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17 July 2010
AS A MATTER OF REVIEW y What makes a negotiable instrument? SUDOC Sign and write Unconditional promise or order to pay Demand or fixed/determinable future time Order or bearer C y THE HOW. Phases in the life cycle of a (butterfly) negotiable instrument o Make or draw the instrument o Issuance - birth o Negotiate negotiation  Indorse and deliver  Deliver only o Holding patterns until you learn your lesson - Pwedeng magpaulit-ulit sha sha negotiation phase, his essence for being. The value of the instrument is to be constantly circulated. Law created for it to reach this point in his life to facilitate commerce. This is the peak of his career o Presentment o Discharged by:  Payment or  Dishonor o Ibabalik kay maker/drawer yung instrument y THE WHO. Sino yung bida at certain phases o Holders v Assignee o Assignee pertains to the CC. At certain point in the codals, it also talks about assignees. Assignees also operate in the universe of the negotiable instruments. There are transfers that do not amount to negotiation. But keep in mind that we only talk about negotiable instruments here. When you start talking about assignees, you revert to the world of ordinary contracts and the NIL rules do not apply. When you see validity that s a tip that you think in terms of Oblicon. o Sec. 51: rights of the holder. May subset si CC at Nego in the persona of assignee. o Sec. 52: whole different animal altogether that exists only in this world. No other universe you can find this. He is the king or queen in this universe, he rules. y How do we identify this creature who rules this universe. What are the tell-tale signs? COGI (Domingo) Complete AND regular on its face if lacking, may not be HIDC but may be mere Holder Overdue AND without notice of dishonor Good faith AND for value Infirmity in instrument OR defect of title of negotiation; no notice of y Not necessarily valueless, some other contracts siguro. y Isa-isahin natin yan. ELEMENT1: COMPLETE AND REGULAR ON ITS FACE When is an instrument COMPLETE? y Walang sinabi sa code. But you look at Section 14 re: blanks in the document. y It is complete when instrument has all the material particulars. y But what are material particulars ? o Code has some rules on wrong date, absent date, what if you add the obligation that was initially covered by the issuance these are not material particulars. They do not make the instrument defective. o What happens y IF lacking in material particulars, the HOLDER (holder pa lang) has prima facie authority to fill it up whoever holds that instrument is presumed to have validly obtained the instrument. He enjoys presumption that he obtained the instrument in gf and all these things, including holding blank paper with someone else s signature. a. Strictly in accordance with authority AND (pag pinapirma ka ng classmate niyo sa ¼ sheet ) b. When reasonable time (no rule or jurisprudence on what constitutes RT, case by case basis yan.) When is an instrument REGULAR? y Kaya gusto ko na icover yung next part ng outline. Irregular instruemtns are not automatically non-nego. Holders of irregular are not necessarily not HIDC. y Categories of irregularity (A) Incomplete BUT delivered (Sec. 14)

