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UniversityUniversity ofof SantoSanto TomasTomas FacultyFaculty ofof CivilCivil LawLaw MERCANTILEMERCANTILE LAWLAW

UniversityUniversity ofof SantoSanto TomasTomas FacultyFaculty ofof CivilCivil LawLaw

SantoSanto TomasTomas FacultyFaculty ofof CivilCivil LawLaw MERCANTILEMERCANTILE LAWLAW QuestionsQuestions AskedAsked

MERCANTILEMERCANTILE

LAWLAW

QuestionsQuestions AskedAsked MoreMore ThanThan OnceOnce

(QuAMTO(QuAMTO 2017)2017)

MoreMore ThanThan OnceOnce (QuAMTO(QuAMTO 2017)2017) * * Q U A M T O Q U A

**QUAMTOQUAMTO isis aa compilationcompilation ofof pastpast barbar questionsquestions withwith answersanswers asas suggestedsuggested byby UPLCUPLC andand otherother distinctdistinct luminariesluminaries inin thethe academe,academe, aandnd updatedupdated byby thethe USTUST AcademicsAcademics CommitteeCommittee toto fitfit forfor thethe 20172017 BaBarr Exams.Exams.

*Bar*Bar questionsquestions areare arrangedarranged perper topictopic inin accordanceaccordance withwith thethe barbar syllabussyllabus releasedreleased byby thethe SupremeSupreme CourtCourt andand werewere selectedselected basedbased onon theirtheir occurrenceoccurrence onon pastpast barbar examinationsexaminations fromfrom 19871987 toto 2016.2016.

AA CADEMICSCADEMICS CC OMMITTEEOMMITTEE CC AMILLEAMILLE AA NGELICANGELICA B.B. GG ONZALESONZALES EE MNIEMNIE VV

AACADEMICSCADEMICS CCOMMITTEEOMMITTEE

CCAMILLEAMILLE AANGELICANGELICA B.B. GGONZALESONZALES

EEMNIEMNIE VVALERIEALERIE B.B. DDURANURAN IIRVINRVIN L.L. PPALANCAALANCA LLARAARA NNICOLEICOLE T.T. GGONZALESONZALES MMARIELLAARIELLA A.A. MMARASIGANARASIGAN

CCAMILLEAMILLE AANGELICANGELICA B.B. GGONZALESONZALES

SSECRETARYECRETARY GGENERALENERAL

EEXECUTIVEXECUTIVE CCOMMITTEEOMMITTEE

LLAYOUTAYOUT ANDAND DDESIGNESIGN

QUAMTOQUAMTO CCOMMITTEEOMMITTEE MMEMBERSEMBERS

JJACKIELYNACKIELYN KKRYSTYLRYSTYL NNIHAMAIHAMA BBANAANA KKARLARL AANTHONYNTHONY BBULAONGULAONG MMERVINERVIN MMARCOSARCOS KKELLYELLY AANNNN RRUBINUBIN NNESTORESTOR FFERNANDOERNANDO SSIAZONIAZON

AATTYTTY AALL CCONRADONRAD B.B. EESPALDONSPALDON AADVISERDVISER

QUAMTOQUAMTO (1987-2016)(1987-2016)

Q U A M T O Q U A M T O (1987-2016)(1987-2016)

MERCANTILEMERCANTILE LAWLAW QUAMTOQUAMTO

LETTERSLETTERS OFOF CREDITCREDIT

DEFINITIONDEFINITION ANDAND NATURENATURE OFOF LETTERLETTER OFOF CREDITCREDIT

Q:Q: ExplainExplain thethe naturenature ofof LettersLetters ofof CreditCredit asas aa financifinancialal devise.devise. (2012(2012 Bar)Bar)

A:A: AA letterletter ofof creditcredit isis aa financialfinancial devicedevice developeddeveloped byby merchantsmerchants asas aa convenientconvenient andand relativelyrelatively safesafe modemode ofof dealingdealing withwith salessales ofof goodsgoods toto satisfysatisfy thethe seeminglseeminglyy irreconcilableirreconcilable interestsinterests ofof aa seller,seller, whowho refusesrefuses toto partpart withwith hishis goodsgoods beforebefore hehe isis paid,paid, andand aa buyer,buyer, whowho wantswants toto havehave controlcontrol ofof thethe goodsgoods beforebefore paying.paying. TheThe useuse ofof credcreditsits inin commercialcommercial transactionstransactions servesserves toto reducereduce thethe riskrisk ooff nonpaymentnonpayment ofof thethe purchasepurchase priceprice underunder thethe contractcontract forfor thethe salesale ofof goodsgoods andand toto reducereduce thethe riskrisk ofof nonperfnonperformanceormance ofof anan obligationobligation inin aa non-salenon-sale setting.setting. (Transfield(Transfield PhilippinesPhilippines Inc.Inc. vs.vs. LuzonLuzon HydroHydro Corp.,Corp., NovemberNovember 22,22, 2004)2004)

Q:Q: IsIs thethe UniformUniform CustomsCustoms andand PracticePractice forfor DocumentaryDocumentary CreditsCredits ofof thethe InternationalInternational ChamberChamber ofof CommerceCommerce applicableapplicable toto commercialcommercial lettersletters ofof creditcredit issuedissued byby aa domesticdomestic bankbank eveneven ifif notnot expresslyexpressly mentionedmentioned inin suchsuch lettersletters ofof credit?credit? WhatWhat isis thethe basisbasis forfor youryour answer?answer? (2015(2015 Bar)Bar)

A:A: YesYes,, thethe SupremeSupreme CourtCourt heldheld thatthat thethe observanceobservance ofof thethe UniformUniform CustomsCustoms andand PracticePractice inin thethe PhilippinesPhilippines isis justifiedjustified byby ArticleArticle 22 ofof thethe CodeCode ofof CommComm erceerce whichwhich enunciatesenunciates thatthat inin thethe absenceabsence ofof anyany particularparticular provisionprovision inin thethe CCodeode ofof Commerce,Commerce, commercialcommercial transactiontransaction shallshall bebe governedgoverned byby usageusage andand customscustoms generallygenerally observed.observed. (Bank(Bank ofof thethe PhilippinePhilippine IslandsIslands v.v. DeDe RenyReny FabricFabric Industries,Industries, Inc.Inc. 3535 SCRASCRA

253)253)

Q:Q: ExplainExplain whatwhat isis aa “Letter“Letter ofof Credit”Credit” asas aa fifinancialnancial devicedevice andand aa “Trust“Trust Receipt”Receipt” asas aa securitysecurity toto thethe LLetteretter

ofof Credit.Credit. (2016(2016 Bar)Bar)

A:A: AA letterletter ofof creditcredit isis anyany arrangementarrangement howeverhowever namednamed oror describeddescribed wherebywhereby aa bankbank actingacting uponupon thethe requestrequest ofof itsits clientclient oror onon itsits behalfbehalf agreesagrees toto paypay anotheranother againagainstst stipulatedstipulated documentsdocuments providedprovided thatthat thethe termsterms ofof thethe creditcredit areare compliedcomplied withwith (Section(Section 22 ofof thethe UniformUniform CustomsCustoms andand PracticesPractices forfor DocumentaryDocumentary Credit).Credit). AA trusttrust receiptreceipt isis anan arrangementarrangement wherebywhereby thethe issuingissuing bankbank (referred(referred toto asas thethe entrusterentruster underunder thethe trusttrust receipt)receipt) releasesreleases thethe impoimportedrted goodsgoods toto thethe importerimporter (referred(referred toto asas thethe entruentru stee)stee) butbut thatthat thethe latterlatter inin casecase ofof salesale mustmust deliverdeliver thethe proceedproceedss thereofthereof toto thethe entrusterentruster upup toto thethe extentextent ofof thethe amountamount owingowing toto thethe entrusterentruster oror toto returnreturn thethe goodsgoods inin casecase ofof nonnon -sale.-sale.

PARTIESPARTIES TOTO AA LETTERLETTER OFOF CREDITCREDIT

Q:Q:

contractcontract relationshipsrelationships thatthat areare indispensableindispensable inin aa letteletterr ofof creditcredit transaction.transaction. (2002(2002 Bar)Bar)

intertwinedintertwined

ExplainExplain

thethe

threethree

(3)(3)

distinctdistinct

butbut

A:A: TheThe followingfollowing areare thethe threethree (3)(3) distinctdistinct relationshiprelationshipss arisingarising fromfrom aa letterletter ofof credit:credit:

1.1. IssuingIssuing BankBank andand thethe Applicant/Buyer/ImporterApplicant/Buyer/Importer ––

TheThe applicantapplicant hashas thethe obligationobligation toto ppayay whatwhat thethe issuingissuing bankbank hashas paidpaid toto thethe beneficiarybeneficiary withwith thethe costcost andand interestinterest onon thethe letterletter ofof credit.credit. TheirTheir relationshirelationshipp isis governedgoverned byby thethe termsterms ofof thethe applicationapplication andand

 

agreement for the issuance of letter of credit by the

agreement for the issuance of letter of credit by the

bank.bank.

The issuing bank is the

The issuing bank is the

beneficiary upon strict

beneficiary upon strict

2.2. IssuingIssuing BankBank andand thethe Beneficiary/Beneficiary/Seller/ExpSeller/Exporterorter ––

one who undertakes to pay the

one who undertakes to pay the

compliance of the latter to the

compliance of the latter to the

requirements set forth in the letter of credit.

requirements set forth in the letter of credit.

who procures the letter

who procures the letter

reimburse

reimburse

the

the

issuing

issuing

3.3. ApplicantApplicant andand BeneficiaryBeneficiary TheThe applicantapplicant isis thethe oneone

of credit and obliges himself to

of credit and obliges himself to

bank

bank

upon

upon

receipt

receipt

of

of

the

the

documents of title while the beneficiary is the one who

documents of title while the beneficiary is the one who ,,

in compliance with the contract o

in compliance with the contract o ff sale,sale, shipsships thethe goodsgoods

to the buyer and delivers the documents of title and

to the buyer and delivers the documents of title and

draft to the issuing bank to recover payment for the

draft to the issuing bank to recover payment for the

goods. The relationship between them is governed by

goods. The relationship between them is governed by

the law on sales if it is a

the law on sales if it is a

commercial letter of credit but

commercial letter of credit but

if it is a stand-by letter of credit it is governed by the law

if it is a stand-by letter of credit it is governed by the law

onon obligationsobligations andand contract.contract.

 

RIGHTS AND OBLIGATIONS OF PARTIES

RIGHTS AND OBLIGATIONS OF PARTIES

Q: Ricardo mortgaged his fishpond to AC

Q: Ricardo mortgaged his fishpond to AC BankBank toto securesecure

separate transaction, he opened a letter

aa P1MP1M loan.loan. InIn aa separate transaction, he opened a letter

of credit with the same bank for $500,000 in his favor

of credit with the same bank for $500,000 in his favor

of HS Bank, a foreign bank, to purchase outboard

of HS Bank, a foreign bank, to purchase outboard

motors.

motors.

AgreementAgreement inin favofavorr ofof ACAC Bank.Bank.

Likewise,

Likewise,

Ricardo

Ricardo

executed

executed

a

a

Surety

Surety

The outboard motors arrived and were delivered to

The outboard motors arrived and were delivered to

Ricardo, but he was not able to pay the purchase price

Ricardo, but he was not able to pay the purchase price

thereof.thereof.

a.a.

Can

Can

motors?motors? Why?Why?

Bank

Bank

AC

AC

take

take

possession

possession

of

of

the

the

outboard

outboard

b.b.

Can AC Bank also foreclose the mortgage over the

Can AC Bank also foreclose the mortgage over the

fishpond? Explain. (2005 Bank)

fishpond? Explain. (2005 Bank)

AA::

a.a.

If what Ricardo executed is a trust

If what Ricardo executed is a trust receipt,receipt, ACAC BankBank cancan

take possession of the outboard motors so that it can

take possession of the outboard motors so that it can

exercise its lien and sell

exercise its lien and sell

is a Surety Agreement, AC B

them. If what Ricardo executed

them. If what Ricardo executed

is a Surety Agreement, AC B ankank cannotcannot taketake possessionpossession

of the outboard motors, because it has no lien on them.

of the outboard motors, because it has no lien on them.

b.b.

AC Bank can also foreclose the mortgage over the

AC Bank can also foreclose the mortgage over the

fishpond if Ricardo fails

fishpond if Ricardo fails

Q:

Q:

In

In

letters

letters

of

of

credit

credit

to pay the lo

to pay the lo anan ofof P1M.P1M.

in

in

banking

banking

transactions,

transactions,

distinguish the liability of a confirming bank from a

distinguish the liability of a confirming bank from a

notifyingnotifying bank.bank. (1994(1994 Bar)Bar)

In case anything wrong happens to the letter of credit, a

A:A: In case anything wrong happens to the letter of credit, a

confirming bank incurs liability for the amount of the l

confirming bank incurs liability for the amount of the l etteretter

of credit, while a notifying bank does not incur any liability.

of credit, while a notifying bank does not incur any liability.

 

BASIC PRINCIPLES OF LETTER OF CREDIT

BASIC PRINCIPLES OF LETTER OF CREDIT

DoctrineDoctrine ofof IndependenceIndependence

Q:

Q:

X

X

Corporation

Corporation

entered

entered

Construction Corporation

Construction Corporation

build a sugar mill within

build a sugar mill within

into

into

a

a

contract

contract

with

with

PT

PT

for the latter to construct and

for the latter to construct and

six (6) months. They agreed

six (6) months. They agreed

that in case of delay, PT Construction Corporation will

that in case of delay, PT Construction Corporation will

pay X Corporation P100,000 for every day

pay X Corporation P100,000 for every day ofof thethe delay.delay.

To ensure payment of the agreed amount of damages,

To ensure payment of the agreed amount of damages,

PT Construction Corp. secured from Atlantic Bank a

PT Construction Corp. secured from Atlantic Bank a

confirmed and irrevocable letter of credit which was

confirmed and irrevocable letter of credit which was

accepted by X Corporation in due time. One week

accepted by X Corporation in due time. One week

before the expiration of the six (6) month period, PT

before the expiration of the six (6) month period, PT

Construction Corp. requested for an extension of time

Construction Corp. requested for an extension of time

to deliver claiming that the

X

X

which

which

involved

involved

the

the

to deliver claiming that the delaydelay waswas duedue toto thethe faultfault ofof

Corporation. A controversy as to the cause of delay

Corporation. A controversy as to the cause of delay

workmanship

workmanship

of

of

the

the

building

building

11

MercantileMercantile LawLaw

MercantileMercantile LawLaw

ensued.ensued. TheThe controversycontroversy remainedremained unsolved.unsolved. DespiteDespite thethe controversy,controversy, XX CorporationCorporation presentedpresented aa claimclaim againstagainst AtlanticAtlantic BankBank byby executingexecuting aa draftdraft againstagainst thethe letterletter ofof credit.credit.

CanCan AtlanticAtlantic BankBank refuserefuse paymentpayment duedue toto thethe

unresolvedunresolved controversy?controversy? Explain.Explain. b.b. CanCan XX CorporationCorporation claimclaim directlydirectly fromfrom PTPT ConstructionConstruction Corp.?Corp.? Explain.Explain. (2008(2008 Bar)Bar)

a.a.

A:A:

a.a.

AtlanticAtlantic BankBank cannotcannot refuserefuse toto paypay XX Corporation.Corporation. ThisThis isis becausebecause ofof thethe DoctrineDoctrine ofof IndependenceIndependence whichwhich providesprovides thatthat thethe obligationobligation ofof thethe issuingissuing bankbank toto paypay

thethe beneficiarybeneficiary doesdoes notnot dependdepend onon thethe fulfillmentfulfillment oror non-fulfillmentnon-fulfillment ofof thethe contractcontract supportingsupporting thethe letterletter ofof credit.credit. TheThe onlyonly instanceinstance wherewhere AtlanticAtlantic BankBank cancan

refuserefuse paymentpayment isis whenwhen XX CorporationCorporation wasn’twasn’t ableable toto

strictlystrictly complycomply withwith thethe conditionsconditions setset forthforth inin ththee letterletter ofof credit.credit. b.b. XX CorporationCorporation maymay directlydirectly claimclaim fromfrom PTPT ConstructionConstruction Corporation.Corporation. AA letterletter ofof creditcredit byby itsitselfelf doesdoes notnot comecome intointo operationoperation withoutwithout aa contractcontract supportingsupporting it.it. ItIt isis notnot aa contractcontract thatthat cancan standstand onon itsits own,own, itit needsneeds aa supportingsupporting contract.contract. ItIt isis merelymerely aann alternativealternative recourserecourse andand doesdoes notnot inin anyany wayway prevenpreventt thethe beneficiarybeneficiary fromfrom directlydirectly claimingclaiming fromfrom thethe applicant.applicant. (Transfield(Transfield Phils.Phils. Inc.Inc. v.v. LuzonLuzon HydroHydro Corporation,Corporation, G.R.G.R. No.No. 146717,146717, NovNov 22,22, 2004).2004).

