alteration, the bank has an obligation to follow the order of the drawer to pay
the instrument when it is presented.
B. No, the alteration is immaterial and does not change the effect of the instrument.
C. Yes, the serial number is material as it is a way to track the number of checks issued by the drawer.
D. Yes, as long as there is a suspicion of alteration, it can dishonor the check.

A check for 50k was drawn against drawee bank and made payable to XYZ marketing or order. The check was
deposited with payee's account at ABC bank which the sent the check for clearing to drawee bank. Drawee bank
refused to honor the check on ground that the serial number was altered.
XYZ marketing sued drawee bank.

Can XYZ marketing sue the drawee bank?

A. No, it cannot sue the drawee bank as there is no privity of contract between them
B. No, it cannot sue the drawee bank as it is not yet an acceptor.
C. Yes, it can sue the drawee bank on the basis of tort/quasi delict.
D. Yes is can sue the bank because the alteration is immaterial.