Q:Q: ABCABC CompanyCompany filedfiled aa PetitionPetition forfor RehabilitationRehabilitation withwith thethe Court.Court. AnAn OrderOrder waswas issuedissued byby thethe Court,Court, (1)(1) stayingstaying enforcementenforcement ofof allall claims,claims, whetherwhether moneymoney oror otherwiseotherwise againstagainst ABCABC Company,Company, itsits guarantorsguarantors andand suretiessureties notnot solidarilysolidarily liableliable withwith thethe company;company; andand (2)(2) prohibitingprohibiting ABCABC CompanyCompany fromfrom makingmaking paymentspayments ofof itsits liabilities,liabilities, outstandingoutstanding asas ofof thethe datedate ofof thethe filingfiling ofof thethe PetitiPetition.on. XYCXYC CompanyCompany isis aa holderholder ofof anan irrevocableirrevocable StandbyStandby LetterLetter ofof CreditCredit whichwhich waswas previouslypreviously procuredprocured byby AABCBC CompanyCompany inin favorfavor ofof XYCXYC CompanyCompany toto securesecure performanceperformance ofof certaincertain obligations.obligations. InIn thethe lightlight ofof thethe OrderOrder issuedissued byby thethe Court,Court, cancan XYCXYC CompanyCompany stillstill bebe ableable toto drawdraw onon theirtheir irrevocableirrevocable StandbyStandby LetterLetter ofof CreditCredit whenwhen due?due? ExplainExplain youryour answer.answer. (2012(2012 Bar)Bar)

A:A: XYCXYC Company,Company, thethe beneficiarybeneficiary ofof thethe standbystandby letterletter ofof credit,credit, cancan drawdraw onon thethe letterletter ofof creditcredit despitedespite fifilingling ofof petitionpetition forfor corporatecorporate rehabilitation.rehabilitation. TheThe liabilitliabilityy ofof thethe bankbank thatthat issuedissued thethe letterletter ofof creditcredit isis primaryprimary anandd solidary.solidary. BeingBeing solidary,solidary, thethe claimsclaims againstagainst themthem cancan bebe purspursuedued separatelyseparately fromfrom andand independentlyindependently ofof thethe rehabilitarehabilitationtion case.case. (MWSS(MWSS v.v. DawayDaway G.R.G.R. No.No. 142381.142381. OctoberOctober 15,15, 2003)2003)

Q:Q: AA standbystandby letterletter ofof creditcredit waswas issuedissued byby ABCABC BanBankk toto securesecure thethe obligationobligation ofof XX CompanyCompany toto YY Company.Company. UnderUnder thethe standbystandby letterletter ofof credit,credit, ifif therethere isis failufailurere onon thethe partpart ofof XX CompanyCompany toto performperform itsits obligation,obligation, thenthen YY CompanyCompany willwill submitsubmit toto ABCABC BankBank aa certificatecertificate ofof defaultdefault (in(in thethe formform prescribedprescribed underunder thethe standbystandby letterletter ofof credit)credit) andand ABCABC BankBank willwill havehave toto paypay YY CompanyCompany thethe defaulteddefaulted amount.amount. Subsequently,Subsequently, YY CompanyCompany submittedsubmitted toto ABCABC BankBank aa certificatecertificate ofof defaultdefault notwithstandingnotwithstanding thethe factfact thatthat XX CompanyCompany waswas notnot inin default.default. CanCan ABCABC BankBank refuserefuse toto honorhonor thethe certificatecertificate ofof default?default? Explain.Explain. (2015(2015 Bar)Bar)

A:A: No.No. UnderUnder thethe doctrinedoctrine ofof independenceindependence inin aa letterletter ofof credit,credit, thethe obligationobligation ofof thethe issuingissuing bankbank toto paypay tthehe beneficiarybeneficiary isis distinctdistinct andand independentindependent fromfrom thethe mamainin andand originatingoriginating contractcontract underlyingunderlying thethe letterletter ofof credicredit.t. SuchSuch

obligationobligation toto paypay doesdoes notnot dependdepend onon thethe fulfillmenfulfillmentt oror nonnon -- fulfillmentfulfillment ofof thethe originatingoriginating contract.contract. ItIt arisesarises uponupon tendertender ofof thethe stipulatedstipulated documentsdocuments underunder thethe letterletter ofof crecredit.dit. InIn thethe presentpresent case,case, thethe tendertender ofof thethe certificatecertificate ofof defadefaultult entitlesentitles YY toto paymentpayment underunder thethe standbystandby letterletter ofof creditcredit notwithstandingnotwithstanding thethe factfact thatthat XX CompanyCompany waswas notnot inin default.default. ThisThis isis withoutwithout prejudiceprejudice toto thethe rightright ofof XX CompanyCompany toto proceedproceed againstagainst YY CompanyCompany underunder thethe lawlaw onon contractscontracts andand damages.damages. (Insular(Insular BankBank ofof AsiaAsia andand AmericaAmerica v.v. IAC,IAC, 167167 SCRASCRA

450)450)

ALTERNATIVEALTERNATIVE ANSWER:ANSWER:

UnderUnder thethe fraudfraud exceptionexception principle,principle, thethe beneficiarbeneficiaryy maymay bebe enjoinedenjoined fromfrom collectingcollecting onon thethe letterletter ofof creditcredit inin casecase ofof fraudulentfraudulent abuseabuse ofof credit.credit. TheThe issuanceissuance ofof aa certicertificateficate ofof defaultdefault despitedespite thethe factfact thatthat XX CompanyCompany isis notnot inin ddefaultefault constitutesconstitutes fraudulentfraudulent abuseabuse ofof credit.credit. (Transfield(Transfield PhilippinesPhilippines v.v. LuzonLuzon HydroHydro Corporation,Corporation, 443443 SCRASCRA 307)307)

FRAUDFRAUD EXCEPTIONEXCEPTION PRINCIPLEPRINCIPLE

Q:Q:

TheThe

SupremeSupreme

CourtCourt

hashas

heldheld

thatthat

fraudfraud

isis

anan

exceptionexception toto thethe “independence“independence principle”principle” governinggoverning

lettersletters ofof credit.credit. ExplainExplain thisthis principleprinciple andand givegive anan exampleexample ofof howhow fraudfraud cancan bebe anan exception.exception. (2010(2010 Bar)Bar)

AA:: TheThe “independen“independencece principle”principle” positsposits thatthat thethe obligationsobligations ofof thethe partiesparties toto aa letterletter ofof creditcredit areare independenindependentt ofof thethe obligationsobligations ofof thethe partiesparties toto thethe underlyingunderlying transatransaction.ction. Thus,Thus, thethe beneficiarybeneficiary ofof thethe letterletter ofof credit,credit, whicwhichh isis ableable toto complycomply withwith thethe documentarydocumentary requirementsrequirements underunder thethe letterletter ofof credit,credit, mustmust bebe paidpaid byby thethe issuingissuing oror coconfirmingnfirming bank,bank, notwithstandingnotwithstanding thethe existenceexistence ofof aa disputedispute bebetweentween thethe partiesparties toto thethe underlyingunderlying transaction,transaction, saysay aa cocontractntract ofof salesale ofof goodsgoods wherewhere thethe buyerbuyer isis notnot satisfiedsatisfied withwith thethe qualityquality ofof thethe goodsgoods delivereddelivered byby thethe seller.seller. TheThe SSupremeupreme CourtCourt inin TransfieldTransfield Philippines,Philippines, Inc.Inc. v.v. LuzonLuzon HydroHydro Corporation,Corporation, 443443 SCRASCRA 307307 (2004)(2004) forfor thethe firstfirst timetime declareddeclared thatthat fraudfraud isis anan exceptionexception toto thethe independenceindependence prinprinciple.ciple. ForFor instance,instance, ifif thethe beneficiarybeneficiary fraudulentlyfraudulently presenpresentsts toto thethe issuingissuing oror confirmingconfirming bankbank documentsdocuments thatthat containcontain mmaterialaterial factsfacts that,that, toto hishis knowledge,knowledge, areare untrue,untrue, thenthen paypay mentment underunder thethe letterletter ofof creditcredit maymay bebe preventedprevented throughthrough courtcourt injunction.injunction.

DOCTRINEDOCTRINE OFOF STRICTSTRICT COMPLIANCECOMPLIANCE

Q:Q: BVBV agreedagreed toto sellsell toto AC,AC, aa ShipShip andand MerchandiseMerchandise Broker,Broker, 25002500 cubiccubic metersmeters ofof logslogs atat $27$27 perper cubiccubic metermeter FOB.FOB. AfterAfter inspectinginspecting thethe logs,logs, CDCD issuedissued aa purchasepurchase order.order.

OnOn thethe arrangementsarrangements mademade uponupon instructioninstruction ofof thethe consignee,consignee, HH &T&T CorporationCorporation ofof LA,LA, California,California, thethe SPSP BankBank ofof LALA issuedissued anan irrevocableirrevocable letterletter ofof creditcredit availableavailable atat sightsight inin favorfavor forfor thethe totaltotal purchasepurchase ppricerice ofof thethe logs.logs. TheThe letterletter ofof creditcredit waswas mailedmailed toto FEFE BankBank withwith

thethe instructioninstruction “to“to forwardforward itit toto thethe beneficiary”.beneficiary”. TheThe

letterletter ofof creditcredit providedprovided thatthat thethe draftdraft toto bebe drawndrawn isis onon SPSP BankBank andand thatthat itit bebe accompaniedaccompanied by,by, amongamong otherother things,things, aa certificationcertification fromfrom AC,AC, statingstating thatthat thethe logslogs havehave beenbeen approvedapproved priorprior shipmentshipment inin accordanceaccordance withwith thethe termsterms andand conditionsconditions ofof thethe purchasepurchase order.order.

BeforeBefore loadingloading onon thethe vesselvessel charteredchartered byby AC,AC, thethe loglogss werewere inspectedinspected byby customcustom inspectorsinspectors andand representativerepresentativess ofof thethe BureauBureau ofof Forestry,Forestry, whowho certifiedcertified toto thethe goodgood conditioncondition andand exportabilityexportability ofof thethe logs.logs. AfterAfter loadingloading waswas completed,completed, thethe ChiefChief MateMate ofof thethe vesselvessel issuedissued aa matemate receiptreceipt ofof thethe cargocargo whichwhich statedstated thathatt thethe

QUAMTOQUAMTO (1987-2016)(1987-2016)

Q U A M T O Q U A M T O (1987-2016)(1987-2016)

logslogs areare inin goodgood condition.condition. However,However, ACAC refusedrefused toto issueissue thethe requiredrequired certificationcertification inin thethe letterletter ofof credit.credit. BecauseBecause ofof thethe absenceabsence ofof certification,certification, FEFE BankBank refusedrefused toto advanceadvance paymenpaymentt onon thethe letterletter ofof credit.credit.

thethe borrower,borrower, lendslends hishis moneymoney toto thethe borrowerborrower onon securitysecurity ofof thethe goods,goods, whichwhich thethe borrowerborrower isis privilegedprivileged toto sellsell clearclear ofof lienlien onon agreementagreement toto paypay allall oo rr partpart ofof thethe proceedsproceeds ofof salesale toto thethe lender.lender. TheThe termterm isis specifispecificallycally appliedapplied toto aa writtenwritten instrumentinstrument wherebywhereby aa bankerbanker havinghaving advancedadvanced moneymoney forfor purchasepurchase ofof importedimported merchandisemerchandise andand havinghaving takentaken titletitle inin hishis ownown name,name, deliversdelivers possessionpossession toto anan importerimporter onon agreementagreement inin writingwriting toto holdhold thethe merchandisemerchandise inin trusttrust forfor thethe babankernker untiluntil hehe isis paid.paid. Finally,Finally, aa documentdocument execexecuteduted betweenbetween anan entrustorentrustor andand anan entrustee,entrustee, underunder whichwhich thethe goodgoodss areare releasedreleased toto thethe latterlatter whowho bindsbinds himselfhimself toto holholdd thethe goodsgoods inin trust,trust, oror toto sellsell oror disposedispose ofof thethe goodsgoods withwith thethe obligationobligation toto turnturn overover thethe proceedsproceeds toto thethe entrustentrustoror toto

a.a. MayMay FEFE BankBank bebe heldheld liableliable underunder thethe letterletter ofof credit?credit? Explain.Explain. b.b. UnderUnder thethe factsfacts above,above, thethe seller,seller, BV,BV, arguedargued thatthat FEFE Bank,Bank, byby acceptingaccepting thethe obligationobligation toto notifynotify himhim thatthat thethe irrevocableirrevocable letterletter ofof creditcredit hashas beenbeen transmittedtransmitted toto itit onon hishis behalf,behalf, hashas confirmedconfirmed thethe letterletter ofof credit.credit. Consequently,Consequently, FEFE BankBank isis liableliable underunder thethe letterletter ofof credit.credit. IsIs thethe argumentargument tenable?tenable? Explain.Explain. (1993(1993 Bar)Bar)

thethe extentextent ofof thethe entrustee’sentrustee’s obligationobligation toto him,him, oror ifif

A:

A:

unsold,unsold, toto returnreturn thethe same.same.

a.a. FEFE BankBank cannotcannot bebe heldheld liableliable underunder thethe letterletter ofof crecreditdit sincesince thethe certificatecertificate isis notnot issuedissued byby BV.BV. ItIt isis aa settledsettled rulerule inin commercialcommercial transactionstransactions involvinginvolving lettersletters ooff creditcredit thatthat thethe documentsdocuments tenderedtendered mustmust strictlystrictly conformconform toto thethe termsterms ofof thethe letterletter ofof credit.credit. TheThe ttenderender ofof documentsdocuments byby thethe beneficiarybeneficiary (seller)(seller) mustmust includeinclude allall documentsdocuments requiredrequired byby thethe letter.letter. AA correspondecorrespondentnt bankbank whichwhich departsdeparts fromfrom whatwhat hashas beenbeen stipulatedstipulated underunder thethe letterletter ofof credit,credit, asas whenwhen itit acceptsaccepts aa fafaultyulty tender,tender, actsacts onon itsits ownown risksrisks andand itit maymay notnot thereathereafterfter bebe ableable toto recoverrecover fromfrom thethe buyerbuyer oror thethe issuingissuing babank,nk, asas thethe casecase maymay be,be, thethe moneymoney thusthus paidpaid toto thethe beneficiary.beneficiary. ThusThus thethe rulerule ofof strictstrict compliance.compliance. (Feati(Feati BankBank andand TrustTrust CompanyCompany v.v. CourtCourt ofof Appeals,Appeals, G.R.G.R. No.No. 94209,94209, AprilApril 30,30, 1991)1991) b.b. TheThe argumentargument mademade byby BVBV isis untenable.untenable. TheThe FEFE BankBank inin thisthis casecase isis onlyonly aa notifyingnotifying bankbank andand notnot aa confirconfirmingming bank.bank. ItIt isis taskedtasked onlyonly toto notifynotify and/orand/or transmittransmit tthehe requiredrequired documentsdocuments andand itsits obligationobligation endsends there.there. IItt isis notnot privyprivy toto thethe contractcontract betweenbetween thethe parties,parties, itsits relationshiprelationship isis onlyonly withwith thatthat ofof thethe issuingissuing bankbank andand notnot withwith thethe beneficiarybeneficiary toto whomwhom hehe assumesassumes nono liability.liability.

TRUSTTRUST RECEIPTSRECEIPTS

 

b.b. TheThe casecase ofof estafaestafa againstagainst CC willwill notnot prosper.prosper. PDPD 111515 doesdoes notnot applyapply inin thisthis casecase becausebecause thethe proceedsproceeds ofof thethe

 

loanloan areare usedused toto renovaterenovate C’sC’s commercialcommercial building.building.

TrustTrust receiptsreceipts transactionstransactions areare intendedintended toto aidaid inin financingfinancing importersimporters andand retailretail dealersdealers whowho dodo notnot hhaveave sufficientsufficient fundsfunds oror resourcesresources toto financefinance thethe importationimportation oror purchasepurchase ofof merchandise,merchandise, andand whowho maymay notnot bebe ableable toto acquireacquire creditcredit exceptexcept throughthrough utilization,utilization, asas collateral,collateral, ofof thethe merchandisemerchandise importedimported oror purchasepurchased.d. TheThe transactionstransactions contemplatedcontemplated underunder thethe TrustTrust ReceiptsReceipts LawLaw mainlymainly involvedinvolved acquisitionacquisition ofof goodsgoods foforr thethe salesale thereof.thereof. TheThe transactiontransaction isis properlyproperly callecalledd aa simplesimple loanloan withwith thethe trusttrust receiptreceipt merelymerely asas aa collateralcollateral oror securitysecurity forfor thethe loan.loan. ((NgNg v.v. PeoplePeople G.R.G.R. No.No. 173905,173905, AprilApril 23,23, 20102010 citingciting SSamoamo v.v. People,People, G.R.G.R. No.No. L-17603-04L-17603-04,,

MayMay 31,31, 1962;1962; ConsolidatedConsolidated BankBank andand TrustTrust CorporationCorporation v.v. CourtCourt ofof Appeals,Appeals, 356356 SCRASCRA 671671))

 

Q:Q: AA buysbuys goodsgoods fromfrom aa foreignforeign suppliersupplier usingusing hishis ccreditredit lineline withwith aa bankbank toto paypay forfor thethe goods.goods. UponUpon arrivalarrival ofof thethe goodsgoods atat thethe pier,pier, thethe bankbank requiresrequires AA toto signsign aa trustrustt receiptreceipt beforebefore AA isis allowedallowed toto taketake deliverydelivery ofof thethe goods.goods. TheThe trusttrust receiptreceipt containscontains thethe usualusual language.language. AA disposesdisposes ofof thethe goodsgoods andand receivesreceives paymentpayment butbut doesdoes notnot paypay thethe bank.bank. TheThe bankbank filesfiles aa criminalcriminal actionaction againstagainst AA forfor violationviolation ofof thethe TrustTrust ReceiptsReceipts Law.Law. AA assertsasserts thatthat thethe trusttrust receiptreceipt isis onlyonly toto securesecure hishis debtdebt andand thatthat aa criminalcriminal actionaction cannotcannot lielie againstagainst himhim becausebecause thatthat wouldwould bebe violativeviolative ofof hishis constitutionalconstitutional

rightright againstagainst “imprisonment“imprisonment forfor nonnon-payment-payment ofof aa debt.”debt.” IsIs hehe correct?correct? (1997(1997 Bar)Bar)

Q:Q: CC contractedcontracted DD toto renovaterenovate hishis commercialcommercial building.building. DD orderedordered constructionconstruction materialsmaterials fromfrom EE andand receivedreceived deliverydelivery thereof.thereof. TheThe followingfollowing day,day, CC wentwent toto FF BaBanknk toto applyapply forfor aa loanloan toto paypay thethe constructionconstruction materials.materials. AsAs securitysecurity forfor thethe loan,loan, CC waswas mademade toto executeexecute aa trusttrust receipt.receipt. OneOne yearyear later,later, afterafter CC failedfailed toto paypay thethe balancebalance onon thethe loan,loan, FF BankBank chargedcharged withwith violationviolation ofof thethe TrustTrust ReceiptsReceipts Law.Law.

a.a.

AA:: No.No. ViolationViolation ofof aa trusttrust receiptreceipt isis criminalcriminal asas itit isis punishedpunished asas estafaestafa underunder Art.Art. 315315 ofof thethe RPC.RPC. ThereThere isis aa pubpubliclic policypolicy involvedinvolved whichwhich isis toto assureassure thethe entrusterentruster withwith thethe reimbursementreimbursement ofof thethe amountamount advancedadvanced oror thethe balancebalance thereofthereof forfor thethe goodsgoods subjectsubject ofof thethe trusttrust receipt.receipt. TheThe executionexecution ofof thethe trusttrust receiptreceipt oror thethe useuse thereofthereof ppromotesromotes thethe smoothsmooth flowflow ofof commercecommerce asas itit helpshelps thethe importeimporterr oror buyerbuyer ofof thethe goodsgoods coveredcovered thereby.thereby.

b.b.

WhatWhat isis aa TrustTrust Receipt?Receipt? WillWill thethe casecase againstagainst CC prosper?prosper? ReasonReason brieflybriefly (2007(2007 Bar)Bar)

Q:Q:

A:

A:

a.a. AA trusttrust receiptreceipt isis aa writtenwritten oror printedprinted documentdocument sisignedgned byby thethe entrusteeentrustee inin favorfavor ofof thethe entrusterentruster containicontainingng termsterms andand conditionsconditions substantiallysubstantially complyingcomplying withwith tthehe provisionprovision ofof PDPD 115115 wherebywhereby thethe bankbank asas entrusterentruster releasesreleases thethe goodsgoods toto thethe possessionpossession ofof thethe entrustentrusteeee butbut retainretain ownershipownership thereofthereof whilewhile thethe entrusteeentrustee mamayy sellsell thethe goodsgoods andand applyapply thethe proceedsproceeds forfor thethe fullfull paymentpayment ofof hishis liabilityliability toto thethe bank.bank. [[Sec.Sec. 33 (j),(j), TrustTrust ReceiptsReceipts LawLaw]] ItIt isis alsoalso defineddefined asas aa documentdocument inin whichwhich isis expressedexpressed aa securitysecurity transaction,transaction, wherewhere thethe lendlender,er, havinghaving nono priorprior titletitle inin thethe goodsgoods onon whichwhich thethe lienlien isis toto bebe given,given, andand notnot havinghaving possessionpossession whichwhich remainsremains iinn

 

a.a.

MaineMaine Den,Den, Inc.Inc. openedopened anan irrevocableirrevocable letterletter ofof creditcredit withwith FairFair Bank,Bank, inin connectioconnectionn withwith MaineMaine DenDen

 

Inc.’sInc.’s importationimportation ofof sparespare partsparts forfor itsits textiletextile millmills.s.

TheThe importedimported partsparts werewere releasedreleased toto MaineMaine Den,Den, Inc.Inc. afterafter itit executedexecuted aa trusttrust receiptreceipt inin favorfavor ofof FaFairir Bank.Bank. WhenWhen MaineMaine Den,Den, Inc.Inc. waswas unableunable toto paypay itsits obligationobligation underunder thethe trusttrust receipt,receipt, FairFair BankBank suedsued MaineMaine Den,Den, Inc.Inc. forfor estafaestafa underunder thethe TrustTrust ReceiptsReceipts Law.Law. TheThe court,court, however,however, dismisseddismissed thethe suit.suit. WasWas thethe dismissaldismissal justified?justified? WhyWhy oror whywhy not?not?

 

b.b.

DoesDoes thethe rulerule “res“res peritperit domino”domino” applyapply inin trusttrust

 

receiptreceipt transactions?transactions? Explain.Explain. (2015(2015 Bar)Bar)

 

33

MercantileMercantile LawLaw

MercantileMercantile LawLaw

A:

A:

a.a. TheThe dismissaldismissal ofof thethe complaintcomplaint forfor estafaestafa isis justifjustified.ied. UnderUnder recentrecent jurisprudence,jurisprudence, thethe SupremeSupreme CourtCourt heldheld thatthat transactionstransactions referredreferred toto inin relationrelation toto trusttrust receipts,receipts, mainlymainly involvedinvolved sales,sales, andand ifif thethe entrustentrusterer knewknew eveneven beforebefore thethe executionexecution ofof thethe allegedalleged trusttrust receiptreceipt agreementagreement thatthat thethe goodsgoods subjectsubject ofof thethe trutrustst receiptreceipt werewere nevernever intendedintended byby thethe entrusteeentrustee forfor reresalesale oror forfor thethe manufacturemanufacture ofof itemsitems toto bebe sold,sold, thethe agreementagreement isis notnot aa trusttrust receiptreceipt transactiontransaction butbut aa simplesimple loan,loan, notwithstandingnotwithstanding thethe label.label. InIn thisthis cascase,e, thethe objectobject ofof thethe trusttrust receipt,receipt, sparespare partsparts forfor textiltextilee mills,mills, werewere forfor thethe useuse ofof thethe entrusteeentrustee andand nevernever intendeintendedd forfor sale.sale. AsAs such,such, thethe transactiontransaction isis aa simplesimple loan.loan. (Ng(Ng v.v.

PeoplePeople ofof thethe Philippines,Philippines, G.R.G.R. No.No. 173905,173905, AprilApril 23,23, 2010;2010; LandLand BankBank V.V. Perez,Perez, G.R.G.R. No.No. 166884,166884, JuneJune 13,13, 20122012 ;; andand HurHur TingTing YangYang v.v. PeoplePeople ofof thethe Philippines,Philippines, G.R.G.R. No.No. 195117,195117, AugustAugust 14,14, 20132013)) NoNo ThisThis isis becausebecause thethe lossloss ofof thethe goods,goods, documentsdocuments oror instrumentsinstruments whichwhich areare thethe subjectsubject ofof aa trusttrust receipreceiptt pendingpending theirtheir disposition,disposition, irrespectiveirrespective ofof whetherwhether oror notnot itit waswas duedue toto thethe ffaultault oror negligencenegligence ofof thethe entrustee,entrustee,

b.b.

shallshall notnot extinguishextinguish thethe entrustee’sentrustee’s obligationobligation toto thethe

entrusterentruster forfor thethe valuevalue thereof.thereof.

Also,Also, whilewhile thethe entrusterentruster isis mademade toto appearappear asas owneownerr ofof thethe goodsgoods coveredcovered byby thethe trusttrust receipt,receipt, suchsuch ownersownershiphip

isis onlyonly aa legallegal fictionfiction toto enhanceenhance thethe entruster’sentruster’s securitysecurity

interestinterest overover thethe goods.goods. ((SectionSection 1010 ofof Pres.Pres. DecreeDecree No.No. 115;115; RosarioRosario TextileTextile MillsMills Corp.Corp. v.v. HomeHome BankersBankers SavingsSavings andand TrustTrust Company,Company, G.R.G.R. No.No. 1372323,1372323, JuneJune 29,29, 2005,2005, 462462 SCRASCRA 8888))

LOAN/SECURITLOAN/SECURITYY FEATUREFEATURE

Q:Q: DelanoDelano CruzCruz isis inin defaultdefault inin thethe paymentpayment ofof hishis existingexisting loanloan fromfrom BDPBDP Bank.Bank. ToTo extendextend andand restructurerestructure thisthis loan,loan, DelanoDelano agreedagreed toto executeexecute aa trusttrust receiptreceipt iinn thethe

bank’sbank’s favorfavor coveringcovering thethe ironiron pelletspellets DelanoDelano importimporteded

subsequentlysubsequently

succeededsucceeded inin sellingselling thethe ironiron pelletspellets toto aa smeltingsmelting plant,plant, butbut thethe proceedsproceeds wentwent toto thethe paymentpayment ofof thethe separationseparation benefitsbenefits ofof hishis employeesemployees whowho werewere laidlaid offoff asas hehe reducedreduced hishis operations.operations.

fromfrom

ChinaChina

oneone

yearyear

earlier.earlier.

DelanoDelano

WhenWhen thethe extendedextended loanloan periodperiod expiredexpired withoutwithout anyany significantsignificant paymentpayment fromfrom DelanoDelano (not(not eveneven toto thethe extentextent ofof thethe proceedsproceeds ofof thethe salesale ofof thethe ironiron pellets),pellets), BDPBDP BankBank consultedconsulted youyou toto onon howhow toto prproceedoceed againstagainst DelanoDelano TheThe bankbank isis contemplatingcontemplating thethe filingfiling ofof estafaestafa pursuantpursuant toto thethe provisionsprovisions ofof PDPD 115115 (Trust(Trust ReceiptsReceipts Law)Law) toto forforcece DelanoDelano toto turnturn inin atat leastleast thethe proceedsproceeds ofof thethe salesale ofof thethe ironiron pellets.pellets.

WouldWould you,you, asas bankbank counselcounsel andand asas officerofficer ofof thethe courtcourt,, adviseadvise thethe bankbank toto proceedproceed withwith itsits contemplatedcontemplated action?action? (2013(2013 Bar)Bar)

A:

A:

II willwill notnot adviseadvise BDPBDP BankBank toto filefile aa criminalcriminal casecase forfor estafaestafa

againstagainst Delano.Delano. DelanoDelano receivedreceived thethe ironiron pelletspellets hehe importedimported oneone yearyear beforebefore thethe trusttrust receiptreceipt waswas executed.executed. AsAs heldheld byby thethe SupremeSupreme Court,Court, wherewhere thethe executionexecution ofof aa trusttrust receiptreceipt agreementagreement waswas mademade afterafter thethe goodsgoods coveredcovered byby itit hadhad beenbeen purchasedpurchased byby andand delivereddelivered toto thethe entrusteentrusteee andand thethe latterlatter asas aa consequenceconsequence acquiredacquired ownershipownership toto tthehe

goods,goods, thethe transactiontransaction doesdoes notnot involveinvolve aa trusttrust recreceipteipt butbut aa simplesimple loanloan eveneven thoughthough thethe partiesparties denominateddenominated thethe transactiontransaction asas oneone ofof trusttrust receipt.receipt. ((ColinaresColinares v.v. CourtCourt ofof

Appeals, 339 SCRASCRA 609,609, 2000;2000; ConsolidatedConsolidated BankBank andand TrustTrust

Appeals, 339

CorporationCorporation v.v. CA,CA, 356356 SCRASCRA 671,671, 20012001))

USTUST BARBAR OPERATIONSOPERATIONS

44

Q:Q: WhatWhat actsacts oror omissionsomissions areare penalizedpenalized underunder thethe TrustTrust ReceiptsReceipts Law?Law? (2006(2006 Bar)Bar)

A:A: Sec.Sec. 1313 ofof P.D.P.D. 115,115, TrustTrust ReceiptsReceipts Law,Law, providesprovides thatthat thethe failurefailure ofof anan entrusteeentrustee toto turnturn overover thethe proceedsproceeds ooff thethe salesale ofof thethe goods,goods, documentsdocuments oror instrumentsinstruments coveredcovered byby aa trusttrust receiptreceipt toto thethe extentextent ofof thethe amountamount owingowing toto thethe enentrustertruster oror asas appearsappears inin thethe trusttrust receiptreceipt oror toto returnreturn saisaidd goods,goods, documentsdocuments oror instrumentsinstruments ifif theythey werewere notnot soldsold oror ddisposedisposed ofof inin accordanceaccordance withwith thethe termsterms ofof thethe trusttrust receipreceiptt shallshall constituteconstitute thethe crimecrime ofof estafa.estafa.

Q:Q: IsIs lacklack ofof intentintent toto defrauddefraud aa barbar toto thethe prosecutionprosecution ofof thesethese actsacts oror omissions?omissions? (2006(2006 Bar)Bar)

A:A: No.No. LackLack ofof intentintent toto defrauddefraud isis immaterialimmaterial toto thethe prosecutionprosecution forfor estafaestafa underunder TrustTrust ReceiptsReceipts Law.Law. TheThe meremere failurefailure toto accountaccount oror toto returnreturn givesgives riserise thethe crimcrimee whichwhich isis aa malummalum prohibitum.prohibitum.

RIGHTSRIGHTS OFOF THETHE ENTRUSTERENTRUSTER

Q:Q: MarsMars Trading,Trading, Inc.Inc. (MT)(MT) importedimported variousvarious constructionconstruction materialsmaterials fromfrom Japan,Japan, underunder aa letterletter ofof credit-trustcredit-trust receiptreceipt (LC/TR)(LC/TR) lineline providedprovided byby FilipiFilipinasnas Bank.Bank. WhenWhen thethe goodsgoods arrivedarrived inin Manila,Manila, thethe samesame werewere

releasedreleased toto MTIMTI uponupon thethe latter’slatter’s executionexecution ofof aa trusttrust

receiptreceipt wherebywhereby MTIMTI undertookundertook toto holdhold thethe goodsgoods inin trusttrust forfor thethe bank.bank. TheThe trusttrust receiptreceipt furtherfurther providprovideded thatthat uponupon salesale ofof thethe goods,goods, thethe entrusteeentrustee (MTI)(MTI) willwill turnturn overover thethe proceedsproceeds ofof thethe salesale toto thethe entrustingentrusting bankbank toto thethe extentextent ofof thethe amountamount ofof U.S.U.S. $100,$100, 000000 owedowed byby MTIMTI toto thethe bankbank onon accountaccount ofof itsits importation,importation, whichwhich amountamount shallshall bebe paidpaid inin PhilippinePhilippine currencycurrency basedbased onon thethe raterate ofof exchangeexchange prevailingprevailing atat thethe timetime ofof payment.payment. MTIMTI soldsold thethe goodsgoods 66 monthsmonths later,later, duringduring whichwhich thethe timetime thethe peso-dollarpeso-dollar raterate ofof exchangeexchange deteriorateddeteriorated substantially.substantially. MTIMTI refusedrefused toto paypay FilipinasFilipinas BankBank contendingcontending that:that:

a.a. TheThe trusttrust receiptreceipt stipulationstipulation toto paypay thethe pesopeso equivalentequivalent ofof $100,$100, 000000 violatedviolated thethe UniformUniform CurrencyCurrency Act,Act, renderingrendering thethe trusttrust receiptreceipt void,void, andand b.b. AssumingAssuming arguendoarguendo thatthat suchsuch stipulationsstipulations werewere enforceable,enforceable, MITMIT shoulshouldd paypay onlyonly onon thethe basisbasis ofof thethe raterate ofof exchangeexchange prevailingprevailing onon thethe datedate whenwhen thethe goodsgoods werewere released.released.

DecideDecide withwith reasons.reasons. (1987(1987 Bar)Bar)

AA::

a.a. MITMIT isis liableliable sincesince onlyonly thethe stipulationstipulation requiringrequiring paymentpayment onon foreignforeign currencycurrency isis violativeviolative ofof thethe UniUniformform CurrencyCurrency Act.Act. TheThe obligationobligation itselfitself underunder thethe lawlaw subsists,subsists, whichwhich cancan bebe dischargeddischarged byby aa paymentpayment inin PhilippinePhilippine currency.currency. b.b. TheThe basisbasis ofof paymentpayment wouldwould bebe thethe raterate ofof exchangeexchange prevailingprevailing atat thethe timetime ofof paymentpayment sincesince thethe obligatobligationion waswas incurredincurred inin foreignforeign currency.currency. HadHad thethe obligatioobligationn beenbeen incurredincurred inin PhilippinePhilippine currencycurrency thenthen thethe raterate ofof exchangeexchange atat thethe timetime thethe obligationobligation waswas incurredincurred wouldwould havehave beenbeen thethe basisbasis ofof payment.payment.

OBLIGATIONOBLIGATION ANDAND LIABILITYLIABILITY OFOF THETHE ENTRUSTEEENTRUSTEE

Q:Q: CCCCCC Car,Car, Inc.Inc. obtainedobtained aa loanloan fromfrom BBBBBB Bank,Bank, whichwhich fundfund waswas usedused toto importimport tenten (10)(10) unitsunits ofof MercedesMercedes BenzBenz SS classclass vehicles.vehicles. UponUpon arrivalarrival ofof thethe vehiclesvehicles aandnd beforebefore releaserelease ofof saidsaid vehiclesvehicles toto CCCCCC Car,Car, Inc.,Inc., XX andand Y,Y, thethe PresidentPresident andand Treasurer,Treasurer, respectively,respectively, ofof CCCCCC CarCar,,

QUAMTOQUAMTO (1987-2016)(1987-2016)

Q U A M T O Q U A M T O (1987-2016)(1987-2016)

Inc.Inc. signedsigned thethe TrustTrust ReceiptReceipt toto covercover thethe valuevalue ofof tthehe tenten (10)(10) unitsunits ofof MercedesMercedes BenzBenz SS classclass vehiclesvehicles afterafter which,which, thethe vehiclesvehicles werewere allall delivereddelivered toto thethe CarCar ddisplayisplay roomroom ofof CCCCCC Car,Car, Inc.Inc. SaleSale ofof thethe vehiclesvehicles werewere slowslow,, andand itit tooktook aa monthmonth toto disposedispose ofof thethe tenten (10)(10) units.units. CCCCCC Car,Car, Inc.Inc. wantedwanted toto bebe inin businessbusiness andand toto savesave onon variousvarious documentationsdocumentations requiredrequired byby thethe bank,bank, decideddecided thatthat insteadinstead ofof turningturning overover thethe proceedsproceeds ofof thethe sales,sales, CCCCCC Car,Car, Inc.Inc. usedused thethe proceedsproceeds toto buybuy anotheranother tenten (10)(10) uniunitsts ofof BMWBMW 33 series.series.

IsIs thethe actionaction ofof CCCCCC Car,Car, Inc.Inc. legallylegally justified?justified? ExpExplainlain youryour answer.answer. (2012(2012 Bar)Bar)

A:A: NoNo ItIt isis thethe obligationobligation ofof thethe entrustee,entrustee, CCCCCC Car,Car, IInc.nc. toto receivereceive thethe proceedsproceeds ofof thethe salesale ofof thethe goodsgoods covercovereded byby thethe trusttrust receiptsreceipts inin trusttrust forfor thethe entrusterentruster andand toto turnturn overover thethe samesame toto himhim toto thethe extentextent ofof thethe obligation.obligation. ((Sec.Sec. 4,4, TrustTrust ReceiptsReceipts Law)Law)

Q:Q: WillWill thethe corporatecorporate officersofficers ofof CCCCCC Car,Car, Inc.Inc. bebe hheldeld liableliable underunder thethe circumstances?circumstances? ExplainExplain youryour answer.answer. (2012(2012 Bar)Bar)

FailureFailure ofof thethe entrusteeentrustee toto turnturn overover thethe proceedsproceeds ofof

thethe salesale ofof thethe goodsgoods shallshall constituteconstitute thethe crimecrime ofof estafa.estafa. IfIf thethe violationviolation isis committedcommitted byby aa juridicaljuridical entity,entity, tthehe penaltypenalty shallshall bebe imposedimposed uponupon thethe directors,directors, officers,officers, emplemployeesoyees oror otherother officialsofficials oror personspersons thereintherein responsibleresponsible forfor thethe offense,offense, withoutwithout prejudiceprejudice toto thethe civilcivil liabilitiesliabilities arisingarising fromfrom thethe criminalcriminal offense.offense. Hence,Hence, thethe corporatecorporate officersofficers areare criminallycriminally liableliable forfor thethe violationviolation ofof thethe lawlaw beinbeingg thethe humanhuman agentagent responsibleresponsible forfor thethe same.same. ((Sec.Sec. 13,13, TrustTrust ReceiptsReceipts LawLaw))

A:A: YesYes

Q:Q: TomTom CruzCruz obtainedobtained aa loanloan ofof P1MP1M fromfrom XYZXYZ BankBank toto financefinance hishis purchasepurchase ofof 5,0005,000 bagsbags ofof fertilizer.fertilizer. HeHe executedexecuted aa trusttrust receiptreceipt inin favorfavor ofof XYZXYZ BankBank overover ththee 5,0005,000 bagsbags ofof fertilizer.fertilizer. TomTom CruzCruz withdrewwithdrew thethe 5,05,00000 bagsbags fromfrom thethe warehousewarehouse toto bebe transportedtransported toto LucenaLucena CityCity wherewhere hishis storestore isis located.located. OnOn thethe way,way, armedarmed robbersrobbers tooktook fromfrom TomTom CruzCruz thethe 5,0005,000 bagsbags ofof fertilizer.fertilizer. TomTom CruzCruz nownow claimsclaims thatthat hishis obligationobligation toto paypay thethe loloanan toto XYZXYZ BankBank isis extinguishedextinguished becausebecause thethe lossloss waswas notnot duedue toto hishis fault.fault. IsIs TomTom CruzCruz correct?correct? Explain.Explain. (200(20088 Bar)Bar)

A:A: TomTom CruzCruz isis notnot correctcorrect inin contendingcontending thatthat hishis oblobligationigation toto paypay thethe loanloan toto XYZXYZ BankBank isis extinguished.extinguished. Sec.Sec. 1100 ofof P.D.P.D. 115,115, TrustTrust ReceiptsReceipts Law,Law, providesprovides thatthat thethe lossloss ofof ggoods,oods, documentsdocuments oror instrumentsinstruments whichwhich areare thethe subjectsubject ofof aa trusttrust receipt,receipt, pendingpending theirtheir disposition,disposition, irrespectiveirrespective ofof whetherwhether oror notnot itit waswas duedue toto thethe faultfault oror negligencenegligence ofof thethe entrustee,entrustee, shallshall notnot extinguishextinguish hishis obligationobligation toto thethe entrusteentrusterr forfor thethe valuevalue thereof.thereof. Therefore,Therefore, thethe entrusteeentrustee cannotcannot bebe rrelievedelieved ofof theirtheir obligationobligation toto paypay thethe loloanan inin favorfavor thethe bank.bank.

REMEDIESREMEDIES AVAILABLEAVAILABLE

Q:Q: Mr.Mr. Noble,Noble, asas thethe PresidentPresident ofof ABCABC Trading,Trading, Inc.,Inc., executedexecuted aa trusttrust receiptreceipt inin favorfavor ofof BPIBPI BankBank toto secusecurere thethe importationimportation byby hishis companycompany ofof certaincertain goods.goods. AfterAfter releaserelease andand salesale ofof thethe importedimported goods,goods, thethe proceedsproceeds fromfrom thethe salesale werewere notnot turnedturned overover toto BPI.BPI. WouldWould BPIBPI bebe justifiedjustified inin filingfiling aa casecase forfor estafaestafa againstagainst Noble?Noble? ((1991)1991)

A:A: BPIBPI wouldwould bebe justifiedjustified inin filingfiling aa casecase forfor estafaestafa underunder PDPD 115115 againstagainst Noble.Noble. TheThe factfact thatthat thethe trusttrust receiptreceipt issuedissued inin favorfavor ofof aa bank,bank, insteadinstead ofof aa seller,seller, toto securesecure thethe importationimportation ofof thethe goodsgoods diddid notnot precludepreclude thethe applicationapplication ofof ththee TrustTrust ReceiptsReceipts LawLaw (PD(PD 115).115). UnderUnder thethe law,law, anyany officerofficer oror

employeeemployee ofof aa corporationcorporation responsibleresponsible forfor thethe violaviolationtion ofof aa trusttrust receiptreceipt isis subjectsubject toto thethe personalpersonal liabilityliability thereunder.thereunder.

WAREHOUSEMAN’SWAREHOUSEMAN’S LIENLIEN

Q:Q: AlexAlex depositeddeposited goodsgoods forfor whichwhich Billy,Billy, warehouseman,warehouseman, issuedissued aa negotiablenegotiable warehousewarehouse receiptreceipt whereinwherein thethe goodsgoods werewere deliverabledeliverable toto AlexAlex oror order.order. AlexAlex negotiatednegotiated thethe receiptreceipt toto Caloy.Caloy. Thereafter,Thereafter, DDario,ario, aa creditorcreditor securedsecured judgmentjudgment againstagainst AlexAlex andand servedserved noticenotice ofof levylevy overover thethe goodsgoods onon thethe warehouseman.warehouseman.

a.a. ToTo whomwhom shouldshould thethe warehousemanwarehouseman deliverdeliver goodsgoods uponupon demand?demand?

b.b.

WouldWould

youryour

answeranswer

bebe

thethe

samesame

ifif

thethe

warehousemanwarehouseman issuedissued aa non-negotiablenon-negotiable warehousewarehouse

receipt?receipt? (2007(2007 Bar)Bar)

 

A:A:

a.a. BillyBilly shouldshould deliverdeliver thethe goodsgoods toto Caloy.Caloy. UnderUnder thethe WarehouseWarehouse ReceiptsReceipts Act,Act, thethe goodsgoods coveredcovered byby thethe negotiablenegotiable receiptreceipt cannotcannot bebe attachedattached oror leviedlevied upouponn directlydirectly byby thethe creditor.creditor. TheThe creditorcreditor mustmust resortresort toto attachingattaching oror levyinglevying thethe receiptreceipt itself,itself, notnot thethe gogoods,ods, whilewhile inin thethe possessionpossession ofof thethe debtor,debtor, Alex.Alex. SinceSince AlexAlex hashas alreadyalready negotiatednegotiated itit toto Caloy,Caloy, DarioDario cannotcannot anymoreanymore attachattach oror levylevy thethe goodsgoods underunder thethe warehouswarehousee receipt.receipt. b.b. AA non-negotiablenon-negotiable warehousewarehouse receiptreceipt isis transferredtransferred thruthru simplesimple assignment.assignment. SinceSince AlexAlex negotiatednegotiated itit insteadinstead ofof havinghaving itit assigned,assigned, thethe conveyanceconveyance ofof thethe warehousewarehouse receiptreceipt toto CaloyCaloy isis notnot valid;valid; hence,hence, AlexAlex isis stillstill thethe ownerowner ofof thethe saidsaid goodgoods.s. DarioDario couldcould nownow attachattach oror ll evyevy thethe goods.goods.

Q:Q: JojoJojo depositeddeposited severalseveral cartonscartons ofof goodsgoods withwith SNSN WarehouseWarehouse Corporation.Corporation. TheThe correspondingcorresponding warehousewarehouse receiptreceipt waswas issuedissued toto thethe orderorder ofof Jojo.Jojo. HeHe endorsedendorsed thethe warehousewarehouse receiptreceipt toto EJEJ whowho paidpaid thethe valuevalue ofof goodsgoods deposited.deposited. BeforeBefore EJEJ couldcould withdrawwithdraw thethe goods,goods, MelchorMelchor informedinformed SNSN WarehouseWarehouse CorporationCorporation thatthat thethe goodsgoods belongedbelonged toto himhim andand werewere takentaken byby JojoJojo withoutwithout hishis consent.consent. MelchorMelchor wantswants toto getget thethe goods,goods, butbut EJEJ alsoalso wantswants toto withdrawwithdraw thethe same.same.

a.a.

b.b. IfIf SNSN WarehouseWarehouse CorporationCorporation isis uncertainuncertain asas toto whowho isis entitledentitled toto thethe property,property, whatwhat isis thethe properproper recourserecourse ofof thethe corporation?corporation? Explain.Explain. (2005(2005 Bar)Bar)

WhoWho hashas aa betterbetter rightright toto thethe goods?goods? Why?Why?

A:A:

a.a. EJEJ hashas betterbetter rightright toto thethe goods.goods. TheThe goodsgoods areare covercovereded byby aa negotiablenegotiable warehousewarehouse receiptreceipt whichwhich waswas indorseindorsedd toto EJEJ forfor value.value. TheThe negotiationnegotiation toto EJEJ waswas notnot impairedimpaired byby thethe factfact thatthat JojoJojo tooktook thethe goodsgoods withoutwithout thethe conconsentsent ofof Melchor,Melchor, asas EJEJ hadhad nono noticenotice ofof suchsuch fact.fact. MoreovMoreover,er, EJEJ isis inin possessionpossession ofof thethe warehousewarehouse receiptreceipt andand onlyonly hehe cancan surrendersurrender itit toto thethe warehouseman.warehouseman. (( Sec.Sec. 8,8, WarehouseWarehouse ReceiptsReceipts LawLaw)) b.b. UnderUnder thethe Sec.Sec. 1717 ofof ActAct 2137,2137, WarehouseWarehouse ReceiptReceipt LaLaw,w, SNSN WarehouseWarehouse CorporationCorporation maymay filefile anan actionaction forfor interpleaderinterpleader andand impleadimplead EJEJ andand MelchorMelchor toto determinedetermine whowho isis entitledentitled toto thethe saidsaid goods.goods.

Q:Q: SS storedstored hardwarehardware materialsmaterials inin thethe bondedbonded warehousewarehouse ofof W,W, aa licensedlicensed warehousemanwarehouseman underunder thethe GeneralGeneral BondedBonded WarehouseWarehouse LawLaw (Act(Act 38933893 asas

MercantileMercantile LawLaw

 

amended).amended). WW issuedissued thethe correspondingcorresponding warehousewarehouse

recovery of a sum of money. The sheriff proceeded to

recovery of a sum of money. The sheriff proceeded to

 

receiptreceipt inin thethe formform hehe ordinarilyordinarily usesuses forfor suchsuch purposepurpose

in the course of his business. All the essential terms

in the course of his business. All the essential terms

levylevy uponupon thethe goodsgoods onon aa writwrit ooff executionexecution andand directeddirected

the

the

warehouseman

warehouseman

to

to

deliver

deliver

the

the

goods.

goods.

Is

Is

the

the

requiredrequired underunder SectionSection 22 ofof thethe WarehouseWarehouse ReceiptsReceipts

warehouseman under obligation to comply with the

warehouseman under obligation to comply with the

Law

Law

In

In

by

by

(Act 2137 as amended) are embodied in the form.

(Act 2137 as amended) are embodied in the form.

addition,

addition,

the

the

receipt

receipt

issued

issued

to

to

S

S

contains

contains

a

a

stipulationstipulation thatthat WW wouldwould notnot bebe responsibleresponsible forfor thethe lolossss

of all or any portion of thethe hardwarehardware materialsmaterials coveredcovered

of all or any portion of

the

the

receipt

receipt

even

even

if

if

such

such

loss

loss

is

is

caused

caused

by

by

the

the

sheriff’ssheriff’s order?order? (1998(1998 Bar)Bar)

AA:: NoNo.

There was a valid negotiable receipt as there

. There was a valid negotiable receipt as there

valid delivery of 200 cavans of rice for deposit. In such case,

valid delivery of 200 cavans of rice for deposit. In such case,

the warehouseman (LWC) is not obliged to deliver the 200

the warehouseman (LWC) is not obliged to deliver the 200

cavans of rice deposited to any person, except to one who

cavans of rice deposited to any person, except to one who

was a

was a

negligencenegligence ofof WW oror hishis representativesrepresentatives oror employeesemployees SS endorsedendorsed andand negotiatednegotiated thethe warehousewarehouse receiptreceipt toto B,B,

can comply with Section 8 of the Warehouse Receipts law,

can comply with Section 8 of the Warehouse Receipts law,

who

who

demanded delivery of the goods. W could not

demanded delivery of the goods. W could not

deliverdeliver becausebecause thethe goodsgoods werewere nowherenowhere toto bebe foundfound inin

namely: (1) surrender the receipt of which he is a h

namely: (1) surrender the receipt of which he is a h

(2) willing to sign a receipt for the delivery of the goods; and

(2) willing to sign a receipt for the delivery of the goods; and

older;

older;

his warehouse. He claims he is not liable because of the

his warehouse. He claims he is not liable because of the

free-from-liabilityfree-from-liability clauseclause stipulatedstipulated inin thethe receiptreceipt DoDo

(3) pays the warehouseman’s liens, that is, his fees and

(3) pays the warehouseman’s liens, that is, his fees and

advances,advances, ifif any.any.

you agree with W’s contention? Explain. (2000

you agree with W’s contention? Explain. (2000 Bar)Bar)

care

care

AA:: No.No. II dodo notnot agreeagree withwith thethe contentioncontention ofof W.W. thethe stipulationstipulation thatthat WW wouldwould notnot bebe responsibleresponsible forfor thethe lossloss ofof

all or any portion of thethe hardwarehardware materialsmaterials coveredcovered byby thethe

all or any portion of

receiptreceipt eveneven ifif suchsuch lossloss isis causedcaused byby thethe negligennegligencece ofof WW oror

his representative or employees is void. The law requires

his representative or employees is void. The law requires

that a warehouseman should exercise due diligence in the

that a warehouseman should exercise due diligence in the

and custody of the things deposited in his warehouse.

and custody of the things deposited in his warehouse.

TheThe sheriffsheriff cannotcannot complycomply withwith thesethese requisites,requisites, esespeciallypecially thethe first,first, asas hehe isis notnot thethe hoholderlder ofof thethe receipt.receipt.

Q: A purchased from S 150 cavans of palay on credit. A

Q: A purchased from S 150 cavans of palay on credit. A

deposited the palay in W’s warehouse. W issued

deposited the palay in W’s warehouse. W issued

negotiable

negotiable

warehouse

warehouse

receipt

receipt

in

in

the

the

name

name

thereafter, A negotiated the receipt to B who purchased

thereafter, A negotiated the receipt to B who purchased

thethe saidsaid receiptreceipt forfor valuevalue andand inin goodgood faith.faith.

to A a

to A a

of

of

A.

A.

Q: A Warehouse Company received for safekeeping

Q: A Warehouse Company received for safekeeping

1.1.

WhoWho hashas aa betterbetter rightright toto thethe deposit,deposit, S,S, thethe unpaidunpaid

10001000 bagsbags ofof ricerice fromfrom aa merchant.merchant. ToTo evidenceevidence thethe transaction,transaction, thethe WarehouseWarehouse CompanyCompany issuedissued aa receiptreceipt expresslyexpressly providingproviding thatthat thethe goodsgoods bebe delivereddelivered toto tthehe orderorder ofof saidsaid merchant.merchant.

2.2.

vendor, or B, the purchaser of the receipt for

vendor, or B, the purchaser of the receipt for

andand inin goodgood faith?faith? Why?Why? WhenWhen cancan thethe warehousemanwarehouseman bebe obligedobliged toto deliverdeliver thethe palaypalay toto A?A? (1993(1993 Bar)Bar)

value

value

A

A

said

said

month after,after, aa creditorcreditor obtainedobtained judgmjudgmentent againsagainstt thethe

month

sheriff

sheriff

merchant

merchant

for

for

a

a

sum

sum

of

of

money.

money.

The

The

proceededproceeded

WarehouseWarehouse CompanyCompany toto deliverdeliver toto himhim thethe depositeddeposited

thethe

toto

levylevy

onon

ricerice

andand

directeddirected

thethe

AA::

1.1.

BB hashas aa betterbetter rightright thanthan S.S. TheThe right of the unpaid

right of the unpaid

seller,

seller,

rice.rice.

S,S, toto thethe goodsgoods waswas defeateddefeated byby thethe actact ofof AA inin endendorsingorsing thethe receiptreceipt toto B.B.

2.2.

The warehouseman can be obliged to deliver the palay

The warehouseman can be obliged to deliver the palay

b.b.

a.a. WhatWhat adviceadvice willwill youyou givegive thethe WarehouseWarehouse Company?Company? ExplainExplain youryour answer.answer.

Assuming that a week prior

Assuming that a week prior toto thethe levy,levy, thethe receiptreceipt

to A if B negotiates back the receipt to A. In that case, A

to A if B negotiates back the receipt to A. In that case, A

becomesbecomes aa holderholder againagain ofof thethe receipt,receipt, andand AA cancan complycomply withwith Sec.Sec. 88 ofof thethe WarehouseWarehouse ReceiptsReceipts Law.Law.

 

waswas soldsold toto aa ricerice millmill onon thethe basisbasis ofof whichwhich itit filedfiled aa

claimclaim withwith thethe sheriff.sheriff. WouldWould thethe ricerice millmill havehave betterbetter rightsrights toto thethe ricerice thanthan thethe creditor?creditor? ExplainExplain youryour answer.answer. (1999(1999 Bar)Bar)

Q: To guarantee the payment of a loan obtained from a

Q: To guarantee the payment of a loan obtained from a

bank, Raoul pledged 500 bales of tobacco deposited in

bank, Raoul pledged 500 bales of tobacco deposited in

a

a

warehousewarehouse receipt.receipt. BeforeBefore RaoulRaoul coulcould pay for the

warehouse to said bank and endorsed in blank the

warehouse to said bank and endorsed in blank the

d pay for the loan,loan,

AA::

thethe tobaccotobacco disappeareddisappeared fromfrom thethe warehouse.warehouse.

a.a. TheThe 10001000 bagsbags ofof ricerice werewere delivereddelivered toto thethe WarehouseWarehouse CompanyCompany byby aa merchant,merchant, andand aa negotiablenegotiable receiptreceipt waswas issuedissued therefore.therefore. TheThe ricerice cannotcannot thereafter,thereafter, whilewhile inin possessionpossession ofof thethe WarehouseWarehouse Company,Company, bebe attachedattached byby garnishmentgarnishment oror otherwise,otherwise, oror bebe leviedlevied uponupon underunder aann executionexecution unlessunless thethe receiptreceipt bebe firstfirst surrenderedsurrendered ttoo thethe warehouseman,warehouseman, oror itsits negotiationnegotiation enjoined.enjoined. TheThe WarehouseWarehouse CompanyCompany cannotcannot bebe compelledcompelled toto deliverdeliver thethe actualactual possessionpossession ofof thethe ricerice untiluntil thethe receiptreceipt isis

surrenderedsurrendered toto itit oror impoundedimpounded byby thethe court.court. YesYes TheThe ricerice mill,mill, asas aa holderholder forfor valuevalue ofof thethe receireceipt,pt, hashas aa betterbetter rightright toto thethe ricerice thanthan thethe creditor.creditor. IItt isis ricerice millmill thatthat cancan surrendersurrender thethe receiptreceipt whichwhich isis inin itsits possessionpossession andand cancan complycomply withwith thethe otherother requirementsrequirements whichwhich willwill obligeoblige thethe warehousemanwarehouseman toto deliverdeliver thethe rice,rice, namely,namely, toto signsign aa receiptreceipt forfor thethe

WhoWho shouldshould bearbear thethe lossloss——thethe pledgorpledgor oror thethe bank?bank? Why?Why? (1992(1992 Bar)Bar)

A:A: The pledgor should bear the loss. In the pledge of a

The pledgor should bear the loss. In the pledge of a

warehouse receipt the ownership of the goods remain with

warehouse receipt the ownership of the goods remain with

depositordepositor oror hishis transferee.transferee. AnyAny contractcontract ofof realreal ssecurity,ecurity,

among them a pledge, does not amount to or result in an

among them a pledge, does not amount to or result in an

assumptionassumption ofof riskrisk ofof lossloss byby thethe creditor.creditor. TheThe WarWarehouseehouse ReceiptsReceipts LawLaw diddid notnot deviatedeviate fromfrom thisthis rule.rule.

Q: When is a warehouseman bound to deliver the goods

Q: When is a warehouseman bound to deliver the goods

uponupon aa demanddemand mademade eithereither byby thethe holderholder ofof aa receiptreceipt

forfor thethe goodsgoods oror byby thethe depositor?depositor? (1991(1991 Bar)Bar)

A:A: The warehouseman is bound to deliver the goods upon

The warehouseman is bound to deliver the goods upon

demand made either by the holder of the receipt for the

demand made either by the holder of the receipt for the

b.b.

deliverydelivery ofof thethe rice,rice, andand toto paypay thethe warehouseman’swarehouseman’s lienlien

andand feesfees andand otherother charges.charges.

goods or by the depositor if the demand is accompan

goods or by the depositor if the demand is accompan

(a)(a) anan offeoffer

to satisfy the warehouseman’s lien, (b) an offer

r to satisfy the warehouseman’s lien, (b) an offer

ied by

ied by

200

200

Q: Luzon Warehouse Corporation received

Q: Luzon Warehouse Corporation received fromfrom PedroPedro

cavans of rice for deposit in its warehouse for

cavans of rice for deposit in its warehouse for

to

to

surrender

surrender

the

the

receipt,

receipt,

if

if

negotiable,

negotiable,

with

with

indorsements as would be necessary for the negotiation

indorsements as would be necessary for the negotiation

thereof, and (c) readiness and willingness to sign when the

thereof, and (c) readiness and willingness to sign when the

goodsgoods areare delivereddelivered ifif soso requestedrequested byby thethe warehouswarehouseman.eman.

such

such

whichwhich aa negotiablenegotiable warehousewarehouse receiptreceipt waswas issued.issued. WhileWhile thethe goodsgoods werewere storedstored inin thethe saidsaid warehouse,warehouse, CiceroCicero obtainedobtained aa judgmentjudgment againstagainst PedroPedro forfor thethe

Q:Q: Mr.Mr. BakalBakal depositeddeposited withwith aa warehousemanwarehouseman 22 cratescrates

QUAMTOQUAMTO (1987-2016)(1987-2016)

ofof goodsgoods forfor whiwhichch hehe receivedreceived twotwo warehousewarehouse receiptsreceipts (one(one forfor eacheach crate)crate) oneone beingbeing aa negotiablenegotiable warehousewarehouse receiptreceipt andand thethe otherother aa non-negotiablenon-negotiable warehousewarehouse receipt.receipt. TitleTitle toto bothboth warehousewarehouse receiptsreceipts werewere transferredtransferred onon DecemberDecember 1,1, 19851985 toto Mr.Mr. Tigas.Tigas. TheThe warehousemanwarehouseman waswas notnot notifiednotified ofof thethe transfertransfer ofof thethe receipts.receipts. Meanwhile,Meanwhile, Mr.Mr. Tapang,Tapang, aa judgmentjudgment creditorcreditor ofof Mr.Mr. Bakal,Bakal, servedserved aa noticenotice ofof levylevy overover thethe goodsgoods onon thethe warehouseman.warehouseman.

2.2.

negotiable since the same is

TheThe promissorypromissory notenote isis notnot negotiable since the same is

payablepayable toto ReliableReliable MotorsMotors merelymerely andand notnot “to“to orderorder oror toto bearer”bearer” oror wordswords ofof similarsimilar import.import.

Q: Discuss the negotiability or non-negotiability

Q: Discuss the negotiability or non-negotiability

followingfollowing notes:notes:

1.1. Manila,Manila, SeptemberSeptember 1,1, 19931993

P2,P2, 500.00500.00

 

of the

of the

a.a. BetweenBetween Mr.Mr. TigasTigas andand Mr.Mr. Bakal,Bakal, whowho wouldwould havehave preferencepreference overover thethe goodsgoods coveredcovered byby thethe negotiablenegotiable warehousewarehouse receipt?receipt? Reasons.Reasons. b.b. WhoWho wouldwould havehave preferencepreference overover thethe goodsgoods coveredcovered byby thethe non-negotiablenon-negotiable receipt?receipt? Reasons.Reasons. (1988(1988 Bar)Bar)

I

I

sumsum ofof P2,P2, 500.00500.00

promise to pay Pedro San Juan or order the

promise to pay Pedro San Juan or order the

2.2. Manila,Manila, JuneJune 3,3, 19931993

(Sgd.)(Sgd.) NOELNOEL CASTROCASTRO

A:

A:

a.a. Mr.Mr. TigasTigas wouldwould havehave preferencepreference overover thethe goodsgoods

P10,P10, 000.00000.00

pay Sergio Dee

ForFor valuevalue received,received, II promisepromise toto pay Sergio Dee

or order the sum of P10, 000.00 in five (5)

or order the sum of P10, 000.00 in five (5)

coveredcovered byby thethe negotiablenegotiable warehousewarehouse receiptreceipt (assuming(assuming thatthat therethere waswas properproper negotiationnegotiation toto him).him). InIn

negotiation,negotiation, thethe transferee’stransferee’s rightsrights overover thethe goodsgoods vestsvests

fromfrom thethe veryvery momentmoment ofof transfertransfer andand thethe transfereetransferee thereuponthereupon acquiresacquires thethe directdirect obligationobligation ofof thethe warehousemanwarehouseman toto holdhold thethe goodsgoods forfor him.him. b.b. Mr.Mr. Tapang,Tapang, inin thisthis case,case, wouldwould havehave preferencepreference oveoverr thethe goodsgoods sincesince thethe transfereetransferee ofof aa non-negotiablenon-negotiable warehousewarehouse receiptreceipt merelymerely acquiresacquires (1)(1) rightsrights nono betterbetter thanthan thosethose ofof thethe transferortransferor andand (2)(2) thethe directdirect obligationobligation ofof thethe warehousemanwarehouseman onlyonly uponupon noticenotice toto himhim ofof thethe transfer.transfer.

installments,installments, withwith thethe firstfirst installmentinstallment payablpayablee

onon OctoberOctober 5,5, 19931993 andand thethe otherother installmentsinstallments onon oror beforebefore thethe fifthfifth dayday ofof thethe succeedingsucceeding monthmonth thereafter.thereafter.

(1993(1993 Bar)Bar)

AA::

(Sgd.)(Sgd.) LITOLITO VILLAVILLA

 

1.1.

The promissory note is negotiable as it complies with

The promissory note is negotiable as it complies with

 

NEGOTIABLENEGOTIABLE INSTRUMENTSINSTRUMENTS LAWLAW

 

Sec.Sec. 1,1, NIL.NIL.

 

Firstly, it is in writing and signed by the maker, Noel

Firstly, it is in writing and signed by the maker, Noel

Castro.Castro.

 

REQUISITESREQUISITES OFOF NEGOTIABILITYNEGOTIABILITY

Secondly, the promise is unconditional to pay a sum

Secondly, the promise is unconditional to pay a sum

 

certaincertain inin money,money, thatthat is,is, P2,P2, 500.00500.00

Q:Q:

1.1.

WhatWhat isis thethe testtest toto determinedetermine whetherwhether anan instrumentinstrument isis negotiablenegotiable oror not?not?

Thirdly, it is payable on demand as no date of maturity

Thirdly, it is payable on demand as no date of maturity

isis specified.specified.

2.2.

XX boughtbought aa jeepjeep fromfrom ReliableReliable MotorsMotors CompanyCompany forfor aa considerationconsideration ofof P50,P50, 000.000. HeHe paidpaid P25,P25, 000000 inin cashcash andand executedexecuted thethe followingfollowing promissorypromissory notenote onon thethe balance:balance:

Fourth,Fourth, itit isis payablepayable toto order.order.

2.2.

The promissory note is negotiable. All the requirements

The promissory note is negotiable. All the requirements

 

of Sec. 1, NIL, are complied with. The sum to be paid is

of Sec. 1, NIL, are complied with. The sum to be paid is

still certain despite that the sum is to be paid by

still certain despite that the sum is to be paid by

““SeptemberSeptember 1,1, 19891989

 

installments.installments.

 

II promisepromise toto paypay thethe sumsum ofof P25,P25, 000000 toto ReliableReliable MotorsMotors CompanyCompany onon oror beforebefore DecemberDecember 31,31,

Q:

Q:

characteristicscharacteristics ofof aa negotiablenegotiable instrumentinstrument (2005(2005 Bar)Bar)

What

What

is

is

a

a

negotiable

negotiable

instrument?

instrument?

Give

Give

the

the

1989.1989.

It is a written contract for the payment of money

A:A: It is a written contract for the payment of money

which

which

 

Sgd.Sgd. XX””

is intended as a substitute for money and passes from one

is intended as a substitute for money and passes from one

At

At

thethe

bottombottom

ofof

thethe

note,note,

XX

wrotewrote

inin

hishis

handwritinghandwriting thethe following:following: “I“I willwill notnot sellsell thethe jeejeepp untiluntil II shallshall havehave paidpaid itit inin full.”full.” IsIs thethe notenote negotiablnegotiable?e?

person to another as money, in such a manner as to

person to another as money, in such a manner as to

ownown

holder in due course the right to hold the instrument free

holder in due course the right to hold the instrument free

fromfrom defensesdefenses availableavailable toto priorprior parties.parties. ((Sundiang,Sundiang, Aquino,Aquino,

ReviewerReviewer inin CommercialCommercial Law,Law, p.5,p.5, 55 thth

)

editionedition)

give a

give a

For

For

an

an

Reasons.Reasons. (1989(1989 Bar)Bar)

 

instrument to be considered as a negotiable one, it must

instrument to be considered as a negotiable one, it must

A::

A

1.1.

InIn determiningdetermining whetherwhether anan instrumentinstrument isis negotiablenegotiable oror not,not, thethe solesole testtest isis whetherwhether oror notnot thethe requisitesrequisites ofof negotiabilitynegotiability expressedexpressed inin Sec.Sec. 11 ofof thethe NILNIL areare metmet onon thethe faceface ofof thethe instrumentinstrument itself.itself. TheThe intrinsicintrinsic vavaliditylidity ofof thethe instrumentinstrument isis ofof nono mm oment.oment. EvenEven thethe acceptanceacceptance oror non-acceptancenon-acceptance byby thethe draweedrawee ofof thethe instrumentinstrument wouldwould bebe irrelevant.irrelevant.

comply with Section 1 of the Negotiable Instruments Law,

comply with Section 1 of the Negotiable Instruments Law,

toto wit:wit:

a.a.

b.b.

c.c.

It must be in writing and signed by the maker or

It must be in writing and signed by the maker or

drawer;drawer;

Must contain an unconditional promise or order to pay

Must contain an unconditional promise or order to pay

aa sumsum certaincertain inin money;money;

Must

Must

determinabledeterminable futurefuture time;time;

be

be

payable

payable

on

on

demand,

demand,

or

or

at

at

a

a

fixed

fixed

or

or

 

d.d. MustMust bebe payablepayable toto orderorder oror toto bearer;bearer; andand

Where the instrument is addressed to a drawee, he

e.e. Where the instrument is addressed to a drawee, he

77

MercantileMercantile LawLaw

 

mustmust bebe namednamed oror otherwiseotherwise indicatedindicated thereintherein withwith reasonablereasonable certainty.certainty.

2.2.

Check:Check:

 

A

A

negotiable instrument is characterized by negotiability

negotiable instrument is characterized by negotiability

(capability(capability ofof beingbeing transferredtransferred fromfrom oneone personperson toto anoano therther

so as to make him a holder who is entitled to the payment

so as to make him a holder who is entitled to the payment

“September“September 15,15, 20022002

“Pay to the order of Juan Santos the sum of TEN

“Pay to the order of Juan Santos the sum of TEN

thereof)thereof) andand itsits accumulationaccumulation ofof secondarysecondary contractscontracts

THOUSANDTHOUSAND PESOSPESOS (P10,000.00),(P10,000.00), PhilippinePhilippine

resultingresulting fromfrom indorsementsindorsements atat thethe backback thereof.thereof.

currency.currency.

Q: Distinguish a

Q: Distinguish a negotiablenegotiable documentdocument fromfrom aa negotiablenegotiable

instrumentinstrument (2005(2005 Bar)Bar)

(Signed)(Signed) PedroPedro CruzCruz

A

A:A: A

negotiable instrument is a written contract which is

negotiable instrument is a written contract which is

intendedintended asas aa substitutesubstitute forfor moneymoney likelike promissorypromissory notesnotes

To:To:

Branch”Branch”

PhilippinePhilippine

NationalNational

Bank,Bank,

Escolta,Escolta,

ManilaManila

and

and

have

have

bill of exchange while a negotiable document is a

bill of exchange while a negotiable document is a

commercialcommercial instrumentinstrument withwith limitedlimited negotiabilitynegotiability bubutt theythey

been held to be non-negotiable in the technical sense

been held to be non-negotiable in the technical sense

Q: Can a bill of exchange or a promissory note qualify as

Q: Can a bill of exchange or a promissory note qualify as

becausebecause theythey dodo notnot havehave thethe requisitesrequisites underunder thethe

aa negotiablenegotiable instrumentinstrument ifif

NegotiableNegotiable InstrumentsInstruments Law.Law. ((DeDe Leon,Leon, TheThe PhilippinePhilippine NegotiableNegotiable InstrumentInstrumentss Law,Law, p.8,p.8, 20102010 editionedition )) Furthermore,Furthermore,

negotiable document actually stands for the goods it

negotiable document actually stands for the goods it

coverscovers whilewhile inin aa negotiablenegotiable instrument,instrument, thethe subjecsubjectt mattermatter

sum

sum

certain

certain

in

in

money.

money.

Moreover,

Moreover,

a

a

negotiable

negotiable

a.a.

b.b.

c.c.

ItIt isis notnot dated;dated; oror TheThe dayday andand month,month, butbut notnot thethe yearyear ofof itsits maturity,maturity, isis given;given; oror

ItIt isis payablepayable toto “cash”;“cash”; oror

a

a

is

is

a

a

instrumentinstrument isis capablecapable ofof accumulatingaccumulating secondarysecondary concontractstracts resultingresulting fromfrom indorsementsindorsements atat thethe backback thereofthereof whiwhilele aa negotiablenegotiable documentdocument isis not,not, especiallyespecially consideringconsidering thatthat indorsementindorsement ofof thethe latterlatter doesdoes notnot resultresult inin liabilliabilityity ofof thethe

d.d.

AA::

a.a.

ItIt namesnames twotwo alternativesalternatives draweedrawee (1997(1997 Bar)Bar)

YesYes

material particular required by

DateDate isis notnot aa material particular required by

 

Sec. 1,

Sec. 1,

 

endorserendorser whenwhen thethe depositary,depositary, likelike thethe warehousemanwarehouseman,, failsfails

to comply with his duty to deliver the things or goods

to comply with his duty to deliver the things or goods

b.b.

NIL,NIL, forfor thethe negotiabilitynegotiability ofof anan instrument.instrument.

The time for payment is not determinable in this

No.No. The time for payment is not determinable in this

depositeddeposited andand coveredcovered byby thethe warehousewarehouse receiptreceipt byby tthehe

case.case. TheThe yearyear isis notnot statedstated

depositary.depositary. Also,Also, aa negotiablenegotiable instrumentinstrument isis eithereither aa billbill ofof exchangeexchange oror promissorypromissory notenote whilewhile aa negotiablenegotiable docudocumentment

has various forms such as but not limited to bill of lading,

has various forms such as but not limited to bill of lading,

c.c.

YesYes.

Sec. 9(d), NIL, makes the instrument payable to

. Sec. 9(d), NIL, makes the instrument payable to

bearerbearer becausebecause thethe namename ofof thethe payeepayee doesdoes notnot purportpurport toto bebe thethe namename ofof anyany person.person.

stockstock certificates,certificates, warehousewarehouse receiptsreceipts andand pawnpawn tictickets.kets.

d.d.

A

A bill may not be addressed to two or more drawees in

bill may not be addressed to two or more drawees in

the alternative or in succession, to be negotiable.

the alternative or in succession, to be negotiable.

To do

To do

Q:Q:

soso makesmakes thethe orderorder conditional.conditional.

a.a. DefineDefine thethe following:following: (1)(1) aa negotiablenegotiable promissorypromissory note,note, (2)(2) aa billbill ofof exchangeexchange andand (3)(3) aa check.check. b.b. YouYou areare PedroPedro Cruz.Cruz. DraftDraft thethe appropriateappropriate contractcontract languagelanguage forfor (1)(1) youryour negotiablenegotiable promissorypromissory notenote andand (2)(2) youryour check,check, eacheach containingcontaining thethe essentialessential elementselements ofof aa negotiablenegotiable instrument.instrument. (2002(2002 Bar)Bar)

Q:Q: WhatWhat areare thethe requisitesrequisites ofof aa negotiablenegotiable instrument?instrument? (1996(1996 Bar)Bar)

A:A: TheThe requisitesrequisites ofof aa negotiablenegotiable instrumentinstrument areare asas ffollows:ollows:

 

1.1.

It must be in writing and signed by the maker or

It must be in writing and signed by the maker or

AA::

drawer;drawer;

a.a.

2.2.

It

It

paypay aa sumsum certaincertain inin money;money;

must contain an unconditional promise or order to

must contain an unconditional promise or order to

1.1.

AA negotiablenegotiable promissorypromissory notenote isis anan unconditionalunconditional promisepromise inin writingwriting mademade byby oneone personperson toto another,another, signedsigned byby thethe maker,maker, engagingengaging toto paypay onon demanddemand oror aatt aa fixedfixed determinabledeterminable futurefuture time,time, aa sumsum certaincertain inin moneymoney toto orderorder oror bearer.bearer.

3.3.

4.4.

ItIt

Where the instrument is addressed to a drawee, he

Where the instrument is addressed to a drawee, he

mustmust bebe payablepayable toto orderorder oror toto bearer;bearer; andand

must be named or otherwise indicated therein with

must be named or otherwise indicated therein with

reasonablereasonable certainty.certainty.

2.2.

AA billbill ofof exchangeexchange isis anan unconditionalunconditional orderorder inin wriwritingting addressedaddressed byby oneone personperson toto another,another, signedsigned byby thethe personperson givinggiving it,it, requiringrequiring thethe personperson toto whomwhom itit iiss addressedaddressed toto paypay onon demanddemand oror atat aa fixedfixed oror determinabledeterminable futurefuture timetime aa sumsum certaincertain inin moneymoney toto orderorder oror bearer.bearer.

Q: Which of the following stipulations or features of a

Q: Which of the following stipulations or features of a

promissory

promissory

note

note

(PN)

(PN)

affect

affect

or

or

do

do

not

not

affect

affect

negotiability,negotiability, assumingassuming thatthat thethe PNPN isis otherwiseotherwise

negotiable?

negotiable?

Indicate

Indicate

your

your

answer

answer

by

by

writing

writing

paragraph number of the stipulation or feature of the

paragraph number of the stipulation or feature of the

PNPN asas shownshown belowbelow andand youryour correspondingcorresponding answer,answer,

its

its

the

the

3.3.

AA checkcheck isis aa billbill ofof exchangeexchange drawndrawn onon aa bankbank payabpayablele onon demand.demand.

eithereither ―Affected―Affected oror ―Not―Not affected.affected. Explain.Explain.

a.a.

TheThe datedate ofof thethe PNPN isis ―February―February 30,30, 2002.2002.

b.b.

b.b.

The PN bears interest payable on the last day of

The PN bears interest payable on the last day of

1.1.

NegotiableNegotiable promissorypromissory note:note:

eacheach calendarcalendar quarterquarter atat aa raterate equalequal toto fivefive percentpercent

(5%)(5%) aboveabove thethe thenthen prevailingprevailing 91-day91-day TreasuryTreasury

“September“September 15,15, 20022002

“For“For valuevalue received,received, II herebyhereby ppromiseromise toto paypay JuanJuan SantosSantos oror orderorder thethe sumsum ofof TENTEN THOUSANDTHOUSAND PESOSPESOS (P10,000.00)(P10,000.00) thirtythirty (30)(30) daysdays fromfrom datedate hereof.hereof.

(Signed)(Signed) PedroPedro Cruz”Cruz”

Bill rate as published at the beginning of

Bill rate as published at the beginning of

calendarcalendar quarter.quarter.

c.c.

payment either in money or in quantity of palay or

payment either in money or in quantity of palay or

equivalentequivalent value.value. d.d. TheThe PNPN givesgives thethe hholderolder thethe optionoption eithereither toto rrequireequire

The

The

PN

PN

gives

gives

the

the

maker

maker

the

the

option

option

to

to

payment in money or to require the maker to

payment in money or to require the maker to

such

such

make

make

serve

serve

QUAMTOQUAMTO (1987-2016)(1987-2016)

asas thethe bodyguardbodyguard oror escortescort ofof thethe holderholder forfor 3030 days.days. (2002(2002 Bar)Bar) is
asas thethe bodyguardbodyguard oror escortescort ofof thethe holderholder forfor 3030 days.days.
(2002(2002 Bar)Bar)
is
is
necessary say to determine when the note is due or
necessary say to determine when the note is due or
the interest is to run when the payment of interest has
the interest is to run when the payment of interest has
been stipulated or whether the holder is barred by the
been stipulated or whether the holder is barred by the
statute of limitations from enforcing the note. The fact
statute of limitations from enforcing the note. The fact
that
that
there
there
is
is
no
no
mention
mention
of
of
consideration
consideration
is
is
not
not
essentialessential becausebecause itit isis presumed.presumed.
Q:
Q:
State
State
and
and
explain
explain
whether
whether
the
the
following
following
are
are
negotiablenegotiable instrumentsinstruments underunder thethe NegotiableNegotiable
InstrumentsInstruments Law:Law:
1.1.
PostalPostal MoneyMoney OrderOrder
2.2.
AA certificatecertificate ofof timetime depositdeposit whichwhich statesstates ““ThisThis isis toto
certify that bearer has deposited in this bank the
certify that bearer has deposited in this bank the
sum of FOUR THOUSAND PESOS (P4, 000)
sum of FOUR THOUSAND PESOS (P4, 000)
only,
only,
repayablerepayable toto thethe depositordepositor 200200 daysdays afterafter date.”date.”
3.3.
Letters of Credit
Letters of Credit
4.4.
WarehouseWarehouse ReceiptsReceipts
5.5.
Treasury warrants payable from a specific
Treasury warrants payable from a specific
fund
fund
(2005(2005 Bar)Bar)
MPMP boughtbought aa usedused cellcell phonephone fromfrom JR.JR. JRJR preferredpreferred
A:A:
cashcash
butbut
MPMP
isis
aa
friendfriend
soso
JRJR
acceptedaccepted
MP‘sMP‘s
promissorypromissory notenote forfor P10,P10, 000.000. JRJR thoughtthought ofof
convertingconverting thethe notenote intointo cashcash byby endorsingendorsing itit toto hishis
brotherbrother KR.KR. TheThe promissorypromissory notenote isis aa piecepiece ofof paperpaper
withwith thethe followingfollowing hand-printehand-printedd notation:notation: ―― MPMP
WILLWILL PAYPAY JRJR TENTEN THOUSANDTHOUSAND PESOSPESOS ININ PAYMENTPAYMENT
FORFOR HISHIS CELLPHONECELLPHONE 11 WEEKWEEK FROMFROM TODAY.TODAY. BelowBelow
1.1.
PostalPostal MoneyMoney OrderOrder isis notnot aa negotiablenegotiable instrumentinstrument
because,because, asas heldheld inin Phil.Phil. EducationEducation Co.Co. v.v. SorianoSoriano,, therethere
areare manymany restrictionsrestrictions whichwhich makemake themthem incompatibleincompatible
withwith conceptsconcepts ofof negotiablenegotiable instruments,instruments, therebythereby
making the order conditional, in contrast to Sec. 1
making the order conditional, in contrast to Sec. 1
of the
of the
NIL. Furthermore, such is governed by postal rules and
NIL. Furthermore, such is governed by postal rules and
thisthis notationnotation MP‘sMP‘s signaturesignature withwith ―― 8/1/008/1/00 nextnext toto
regulationregulation andand itit maymay onlyonly bebe negotiatednegotiated once.once.
it,it, indicatingindicating thethe datedate ofof thethe promissorypromissory note.note. WhenWhen
2.2.
TheThe certificatecertificate ofof timetime depositdeposit isis aa negotiablenegotiable
JRJR presentedpresented MP‘sMP‘s notenote toto KR,KR, thethe latterlatter saidsaid itit wwasas
instrument
instrument
because
because
it
it
is
is
an
an
acknowledgement
acknowledgement
in
in
notnot aa negotiablenegotiable instrumentinstrument underunder thethe lawlaw andand soso
couldcould notnot bebe aa validvalid substitutesubstitute forfor cash.cash. JRJR tooktook ththee
writing by the bank of the amount of deposit with a
writing by the bank of the amount of deposit with a
promise to repay the same to the depositor or bearer
promise to repay the same to the depositor or bearer
oppositeopposite view,view, insistinginsisting onon thethe note‘snote‘s negotiabilitynegotiability
thereofthereof atat aa specificspecific time.time. ((CaltexCaltex v.v. CA,CA, 212212 SCRASCRA 448448))
3.3.
AA letterletter ofof creditcredit isis notnot negotiablenegotiable becausebecause itit isis generallygenerally
conditional and has limited negotiability because it is
conditional and has limited negotiability because it is
issued in favor of a specific person. But the Supreme
issued in favor of a specific person. But the Supreme
Court held, in the case of Lee v. Court of Appeals, that
Court held, in the case of Lee v. Court of Appeals, that
the drafts issued in connection with the letters of
the drafts issued in connection with the letters of
credit
credit
areare negotiablenegotiable instruments.instruments.
4.4.
AA
warehousewarehouse receiptreceipt isis notnot aa negotiablenegotiable instrumentinstrument
because the obligation of a warehouseman is not
because the obligation of a warehouseman is not
to pay
to pay
but to deliver the goods under the warehouse receipt
but to deliver the goods under the warehouse receipt
which fails to comply with the requirements set forth
which fails to comply with the requirements set forth
under Sec. 1 of the Negotiable Instruments Law. It is
under Sec. 1 of the Negotiable Instruments Law. It is
merely considered as a negotiable document that does
merely considered as a negotiable document that does
notnot resultresult inin thethe accumulationaccumulation ofof contracts.contracts.
5.5.
A
A
treasury warrant require appropriations from the
treasury warrant require appropriations from the
nationalnational governmentgovernment whichwhich meansmeans thatthat thethe particularparticular
fund
fund
may
may
or
or
may
may
not
not
exists
exists
which
which
renders
renders
it
it
conditional,conditional, therebythereby non-negotiable.non-negotiable.
Q: Lorenzo drew a bill of exchange in the amount of
Q: Lorenzo drew a bill of exchange in the amount of
P100, 000 payable to Barbara or order, with his wife,
P100, 000 payable to Barbara or order, with his wife,
Diana,Diana, asas drawee.drawee. AtAt thethe timetime thethe billbill waswas drawn,drawn, DianaDiana
waswas
unawareunaware
thatthat
BarbaraBarbara
isis
Lorenzo’sLorenzo’s
paramour.paramour.
BarbaraBarbara thenthen negotiatednegotiated thethe billbill toto herher sister,sister, Elena,Elena,
who paid for it for value, and who did not know who
who paid for it for value, and who did not know who
Lorenzo was. On due date, Elena presented the bill to
Lorenzo was. On due date, Elena presented the bill to
DianaDiana forfor payment,payment, butbut thethe latterlatter promptlypromptly dishonoreddishonored
thethe instrumentinstrument because,because, byby then,then, DianaDiana hadhad alreadyalready
learned of her husband’s dalliance. Does the
learned of her husband’s dalliance. Does the
illicit
illicit
cause
cause
or
or
consideration
consideration
adversely
adversely
affect
affect
the
the
negotiabilitynegotiability ofof thethe bill?bill? Explain.Explain. (2009(2009 Bar)Bar)
A:A: NoNo. The illicit cause or consideration does not adversely
. The illicit cause or consideration does not adversely
affect the negotiability of the bill, especially in the hands of
affect the negotiability of the bill, especially in the hands of
a
a
holder in due course. Under Sec. 1 of the NIL, the
holder in due course. Under Sec. 1 of the NIL, the
bill of
bill of
TheThe placeplace andand datedate areare notnot essentialessential toto thethe negotianegotiabilitybility
ofof thethe instrumentinstrument exceptexcept inin certaincertain casescases whenwhen thethe datedate
exchange
exchange
is
is
a
a
negotiable
negotiable
instrument.
instrument.
Every
Every
negotiable
negotiable
instrument is deemed prima facie to have been issued for
instrument is deemed prima facie to have been issued for

A:A:

a.a. NOTNOT AFFECTED.AFFECTED. DateDate isis notnot oneone ofof thethe requirementsrequirements forfor negotiabilitynegotiability thereforetherefore itit isis notnot essentialessential exceptexcept whenwhen thethe datedate isis necessarynecessary toto determinedetermine whenwhen thethe notenote isis due.due. b.b. NOTNOT AFFECTED.AFFECTED. AnAn instrumentinstrument payablepayable withwith interestinterest determinabledeterminable atat aa fixedfixed timetime isis negotiable.negotiable. TheThe lawlaw providesprovides underunder sectionsection 2a2a ofof thethe NIL,NIL, aa sumsum isis stillstill consideredconsidered asas certaincertain althoughalthough itit isis toto bebe paidpaid witwithh interest.interest. ItIt doesdoes notnot makemake thethe promisepromise unconditionaunconditional.l. c.c. AFFECTED.AFFECTED. AnAn optionoption givengiven toto thethe makermaker makesmakes thethe promisepromise conditional.conditional. d.d. NOTNOT AFFECTED.AFFECTED. AnAn optionoption givengiven toto thethe holderholder doesdoes notnot makemake thethe promisepromise conditional.conditional.

Q:Q:

a.a.

YouYou areare askedasked toto referee.referee. WhichWhich ofof thethe opposingopposing viewsviews isis correct?correct? b.b. THTH isis anan indorseeindorsee ofof aa promissorypromissory notenote thatthat simplysimply states:states: PAYPAY TOTO JUANJUAN TANTAN OROR ORDERORDER 400400 PESOS.PESOS. TheThe notenote hashas nono date,date, nono placeplace ofof paymentpayment andand nono considerationconsideration mentioned.mentioned. ItIt waswas signedsigned byby MKMK andand writtenwritten underunder hishis letterheadletterhead specifyingspecifying thethe address,address, whichwhich happenshappens toto bebe hishis residence.residence. THTH acceptedaccepted thethe promissorypromissory notenote asas paymentpayment forfor servicesservices renderedrendered toto SH,SH, whowho inin turnturn receivedreceived thethe notenote fromfrom JuanJuan TanTan asas paymentpayment forfor aa prepaidprepaid cellcell phonephone cardcard worthworth 450450 pesos.pesos. TheThe payeepayee acknowledgedacknowledged havinghaving receivedreceived thethe notenote onon AugustAugust 1,1, 2000.2000. AA BarBar revieweereviewee hadhad toldtold TH,TH, whowho happenshappens toto bebe youryour friend,friend, thatthat THTH isis notnot aa holderholder inin duedue coursecourse underunder ArticleArticle 5252 ofof thethe NegotiableNegotiable InstrumentsInstruments LawLaw (Act(Act 2031)2031) andand thereforetherefore doesdoes notnot enjoyenjoy thethe rightsrights andand protectionprotection underunder thethe statute.statute. THTH asksasks forfor ourour adviceadvice specificallyspecifically inin connectionconnection withwith thethe notenote beingbeing undatedundated andand notnot mentioningmentioning aa placeplace ofof paymentpayment andand anyany consideration.consideration. WhatWhat wouldwould youryour adviceadvice be?be? (2000(2000 Bar)Bar)

A:A:

a.a. TheThe viewview ofof KRKR isis correct.correct. TheThe notenote isis payablepayable toto aa specificspecific personperson hencehence itit isis notnot negotiable.negotiable. TheThe lawlaw providesprovides thatthat forfor anan instrumentinstrument toto bebe negotiable,negotiable, iitt mm ustust complycomply withwith thethe requirementsrequirements ofof sectionsection 11 ofof thethe NINILL pertainingpertaining toto thethe partpart thatthat aa notenote mustmust bebe payablepayable toto orderorder oror bearer.bearer. InIn thethe givengiven case,case, therethere werewere nono wwordsords ofof negotiabilitynegotiability andand itit isis silentsilent asas toto whethwheth erer itit isis payablepayable toto orderorder oror bearer.bearer. Hence,Hence, thethe instrumentinstrument isis non-non- negotiable.negotiable.

b.b.

99

MercantileMercantile LawLaw

valuablevaluable consideration,consideration, andand everyevery personperson whosewhose signsignatureature appearsappears thereonthereon isis deemeddeemed toto havehave becomebecome aa partyparty ththeretoereto forfor value.value.

Q:Q: WhichWhich ofof thethe followingfollowing instrumentsinstruments isis negotiablenegotiable ifif allall thethe otherother requirementsrequirements ofof negotiabilitynegotiability areare met?met? (201(20144 Bar)Bar)

Q:Q: TRUETRUE oror FALSE.FALSE. AA document,document, dateddated JulyJuly 15,15, 2009,2009, tthathat

a.a.

AA promissorypromissory notenote withwith promisepromise toto paypay outout ofof thethe

AA promissorypromissory notenote whichwhich designatesdesignates thethe U.S.U.S. DoDollarllar

reads:reads: “Pay“Pay toto XX oror orderorder thethe sumsum ofof P5,000.00P5,000.00 fivefive daysdays afterafter hishis petpet ddog,og, Sparky,Sparky, dies.dies. SignedSigned Y.”Y.” isis aa negotiablenegotiable

b.b.

U.S.U.S. DollarDollar accountaccount ofof thethe makermaker inin XYZXYZ Bank.Bank.

instrument.instrument. (2009(2009 Bar)Bar)

currencycurrency inin whichwhich paymentpayment isis toto bebe made.made.

A:A: True.True. TheThe documentdocument isis subjectsubject toto aa termterm andand notnot aa condition.condition. TheThe dyingdying ofof thethe dogdog isis aa dayday whichwhich isis ccertainertain toto com.com. Therefore,Therefore, thethe orderorder toto paypay isis unconditional,unconditional, inin compliancecompliance withwith SectionSection 11 ofof thethe NIL.NIL.

c.c. AA promissorypromissory notenote whichwhich containscontains inin additionaddition aa promisepromise toto paintpaint thethe portraitportrait ofof thethe bearer.bearer. d.d. AA promissorypromissory notenote mademade payablepayable toto thethe orderorder ofof JoseJose CruzCruz oror JosefaJosefa Cruz.Cruz.

Q:Q: AA writeswrites aa promissorypromissory notenote inin favorfavor ofof hishis creditor,creditor, B.B. itit says:says: SubjectSubject toto mymy option,option, II promisepromise toto paypay BB P1MP1M oror hishis orderorder oror toto givegive P1MP1M worthworth ofof cementcement oror toto authorizeauthorize himhim toto sellsell mymy househouse worthworth P1P1M.M. signed,signed, A.”A.” IsIs thethe notenote negotiable?negotiable?

a.a.

withwith A,A, thethe makermaker andand debtor.debtor. b.b. No,No, becausebecause itit authorizesauthorizes thethe salesale ofof collateralcollateral securitiessecurities inin casecase thethe notenote isis notnot paidpaid atat maturity.maturity. c.c. Yes,Yes, becausebecause thethe notenote isis reallyreally payablepayable toto BB oror hishis order,order, thethe otherother provisionsprovisions beingbeing merelymerely optional.optional. d.d. Yes,Yes, becausebecause anan electionelection toto requirerequire somethingsomething toto bebe donedone inin lieulieu ofof paymentpayment ofof moneymoney doesdoes notnot affectaffect negotiability.negotiability. (2011(2011 Bar)Bar)

No,No, becausebecause thethe exerciseexercise ofof thethe optionoption toto paypay lieslies

AA:: a.a. NoNo,, becausebecause thethe exerciseexercise ofof thethe optionoption toto paypay lieslies wiwithth A,A, thethe makermaker andand debtor.debtor.

Q:Q: AntonioAntonio issuedissued thethe followingfollowing instrument:instrument:

AugustAugust 10,10, 20132013 MakatiMakati CityCity

P100,000.00P100,000.00

SixtySixty daysdays afterafter date,date, II promisepromise toto paypay BobbyBobby oror hihiss designateddesignated representativerepresentative thethe sumsum ofof ONEONE HUNDREDHUNDRED THOUSANDTHOUSAND PESOSPESOS (P(P 100,000.00)100,000.00) fromfrom mymy BPIBPI Acct.Acct. No.No. 12341234 if,if, byby thisthis duedue date,date, thethe sunsun stillstill setssets inin thethe westwest toto usherusher inin thethe eveningevening andand risesrises inin thethe easteast thethe followingfollowing morningmorning toto welcomewelcome thethe day.day.

(Sgd.)(Sgd.) AntonioAntonio ReyesReyes

ExplainExplain eacheach requirementrequirement ofof negotiabilitynegotiability presentpresent oror absentabsent inin thethe instrument.instrument. (2013(2013 Bar)Bar)

A:A: TheThe instrumentinstrument containscontains aa promisepromise toto paypay andand waswas signedsigned byby thethe maker,maker, AntonioAntonio Reyes.Reyes. [[Sec.Sec. 1(a)1(a) ofof NILNIL]] TheThe promisepromise toto paypay isis unconditionalunconditional insofarinsofar asas thethe referencereference toto thethe settingsetting ofof thethe sunsun inin thethe westwest inin thethe eveningevening andand itsits risingrising inin thethe easteast inin thethe morningmorning areare concerned.concerned. TheseThese areare cecertainrtain toto happen.happen. [[Sec.Sec. 4(c)4(c) ofof thethe NILNIL]] TheThe promisepromise toto paypay isis conditional,conditional, becausebecause thethe moneymoney willwill bebe takentaken fromfrom aa particularparticular fund,fund, thethe BPIBPI AccountAccount No.No. 1234.1234. ((Sec.Sec. 33 ofof NILNIL))

TheThe instrumentinstrument containscontains aa promisepromise toto paypay aa sumsum certcertainain inin money,money, P100,P100, 000.00.000.00. [[Sec.Sec. 4(b)4(b) ofof NILNIL]] TheThe moneymoney isis payablepayable atat aa determinabledeterminable futurefuture time,time, sixtysixty daysdays aafterfter AugustAugust 10,10, 2013.2013. [[Sec.Sec. 4(a)4(a) ofof NILNIL]]

TheThe instrumentinstrument isis notnot payablepayable toto orderorder oror toto bearerbearer [[Sec.Sec. 1(d)1(d) ofof thethe NILNIL]]

USTUST BARBAR OPERATIONSOPERATIONS

AA:: c.c. AA promissorypromissory notenote whichwhich containscontains inin additionaddition aa promisepromise toto paintpaint thethe portraitportrait ofof thethe bearer.bearer.

KINDSKINDS OFOF NEGOTIABLENEGOTIABLE INSTRUMENTSINSTRUMENTS

Q:Q: CanCan aa billbill ofof exchangeexchange oror aa promissorypromissory notenote qualqualifyify asas aa negotiablenegotiable instrumentinstrument ifif ––

a.a.

itit isis notnot dated;dated;

b.b.

oror thethe dayday andand thethe month,month, butbut notnot thethe yearyear ofof itsits maturity,maturity, isis given;given; oror

c.c.

itit isis payablepayable toto ―― cashcash

d.d.

itit namesnames twotwo alternativealternative draweesdrawees (1997(1997 Bar)Bar)

A:A:

a.a. Yes.Yes. DateDate isis notnot anan essentialessential requirementrequirement forfor thethe negotiabilitynegotiability ofof anan instrumentinstrument asas providedprovided forfor inin SSec.ec. 11 ofof thethe NIL.NIL.

b.b.

paymentpayment isis notnot determinable.determinable. c.c. Yes.Yes. WhenWhen thethe namename ofof thethe payeepayee doesdoes notnot purportpurport toto bebe thethe namename ofof anyany person,person, thethe lawlaw providesprovides inin Sec.Sec. 9(d)9(d) ofof thethe NILNIL thatthat thethe makermaker oror drawerdrawer intendsintends thethe samesame toto bebe payablepayable toto bearer,bearer, hencehence thethe instrumentinstrument qualifiequalifiess asas aa negotiablenegotiable instrument.instrument. d.d. No.No. WhenWhen thethe billbill isis addressedaddressed toto twotwo oror moremore payeespayees inin thethe alternative,alternative, thethe lawlaw providesprovides inin Sec.Sec. 128128 ofof thethe NILNIL thatthat itit isis conditionalconditional andand thereforetherefore non-negotianon-negotiable.ble. TheThe objectionobjection toto thethe drawersdrawers beingbeing inin thethe alternativealternative oror inin successionsuccession isis thethe difficultydifficulty inin determiningdetermining thethe exactexact datedate ofof dishonordishonor ofof thethe billbill inasmuchinasmuch asas itit cannotcannot bebe saidsaid thatthat thethe billbill isis dishonoreddishonored untiluntil allall ofof thethe drawerdrawerss havehave dishonoreddishonored itit andand ifif thethe presentmentpresentment takestakes placeplace foforr aa periodperiod coveringcovering severalseveral daysdays whenwhen thethe lastlast dishonordishonor isis made,made, thethe firstfirst draweedrawee whowho dishonoreddishonored itit maymay havehave alreadyalready beenbeen releasedreleased fromfrom hishis secondarysecondary liabilityliability duedue toto thethe lapselapse ofof timetime beforebefore noticenotice ofof dishonordishonor waswas mademade byby thethe holder.holder. NoticeNotice ofof dishonordishonor couldcould notnot havehave bebeenen mademade earlierearlier byby thethe holderholder sincesince therethere isis stillstill aa remainingremaining drawee,drawee, whowho hashas notnot yetyet dishonoreddishonored it.it.

SinceSince thethe yearyear isis notnot determined,determined, thethe timetime forfor

NoNo

Q:Q: HowHow dodo youyou treattreat aa negotiablenegotiable instrumentinstrument thatthat isis soso ambiguousambiguous thatthat therethere isis doubtdoubt whetherwhether itit isis aa billbill oror aa note?note? (1998(1998 Bar)Bar)

A:A: Sec.Sec. 17(e)17(e) ofof thethe NIL,NIL, wherewhere thethe instrumentinstrument isis soso ambiguousambiguous thatthat therethere isis doubtdoubt whetherwhether itit isis aa billbill oror note,note, thethe holderholder maymay treattreat itit asas eithereither atat hishis election.election.

Q:Q: RichardRichard ClintonClinton makesmakes aa promissorypromissory notenote payablepayable toto bearerbearer andand deliversdelivers thethe samesame toto AuroraAurora Page.Page. AuroraAurora Page,Page, however,however, endorsesendorses itit toto XX inin thisthis manner:manner:

"Payable"Payable toto X.X. Signed:Signed: AuroraAurora Page."Page." Later,Later, X,X, withowithoutut endorsingendorsing thethe promissorypromissory note,note, transferstransfers andand deliversdelivers thethe samesame toto Napoleon.Napoleon. TheThe notenote isis subsequentlysubsequently dishonoreddishonored byby RichardRichard Clinton.Clinton. MayMay NapoleoNapoleonn proceedproceed againstagainst RichardRichard ClintonClinton forfor thethe note?note? (1998(1998 Bar)Bar)

1010

QUAMTOQUAMTO (1987-2016)(1987-2016)

Q U A M T O Q U A M T O (1987-2016)(1987-2016)

A:A: Yes,Yes, RichardRichard ClintonClinton isis liableliable forfor thethe promissorypromissory note.note. UnderUnder Sec.Sec. 6060 ofof thethe NIL,NIL, thethe makermaker ofof aa negotiablenegotiable instrument,instrument, byby makingmaking thethe same,same, engagesengages thatthat hehe wilwilll paypay accordingaccording toto itsits tenor,tenor, andand admitsadmits thethe existenceexistence ofof thth ee payeepayee andand hishis thenthen capacitycapacity toto indorse.indorse. TheThe liabilityliability ofof thethe makermaker isis primaryprimary whichwhich meansmeans hehe isis absolutelyabsolutely andand unconditionallyunconditionally requiredrequired toto pay.pay. HeHe engagesengages toto paypay thethe instrumentinstrument accordingaccording toto itsits termsterms withoutwithout anyany condicondition.tion. HeHe isis notnot onlyonly liableliable toto thethe payeepayee butbut alsoalso toto thethe subsubsequentsequent holderholder inin duedue course.course. SinceSince thethe instrumentinstrument isis aa beabearerrer instrumentinstrument (which(which naturenature waswas notnot changedchanged eveneven ifif itit waswas speciallyspecially indorsedindorsed byby Aurora),Aurora), NapoleonNapoleon becamebecame aa leglegalal holderholder thereofthereof byby meremere deliverydelivery fromfrom XX toto him.him. ThusThus,, asas aa legallegal holderholder ofof thethe promissorypromissory note,note, hehe isis entitledentitled toto pp roceedroceed againstagainst thethe makermaker thereof,thereof, RichardRichard Clinton.Clinton.

c.c. Non-negotiable.Non-negotiable. TheThe instrumentinstrument isis notnot anan unconditiounconditionalnal promisepromise oror orderorder toto paypay aa sumsum certaincertain inin moneymoney sincsincee paymentpayment dependsdepends uponupon thethe happeninghappening ofof anan eventevent [[Sec.Sec. 11 (b)(b) NILNIL].].

d.d.

Negotiable.Negotiable. ThereThere isis certaintycertainty inin paymentpayment sincesince itit isis

payablepayable onon oror beforebefore aa fixedfixed oror determinabledeterminable futurefuture timetime specifiedspecified [[Sec.Sec. 4(b)4(b) NILNIL].]. e.e. Negotiable.Negotiable. ItIt isis aa bearerbearer instrumentinstrument thatthat isis payabpayablele uponupon demanddemand [[Sec.Sec. 77 (b)(b) andand Sec.Sec. 99 (b)(b) NILNIL].].

Q:Q: WhenWhen cancan youyou treattreat aa billbill ofof exchangeexchange asas aa promissorypromissory note?note? (2015(2015 Bar)Bar)

A:A: AA billbill ofof exchangeexchange maymay bebe treatedtreated asas aa promissorypromissory notenote inin thethe followingfollowing instances:instances:

Q:Q: RR issuedissued aa checkcheck forfor P1MP1M whichwhich hehe usedused toto paypay SS forfor killingkilling hishis politicalpolitical enemy.enemy.

a.a. TheThe draweedrawee isis aa fictitiousfictitious personperson oror aa personperson notnot hhavingaving thethe capacitycapacity toto contract;contract;

b.b.

TheThe drawerdrawer andand thethe draweedrawee areare oneone andand thethe samesame

a.a.

instrument?instrument? b.b. DoesDoes SS havehave aa causecause ofof actionaction againstagainst RR inin casecase ofof

CanCan

thethe

checkcheck

bebe

consideredconsidered

aa

negotiablenegotiable

person.person. c.c. WhereWhere thethe instrumentinstrument isis soso ambiguousambiguous thatthat thetherere isis aa doubtdoubt asas toto whetherwhether thethe instrumentinstrument isis aa billbill oror aa nnote,ote, thethe holderholder maymay treattreat itit eithereither asas aa billbill oror note,note, d.d. atat thethe optionoption ofof thethe holderholder (Secs.(Secs. 130130 andand 1717 ofof thethe NIL).NIL).

Q:Q: AA promissorypromissory notenote readread asas follows:follows: “I“I promisepromise toto paypay

c.c.

dishonordishonor byby thethe draweedrawee bank?bank? IfIf SS negotiatednegotiated thethe checkcheck toto T,T, whowho acceptedaccepted itit inin goodgood faithfaith andand forfor value,value, maymay RR bebe heldheld secondarilysecondarily liableliable byby T?T? (2007(2007 Bar)Bar)

A:A:

GabrielaGabriela SilanganSilangan P100P100 threethree yearsyears afterafter thethe unconditionalunconditional withdrawalwithdrawal ofof thethe U.S.U.S. ofof itsits militarymilitary

a.a.

YesYes

TheThe checkcheck cancan bebe consideredconsidered asas aa negotiablenegotiable

basesbases inin thethe Philippines.”Philippines.”

 

instrumentinstrument sincesince itit compliedcomplied withwith thethe requirementsrequirements ofof negotiabilitynegotiability underunder Sec.Sec. 11 ofof thethe NIL.NIL. TheThe unlawfulunlawful considerationconsideration forfor thethe issuanceissuance ofof thethe checkcheck isis ofof nnoo momentmoment andand willwill notnot affectaffect thethe negotiabilitynegotiability ofof thethe checkcheck asas itit merelymerely constitutesconstitutes aa defectdefect ofof titletitle underunder Sec.Sec.

5555 ofof thethe NIL.NIL.

No.No. SS doesdoes notnot havehave aa causecause ofof actionaction againstagainst RR inin casecase ofof dishonordishonor byby thethe draweedrawee bank.bank. SS isis notnot aa holderholder iinn duedue course,course, thus,thus, RR cancan raiseraise thethe defensedefense thatthat thethe checkcheck waswas issuedissued forfor anan illegalillegal consideration.consideration.

a.a. DiscussDiscuss thethe negotiabilitynegotiability oror non-negotiabilitynon-negotiability ofof thethe aboveabove note.note.

b.b.

DiscussDiscuss thethe effecteffect ofof eacheach ofof thethe followingfollowing uponupon thethe

note’snote’s negotiability:negotiability:

 

b.b.

1.1. NoNo datedate isis givengiven

2.2. TheThe placesplaces wherewhere drawndrawn andand wherewhere payablepayable areare notnot stated.stated. (1988(1988 Bar)Bar)

AA::

a.a. TheThe promissorypromissory notenote isis notnot aa negotiablenegotiable instrument.instrument. SectionSection ofof thethe NILNIL requires,requires, amongamong otherother things,things, forfor anan instrumentinstrument toto bebe negotiable,negotiable, thatthat itit mustmust bebe payablpayablee toto orderorder oror toto bearer.bearer. WithoutWithout beingbeing soso payable,payable, thethe nnoteote isis notnot aa negotiablenegotiable instrument.instrument.

b.b.

c.c.

YesYes

RR maymay bebe heldheld liableliable byby TT sincesince TT isis aa holderholder inin duedue

coursecourse ofof thethe instrument.instrument. TheThe unlawfulunlawful considerationconsideration ofof

thethe checkcheck isis onlyonly aa personalpersonal defensedefense thatthat cannotcannot bebe interposedinterposed toto aa holderholder inin duedue coursecourse whowho receivesreceives tthehe checkcheck freefree fromfrom thethe defectdefect ofof titletitle ofof S.S.

Q:Q: IndicateIndicate andand explainexplain whetherwhether thethe promissorypromissory notenote isis negotiablenegotiable oror non-negotiablenon-negotiable

a.a. II promisepromise ttoo paypay AA oror bearbearerer Php100,Php100, 000.00000.00 fromfrom

 

1.1. TheThe negotiabilitynegotiability ofof anan instrumentinstrument isis notnot adverselyadversely affectedaffected byby itsits beingbeing undated.undated. EvenEven ifif itit isis neededneeded toto determinedetermine thethe maturitymaturity ofof thethe instrument,instrument, thethe holderholder isis implicitlyimplicitly authorizedauthorized toto placeplace thethe datedate thereofthereof oror toto considerconsider itit dateddated asas ofof itsits issue.issue.

 

mymy inheritancinheritancee whichwhich II willwill getget afterafter thethe

deathdeath ofof

 

mymy father.father. b.b. II promisepromise toto paypay AA oror bearerbearer PPhp100,hp100, 000000 plplusus thethe

interestinterest raterate ofof ninetyninety (90)(90) dayday treasurytreasury bills.bills. c.c. II promisepromise toto paypay AA oror bearerbearer thethe sumsum ofof Php100,Php100, 000000 ifif AA passespasses thethe 20122012 barbar exams.exams.

 

2.2. ForFor thethe negotiabilitynegotiability ofof aa promissorypromissory notenote itit isis notnot necessarynecessary thatthat itit mustmust expressexpress thethe pp lacelace wherewhere itit isis

mademade oror wherewhere itit isis payable.payable. AllAll thatthat isis requiredrequired underunder thethe NILNIL isis compliancecompliance withwith SectionSection 11 thereof.thereof.

COMPLETIONCOMPLETION ANDAND DELIVERYDELIVERY

d.d.

II

promisepromise

toto

paypay

AA

oror

bearerbearer

thethe

sumsum

ofof

Q:Q: ABAB CorporationCorporation drewdrew aa checkcheck forfor paymentpayment toto XYXY Bank.Bank. TheThe checkcheck waswas givengiven toto anan officerofficer ofof ABAB CorporationCorporation whowho waswas instructedinstructed toto deliverdeliver itit toto XYXY Bank.Bank. Instead,Instead, thethe officer,officer, intendingintending toto defrauddefraud thethe Corporation,Corporation, filledfilled upup thethe checkcheck byby makingmaking himselfhimself asas thethe payeepayee andand deliverdelivereded itit toto XYXY BankBank forfor depositdeposit toto hishis

Php100.000Php100.000 onon oror beforebefore DecemberDecember 30,30, 2012.2012. e.e. II promisepromise toto paypay AA oror bearerbearer thethe sumsum ofof Php100,Php100, 000.000. (2012(2012 Bar)Bar)

A:A:

a.a.

Non-negotiable.Non-negotiable. ItIt isis basedbased onon aa contingencycontingency andand nonott anan unconditionalunconditional promisepromise oror orderorder toto paypay sumsum certaincertain iinn moneymoney [[Sec.Sec. 11 (b),(b), NILNIL].]. Negotiable.Negotiable. TheThe instrumentinstrument isis negotiablenegotiable despitedespite ththee inclusioninclusion ofof interestinterest sincesince thethe sumsum toto bebe paidpaid withwith saidsaid interestinterest isis stillstill certaincertain [[Sec.Sec. 2(a)2(a) NILNIL].].

personalpersonal account.account. XYXY BankBank debiteddebited ABAB Corporation’sCorporation’s account.account. ABAB CorporationCorporation camecame toto knowknow ofof thethe officer’sofficer’s

fraudulentfraudulent

actact

afterafter

hehe

absconded.absconded.

ABAB

CorporationCorporation

askedasked XYXY BankBank toto recreditrecredit iitsts amount.amount. XYXY BankBank refused.refused.

b.b.

a.a.

IfIf

youyou

werewere

thethe

judge,judge,

whatwhat

issuesissues

wouldwould

youyou

considerconsider relevantrelevant toto resolveresolve thethe case?case? Explain.Explain.

 

1111

   

MercantileMercantile LawLaw

MercantileMercantile LawLaw

b.b.

HowHow wouldwould youyou decidedecide thethe case?case? Explain.Explain. (2008(2008 Bar)Bar)

itit inin goodgood faithfaith forfor paymentpayment ofof gemsgems thatthat KCKC soldsold toto OB.OB. Later,Later, OBOB toldtold AXAX ofof whatwhat sheshe diddid withwith regrets.regrets. AXAX timelytimely directeddirected thethe bankbank toto dishonordishonor thethe check.check. CouldCould AXAX bbee heldheld liableliable toto KC?KC? AnswerAnswer andand reasonreason briefly.briefly. (2004(2004 Bar)Bar)

AA::

a.a. IfIf II werewere thethe judge,judge, II willwill considerconsider thethe followingfollowing issues:issues:

(1)(1) whetherwhether thethe checkcheck waswas aa completecomplete instrument;instrument; (2)(2) whetherwhether thethe checkcheck hashas beenbeen delivered;delivered; andand (3)(3) whetherwhether ABAB CorporationCorporation cancan bebe heldheld liableliable forfor thethe amountamount ofof thethe check.check. b.b. TheThe checkcheck waswas anan incompleteincomplete instrumentinstrument inin asas muchmuch aass thethe namename ofof thethe payeepayee waswas notnot writtenwritten byby thethe drawerdrawer,, ABAB Corporation.Corporation. However,However, thethe saidsaid instrumentinstrument hashas bebeenen delivereddelivered byby ABAB CorporationCorporation toto itsits officer.officer. Thus,Thus, tthehe checkcheck becamebecame bindingbinding onon ABAB CorporationCorporation asas drawerdrawer thereof.thereof. AnAn incompleteincomplete instrument,instrument, ifif delivered,delivered, asas inin thisthis case,case, createscreates liabilityliability onon thethe partpart ofof thethe dradrawer.wer. Therefore,Therefore, ABAB CorporationCorporation cannotcannot askask XYXY BankBank toto recreditrecredit thethe amountamount ofof thethe checkcheck toto hishis account.account.

Q:Q: JunJun waswas aboutabout toto leaveleave forfor aa businessbusiness trip.trip. AsAs hishis usualusual practice,practice, hehe signedsigned severalseveral blankblank checks.checks. HeHe instructedinstructed Ruth,Ruth, hishis secretary,secretary, toto fillfill themthem asas paymentpayment forfor hishis obligations.obligations. RuthRuth filledfilled oneone checkcheck withwith herher namename asas payee,payee, placedplaced P30,P30, 000.00000.00 thereon,thereon, endorsedendorsed andand delivereddelivered itit toto Marie.Marie. SheShe acceptedaccepted thethe checkcheck inin gogoodod faithfaith asas paymentpayment forfor goodsgoods sheshe delivereddelivered toto Ruth.Ruth. Eventually,Eventually, RuthRuth regrettedregretted whatwhat sheshe diddid andand apologiapologizedzed toto Jun.Jun. ImmediatelyImmediately hehe directeddirected thethe draweedrawee bankbank toto dishonordishonor thethe check.check. WhenWhen MarieMarie encashedencashed thethe checkcheck itit waswas dishonored.dishonored.

AA:: YesYes

AXAX couldcould bebe heldheld liableliable toto KC.KC. ThisThis isis aa casecase ofof anan

incompleteincomplete check,check, whichwhich hashas beenbeen delivered.delivered. UnderUnder SSectionection 1414 ofof thethe NIL,NIL, KC,KC, asas aa holderholder inin duedue course,course, cancan enenforceforce paymentpayment ofof thethe checkcheck asas ifif itit hadhad beenbeen filledfilled upup ststrictlyrictly inin accordanceaccordance withwith thethe authorityauthority givengiven byby AXAX toto OBOB andand withinwithin aa reasonablereasonable time.time.

Q:Q: A,A, singlesingle proprietorproprietor ofof aa bbusinessusiness concernconcern,, isis aboutabout toto leaveleave forfor aa businessbusiness triptrip and,and, asas hehe soso oftenoften doesdoes onon thesethese occasions,occasions, signssigns severalseveral checkschecks inin blank.blank. HeHe instructsinstructs B,B, hishis secretary,secretary, toto safekeepsafekeep thethe checkschecks aandnd fillfill themthem outout whenwhen andand asas requiredrequired toto paypay accountsaccounts duringduring hishis absence.absence. BB fillsfills outout oneone ofof thethe checkschecks byby placingplacing herher namename asas payee,payee, fillsfills inin thethe amount,amount, endorsesendorses andand deliversdelivers thethe checkcheck toto CC whowho acceptsaccepts itit inin goodgood faithfaith asas paymentpayment forfor goodsgoods soldsold toto B.B. BB regretsregrets herher actionaction andand tellstells AA whatwhat sheshe did.did. AA directsdirects thethe BankBank inin timetime toto dishonordishonor thethe check.check. WhenWhen CC encashesencashes thethe check,check, itit isis dishonored.dishonored.

CanCan AA bebe heldheld liableliable toto C?C? (1997(1997 Bar)Bar)

A:A: YesYes

AA cancan bebe heldheld liableliable toto C,C, assumingassuming thatthat thethe lattlatterer

gavegave noticenotice ofof dishonordishonor toto A.A. TT hishis isis aa casecase ofof anan incomincom pleteplete

instrumentinstrument butbut delivereddelivered asas itit waswas entrustedentrusted toto B,B, thethe secretarysecretary ofof A.A. Moreover,Moreover, underunder thethe doctrinedoctrine ofof comcomparativeparative negligence,negligence, asas betweenbetween AA andand C,C, bothboth innocentinnocent partiparties,es, itit waswas thethe negligencenegligence ofof AA inin entrustingentrusting thethe checkcheck toto BB whichwhich isis thethe proximateproximate causecause ofof thethe loss.loss.

INCOMPLETEINCOMPLETE ANDAND UNDELIVEREDUNDELIVERED INSTRUMENTSINSTRUMENTS

a.a.

IsIs JunJun liableliable toto Marie?Marie?

b.b. SupposingSupposing thethe checkcheck waswas stolenstolen whilewhile inin Ruth'sRuth's

 

possessionpossession andand aa thiefthief filledfilled thethe blankblank check,check, endorsedendorsed andand delivereddelivered itit toto MarieMarie inin paymentpayment forfor thethe goodsgoods hehe purchasedpurchased fromfrom her,her, isis JunJun liableliable toto MarieMarie ifif thethe checkcheck isis dishonored?dishonored? (2006(2006 Bar)Bar)

A:A:

Q:Q:

a.a.

YesYes

WhenWhen aa delivereddelivered instrumentinstrument isis wantingwanting inin anyany

a.a. PNPN makesmakes aa promissorypromissory notenote forfor P5,P5, 000.00,000.00, butbut leavesleaves thethe namename ofof thethe payeepayee inin blankblank becausebecause hehe wantedwanted toto verifyverify itsits correctcorrect spellingspelling first.first. HeHe mindlesslymindlessly leftleft thethe notenote onon toptop ofof hihiss deskdesk atat tthehe endend ofof thethe workday.workday. WhenWhen hehe returnedreturned thethe followingfollowing morning,morning, thethe notenote waswas missing.missing. ItIt turnedturned upup laterlater whenwhen XX presentedpresented itit toto PNPN forfor payment.payment. BeforeBefore X,X, TT

whowho turnedturned outout toto havehave filchedfilched thethe notenote fromfrom PN’sPN’s

materialmaterial particular,particular, thethe personperson inin possessionpossession therethereofof hashas primaprima faciefacie authorityauthority toto completecomplete itit byby fillingfilling upup thethe blanks.blanks. ButBut ifif itit waswas notnot filledfilled upup strictlystrictly inin accaccordanceordance withwith thethe authorityauthority given,given, itit cannotcannot bebe enforcedenforced agaagainstinst anyany personperson whowho becamebecame partyparty theretothereto priorprior toto itsits completion.completion. However,However, ifif itit isis negotiatednegotiated toto aa holdeholderr inin duedue course,course, thenthen itit isis validvalid andand effectiveeffective forfor allall purposepurpose inin hishis handshands becausebecause thethe defensedefense ofof notnot fillingfilling itit upup inin accordanceaccordance withwith thethe authorityauthority givengiven isis onlyonly aa persopersonalnal defensedefense thatthat cannotcannot bebe raisedraised againstagainst aa holderholder inin ddueue course.course. BasedBased onon thethe foregoing,foregoing, JunJun isis liableliable toto MarMarie,ie, beingbeing aa holderholder inin duedue course,course, forfor thethe incompleteincomplete instrumentinstrument whichwhich hehe delivereddelivered toto Ruth.Ruth. b.b. No.No. TheThe checkcheck isis anan incompleteincomplete instrumentinstrument notnot delivereddelivered inin contemplationcontemplation ofof law.law. AnAn incompleteincomplete instrumentinstrument notnot delivereddelivered isis notnot aa validvalid contractcontract inin thethe handshands ofof anyany holderholder asas againstagainst anyany personperson whosewhose signaturesignature waswas placedplaced thereonthereon beforebefore delivery.delivery. AsAs susuch,ch, JunJun isis notnot liableliable toto MarieMarie sincesince hehe doesdoes notnot assumeassume anyany responsibilityresponsibility whatsoeverwhatsoever uponupon thethe saidsaid checkcheck (( Sec.Sec. 15,15, NegotiableNegotiable InstrumentsInstruments LawLaw).).

office,office, hadhad endorsedendorsed thethe notenote afterafter insertinginserting hishis ownown namename inin thethe blankblank spacespace asas thethe payee.payee. PNPN dishonoreddishonored thethe note,note, contendingcontending thatthat hehe diddid notnot authorizeauthorize itsits completioncompletion andand delivery.delivery. ButBut XX saidsaid hehe hadhad nono participationparticipation in,in, oror knowledgeknowledge aboutabout thethe pilferagepilferage andand alterationalteration ofof thethe notenote andand thereforetherefore hehe enjoysenjoys thethe rightsrights ofof aa holderholder inin duedue coursecourse underunder thethe NegotiableNegotiable InstrumentsInstruments Law.Law. WhoWho isis correctcorrect andand why?why?

b.b. CanCan thethe payeepayee inin aa promissorypromissory notenote bebe aa “holder“holder inin duedue course”course” withinwithin thethe meaningmeaning ofof thethe NegotiableNegotiable

InstrumentsInstruments LawLaw (Act(Act 2031)?2031)? ExplainExplain youryour answeranswer (2000(2000 Bar)Bar)

A:A:

Q:Q: AX,AX, aa businessman,businessman, waswas preparingpreparing forfor aa businessbusiness triptrip abroad.abroad. AsAs hehe usuallyusually diddid iinn thethe past,past, hehe signedsigned severalseveral checkschecks inin blankblank andand entrustedentrusted themthem toto hishis secretarysecretary withwith instructioninstruction toto safeguardsafeguard themthem andand fillfill themthem outout onlyonly whenwhen requiredrequired toto paypay accountsaccounts duringduring hishis absence.absence. OB,OB, hishis secretary,secretary, filledfilled outout oneone ofof thethe checkschecks byby placingplacing herher namename asas thethe payee.payee. SheShe filledfilled outout thethe amount,amount, endorsedendorsed andand delivereddelivered thethe checkcheck toto KC,KC, whowho accepteacceptedd

a.a. SinceSince thethe negotiablenegotiable instrumentinstrument isis stillstill incompleteincomplete andand hashas notnot yetyet beenbeen delivered,delivered, PNPN isis correctcorrect inin dishonoringdishonoring thethe saidsaid instrument.instrument. Sec.Sec. 1515 ofof ActAct 20312031 providesprovides tthathat wherewhere anan incompleteincomplete instrumentinstrument hashas notnot beenbeen delivered,delivered, itit willwill not,not, ifif completedcompleted andand negotiatednegotiated withoutwithout authority,authority, bebe aa validvalid contractcontract inin thethe handshands ofof anyany holder,holder, asas againstagainst anyany personperson whowho sese signaturesignature waswas

QUAMTOQUAMTO (1987-2016)(1987-2016)

placedplaced thereonthereon beforebefore delivery.delivery. Thus,Thus, underunder thisthis section,section, itit isis aa realreal defensedefense thatthat cancan eveneven bebe inteinterposedrposed againstagainst aa holderholder inin duedue course.course. b.b. TheThe SupremeSupreme CourtCourt inin thethe casecase ofof DeDe OcampoOcampo v.v. Gatchalian,Gatchalian, G.R.G.R. No.L-15126,No.L-15126, Nov.Nov. 30,30, 19611961 ,, aa payeepayee maymay bebe aa holderholder inin duedue coursecourse providedprovided thatthat hehe waswas ableable toto establishestablish thethe conditionsconditions entitlingentitling himhim toto bebe aa holdholderer inin duedue course.course.

thethe forgery.forgery.

a.a.

b.b.

c.c.

CanCan “A”“A” compelcompel CitibankCitibank toto rere-credit-credit toto hishis accountaccount

thethe amountamount ofof thethe forgedforged check?check?

Does Citibank in turn have a recourse against the

Does Citibank in turn have a recourse against the

collectingcollecting bank,bank, BankBank ofof P.I.?P.I.? Explain.Explain.

Can Citibank or Bank of P.I., as the case may be,

Can Citibank or Bank of P.I., as the case may be,

proceedproceed againstagainst “C”“C” asas indorser?indorser? Explain.Explain. (1987(1987

 

Bar)Bar)

INDORSEMENTINDORSEMENT BYBY MINORMINOR OROR CORPORATIONCORPORATION

A:A:

Q:Q: XX makesmakes aa promissorypromissory notenote forfor P10,P10, 000000 payablepayable toto A,A,

aa

minor,minor, toto helphelp himhim buybuy schoolschool books.books. AA endorsesendorses thethe

a.a.

“A”“A” cancan compelcompel CitibankCitibank toto rere-credit -credit to to his his account account the the

notenote toto BB forfor value,value, whowho inin turnturn endorsesendorses thethe notenote toto C.C.

CC

upup thethe defensesdefenses ofof minorityminority andand lacklack ofof consideration?consideration?

(1998,(1998, 1989)1989)

knowsknows AA isis aa minor.minor. IfIf CC suessues XX onon thethe note,note, cancan XX setset

A: Yes. CC isis notnot aa holderholder inin duedue course.course. TheThe promissorypromissory nonotete

A: Yes.

amount of the forged check, he being not a party

amount of the forged check, he being not a party

instrument.instrument. ForgeryForgery rendersrenders thethe forgedforged signaturesignature

totally inoperative. Additionally, the drawee bank is

totally inoperative. Additionally, the drawee bank is

chargedcharged withwith knowledgeknowledge ofof thethe drawer’sdrawer’s signature.signature.

b.b.

Citibank has no right of recourse against Bank

Citibank has no right of recourse against Bank

having gone through “the normal course of clearing”,

having gone through “the normal course of clearing”,

thethe latterlatter cancan assumeassume thatthat thethe checkcheck waswas properlyproperly

to the

to the

of P.I.

of P.I.

isis notnot aa negotiablenegotiable instrument,instrument, asas itit doesdoes notnot contcontainain anyany wordword ofof negotiability,negotiability, thatthat is,is, orderorder oror bearer,bearer, oror wordswords ofof similarsimilar meaningmeaning oror import.import. Accordingly,Accordingly, thethe transfetransfereeree merelymerely stepssteps intointo thethe shoesshoes ofof thethe transferortransferor and,and, beingbeing merelymerely aa successor-in-successor-in- interest,interest, hashas nono rightright greatgreaterer thanthan thatthat ofof thethe transferor.transferor. NotNot beingbeing aa holderholder inin duedue coucourse,rse, CC isis toto subjectsubject suchsuch personalpersonal defensesdefenses ofof minorityminority andand llackack ofof consideration.consideration.

he drawee bank is charged with

drawndrawn byby thethe drawer.drawer. TThe drawee bank is charged with

knowledgeknowledge ofof thethe drawer’sdrawer’s signature.signature. TheThe negligenegligence,nce, ifif

atat all,all, isis attributedattributed moremore toto CitibankCitibank thanthan withwith thethe bankbank

ofof P.I.P.I.

c.c.

Recourse may be had by either against “C” as indorser

Recourse may be had by either against “C” as indorser

because of his warranty. In the case particularly o

because of his warranty. In the case particularly o

of P.I., its right of recourse may be based likewise on

of P.I., its right of recourse may be based likewise on thethe

agency rule that puts the risk of loss on the principal

agency rule that puts the risk of loss on the principal

f

f

Bank

Bank

FORGERYFORGERY

(Bank(Bank ofof P.I.)P.I.)

Q: Mario Guzman issued to Honesto Santos a check for

Q: Mario Guzman issued to Honesto Santos a check for

P50, 000 as payment for a second-hand car. Without the

P50, 000 as payment for a second-hand car. Without the

Q:Q: AdamAdam makesmakes aa notenote payablepayable toto BertBert oror order.order. BertBert indorsesindorses thethe notenote toto Cora.Cora. DouglasDouglas stealssteals thethe notenote andand

indorsesindorses itit toto ElvinElvin byby forgingforging Cora’sCora’s signature.signature. ElElvinvin

thenthen indorsesindorses thethe notenote toto FelixFelix whowho isis notnot awareaware ofof thethe forgery.forgery. WhatWhat isis thethe rightright ofof FelixFelix againstagainst Adam,Adam, BeBert,rt, Cora,Cora, DouglasDouglas andand Elvin?Elvin? (1989(1989 Bar)Bar)

knowledge of Mario, Honesto changed the amount to

knowledge of Mario, Honesto changed the amount to

P150, 000 which alteration could not be detected by the

P150, 000 which alteration could not be detected by the

naked eye. Honesto deposited the altered check with

naked eye. Honesto deposited the altered check with

ShureShure BankBank whichwhich forwardedforwarded thethe samesame toto ProgressiveProgressive BankBank forfor payment.payment. ProgressiveProgressive BankBank withoutwithout noticingnoticing

A:

A:

OnOn thethe assumptionassumption thatthat BertBert mademade aa blankblank endorsement,endorsement,

therebythereby renderingrendering thethe instrumentinstrument payablepayable toto bearerbearer inin thethe

handshands ofof Cora,Cora, thethe latter’slatter’s signaturesignature wouldwould bebe unneunnecessarycessary

soso asas toto preservepreserve thethe juridicaljuridical relationrelation betweenbetween papartiesrties priorprior toto thethe forgeryforgery andand partiesparties afterafter thethe forgery.forgery. OnOn ththee furtherfurther

assumptionassumption thatthat FelixFelix hadhad acquiredacquired thethe instrumentinstrument foforr value,value, thusthus makingmaking himhim holderholder inin duedue course,course, hehe maymay accordinglyaccordingly holdhold Adam,Adam, BertBert andand DouglasDouglas liable.liable. TheThe liabilityliability ofof Adam,Adam, asas maker,maker, andand Douglas,Douglas, asas forgerforger,, isis primaryprimary andand thatthat ofof Bert,Bert, asas blankblank indorser,indorser, secondsecondary.ary. If,If, however,however, FelixFelix diddid notnot acquireacquire itit forfor valuevalue andand isis nnotot thusthus aa holderholder inin duedue course,course, hehe thenthen acquiresacquires nono rightright gregreaterater thanthan thatthat ofof thethe immediateimmediate transferortransferor andand Adam,Adam, BertBert andand CoraCora wouldwould bebe withoutwithout anyany liabilityliability inin favorfavor ofof Felix.Felix.

the alteration paid the check, debiting P150, 000 from

the alteration paid the check, debiting P150, 000 from

the account of Mario. Honesto withdrew the amount of

the account of Mario. Honesto withdrew the amount of

P150, 000 from Shure Bank and disappeared.

P150, 000 from Shure Bank and disappeared.

receiving his bank statement, Mario discovered the

receiving his bank statement, Mario discovered the

alterationalteration andand demandeddemanded restitutionrestitution fromfrom ProgressiveProgressive

Bank.Bank.

Discuss fully the rights and liabilities of the parties

Discuss fully the rights and liabilities of the parties

concerned.concerned. (1995(1995 Bar)Bar)

AA: The demand of Mario for restitution of the amount of

: The demand of Mario for restitution of the amount of

P150, 000 to his account is tenable. Progressive Bank has no

P150, 000 to his account is tenable. Progressive Bank has no

count since the

rightright toto deductdeduct saidsaid amountamount fromfrom Mario’sMario’s acaccount

order of Mario is different. Moreover, Progressive Bank is

order of Mario is different. Moreover, Progressive Bank is

liableliable forfor thethe negligencenegligence ofof itsits employeesemployees inin nono t noticing the

t noticing the

After

After

since the

OnOn thethe assumptionassumption thatthat BertBert mademade aa specialspecial indorsemindorsement,ent, thethe signaturesignature ofof CoraCora wouldwould bebe essentialessential toto passpass tititletle toto thethe instrument.instrument. HerHer signature,signature, forgedforged byby DouglasDouglas wouldwould bebe inoperative,inoperative, andand Elvin,Elvin, whetherwhether aa holderholder inin duedue courcoursese whichwhich isis forgedforged isis requiredrequired toto passpass title,title, allall partpartiesies priorprior toto thethe forgeryforgery maymay raiseraise thethe realreal defensedefense ofof forgeryforgery aagainstgainst allall partiesparties subsequentsubsequent thereto.thereto.

alterationalteration which,which, thoughthough itit cannotcannot bebe detecteddetected byby tthehe nakednaked

eye, could be detected by a magnifying instrument used by

eye, could be detected by a magnifying instrument used by

tellers.tellers.

As between Progressive Bank and Shure Bank, it

As between Progressive Bank and Shure Bank, it

former that should bear the loss. Progressive Bank failed to

former that should bear the loss. Progressive Bank failed to

notify Shure Bank that there was something wrong with the

notify Shure Bank that there was something wrong with the

checkcheck withinwithin thethe clearingclearing hourhour rulerule ofof 2424 hours.hours.

is the

is the

Q:Q: BB forgedforged A’sA’s signaturesignature asas drawerdrawer ofof thethe checkcheck drdrawnawn

onon Citibank.Citibank. TheThe checkcheck waswas purportedlypurportedly payablepayable toto tthehe orderorder ofof B.B. BB thenthen indorsedindorsed thethe checkcheck toto C,C, aa holderholder inin duedue course,course, whowho depositeddeposited thethe samesame toto hishis accountaccount wwithith BankBank ofof P.I.P.I. TheThe checkcheck waswas passedpassed throughthrough thethe normalnormal coursecourse ofof clearingclearing andand accordinglyaccordingly thethe drawee,drawee, Citibank,Citibank, creditedcredited thethe collectingcollecting bank,bank, BankBank ofof P.I.,P.I., wwithith thethe amountamount ofof thethe checkcheck whichwhich CitibankCitibank inin turnturn debiteddebited

Q:Q:

TrueTrue

oror

depositor’s

depositor’s

False:False:

AA

signature”

signature”

babank

is

is

nk

is

is

an

an

bound

bound

to

to

inflexible

inflexible

know

know

rule

rule

determiningdetermining thethe liabilityliability ofof aa bankbank inin forgeryforgery cases.cases. (2009(2009 Bar)Bar)

AA:: False.False. InIn casescases ofof forgery,forgery, thethe forgerforger mmayay notnot necessarilynecessarily bebe aa depositordepositor ofof thethe bank,bank, especiallyespecially inin thethe casecase ofof aa draweedrawee

its

its

in

in

fromfrom A’sA’s depositdeposit account.account. UponUpon receivingreceiving hishis monthlymonthly

statementstatement fromfrom Citibank,Citibank, togethertogether withwith thethe cancelledcancelled checkschecks debiteddebited fromfrom hishis depositdeposit account,account, AA discoverediscoveredd

bank. Yet in many cases of forgery, it is the drawee that is

bank. Yet in many cases of forgery, it is the drawee that is

heldheld liableliable forfor thethe loss.loss.

1313

 

MercantileMercantile LawLaw

Alex

Alex

issued

issued

a

a

negotiable

negotiable

promissory

promissory

note

note

(PN)

(PN)

a.a.

againstagainst MarioMario andand Jose?Jose? b.b. MayMay CamiloCamilo gogo againstagainst Pablo?Pablo? c.c. MayMay CamiloCamilo enforceenforce saidsaid notenote againstagainst JJulian?ulian? d.d. AgainstAgainst wwhomhom cancan JulianJulian hahaveve thethe rightright ofof recourse?recourse? e.e. MayMay PabloPablo recoverrecover fromfrom eithereither MarioMario oror Jose?Jose?

May

May

Camilo

Camilo

enforce

enforce

the

the

said

said

promissory

promissory

note

note

ExplainExplain youryour answers.answers. (1990(1990 Bar)Bar)

AA::

a.a. CamiloCamilo maymay notnot enforceenforce saidsaid promissorypromissory notenote againstagainst

Mario and Jose. The promissory note at the time of

Mario and Jose. The promissory note at the time of

WhatWhat areare thethe rightsrights ofof Felix,Felix, ifif any,any, againstagainst Alex.Alex. Bento,Bento, CelsoCelso andand Edgar?Edgar? Explain.Explain.

DoesDoes CelsoCelso havehave naynay rightright againstagainst Alex,Alex, BenitoBenito andand Felix?Felix? Explain.Explain. (1995(1995 Bar)Bar)

forgery being payable to order, the signature of

forgery being payable to order, the signature of

was

was

essential

essential

for

for

the

the

instrument

instrument

to

to

pass

pass

subsequent parties. A forged signature is inoperative.

subsequent parties. A forged signature is inoperative.

Accordingly,

Accordingly,

the

the

parties

parties

after

after

the

the

forgery

forgery

are

are

juridically related to parties after the forgery to

juridically related to parties after the forgery to

suchsuch enforcement.enforcement.

Pablo

Pablo

title

title

to

to