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HIDC enjoys conclusive presumption that instrument was filled up (a) strictly in accordance and (b) reasonable time  Later you will learn that some defenses do not apply to HIDC (B) Incomplete AND undelivered (Sec. 15)  Why do we even talk about it? Most likely nasa drawer mo lang yan. For some reason, it entered the world of NEGO contracts  E.g. Pay to cash! Woohoo! Duty of the bank is ot have it cleared sa clearing house. Yung drawee bank, negligent kung yun ang specimen signature, kinclear mo naman. Madaming pondo tong taong to. Liable ang bank for this negligence as you will see in the cases.  Completed and delivered with authority umikot na thru derma. Kinomplete niya kasi (Sec. 14 na ito)  Completed and delivered without authority 1. Parties who signed prior to the delivery (e.g. me has check with amount and date but without signature -> classmate who picked it up hindi agad pinresent sa bangko -> pinambayad muna sa derma niya -> tas si derma binigay kay supplier -> bank -> monthly statement VALID DEFENSE even against HIDC y Ang tanong at every stage, sino ang HIDC sa kanila? Yes HIDC silang lahat. y But as regards me and bank? Sino ba ung any person whose signature placed thereon before delivery this slice of time before delivery, ito lang naman yun. Delivery without authority nga lang. Point in time matters where the signature was placed. y E.g. Ibahin natin para the incompleteness is on the amount. May date and signature. Ganun pa rin yung scenario, nahulog sa notebook, nakuha ni classmate, derma then derma supplier then bank. As far as ME is concerned, sec 15 is not applicable. y Pag fraud, iba na yung usapan. You ll see in Gempesaw where the court penalized the drawer kasi iniwan lang sa drawer (C) Complete BUT undelivered (Sec. 16)  Revocable  All holder (except)  Rebuttable yung presumption UNLESS that person is HIDC. For a HIDC, valid delivery is conclusively presumed.  Panno nangyari yan, babalikan natin si me: complete but undelivered (check with amount, pay to cash, with date signed) nilagay sa drawed, naipit sa notebook, nakuha ni classmate, derma to supplier to bank: COMPLETE PERO UNDELIVERED. All holders, except HIDC, enjoy the presumption that they obtained it. Bank, supplier and derma is HIDC (nadaanan yung compelte and regular). Classmate is not, pagdating sa kanya, rebuttable na lang. Napresent na ni Me na walang valid delivery, kailangan niya na iprove yung COGI (check complete but undelivered somehow passed on to the hands of You) Me You Derma Supplier Bank : YOU, not HIDC, rebuttable presumption of delivery thus if delivery was proved not to have been made, YOU must show that he is a HIDC; DERMA, SUPPLIER, BANK: HIDC thus enjoys conclusive presumption of delivery. ELEMENT2: OBTAINED BEFORE OVERDUE and NO NOTICE OF DISHONOR When is an instrument OVERDUE? y AFTER maturity. Kung walang date, payable on demand therefore, always obtained before maturity y E.g. ME (signed, payed to UP or order, with amount, Nov 5, 2010) -> Classmate orayt may tuition na ako. Out of the country then! ->Mahirap lumand sa NAIA so nakabalik shang Nov. 7, 2010 -> UP -> Derma -> Supplier. y Who is HIDC? Classmate is not (no gf and no value). After that UP etc, no because overdue Without notice of dishonor y NOTICE Pwedeng nadishonor pero hindi niya lang alam. y Pwede bang nadishonor na, tapos inenegotiate pa? Iistampan nila yun ng DISHONORED pero kung may connivance with the clerk na wag mo na tatakan ayun umikot ulit sa commercial universe. ELEMENT3: OBTAINED BEFORE OVERDUE and NO NOTICE OF DISHONOR When are you in GOOD FAITH? y Is it necessary that you know all of the facts/circumstances behind the obligation supporting the initial issuance? Are you required to inquire or get a certification from all previous holders that they were in GF so that you are in GF. y When are you in GF? Important ito kasi dito usually bumabagsak ang mga cases? y Is actual knowledge required? NO. Ginawa ko na ngang absurb yung example. That s the beauty of negotiable, hindi mo nahahalukayin yung history. You will just rely on the face of the instrument. It sort of similar to LT because what found in the register is what you are entitled to notice. y Not required to exert extra effort to look into history of the transactions. y But if you obtained instrument contrary to law OR public policy , not in GF. When will you fail this test? E.g. bribery (chieeef. Wala talaga rd akong cash. May checke akong napulot sa classmate ko. Wala pa sa daang matuwid yung pulis. Naglawschool hanggang 3 year yung MMDA.) y Sino ba dapat may good faith? Si indorsee y No actual knowledge of the historical transaction is required. What constitutes VALUE?

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y y

y y y y

Under Sec. 25: any consideration sufficient to support a simple contract In the quiz kanina: P2,000 vs. P10,000, there s a significant gap between value and the face of the check. No requisite in law to be approximate, any consideration is deemed sufficient. What if 5 centavos lang yung binigay, is that still for value? Yes. Kasi nga walang threshold. PERO baka may fraud, duress or intimidation. But what is the limitation? Value alone will not infect the instrument/negotiation but it s a clue for you to look into the element of good faith. May value kung value rin lang. That s why if you look at the element here, AND which is conjunctive and not OR There s no question on the value, just in terms of good faith. In particular to ACCOMMODATION PARTY, not required ang value. I understand, hindi ka naman dapat may value. Going back to the quiz: 2 things you look into kapag accommodation party: o No value o Lends his name

(STEVEN) Astro Electronics v Phil Export Roxas signed twice as president (maker) and personal capacity (accommodation party for the company; personal guaranty for the obligations of the company). Roxas defense in the claim: Lesson for today: Maging matipid sa pirma. Prudencio v CA y Ito lang yung example natin na hindi liable yung accommodation party. What did PNB do para hindi liable si Prudencio? PNB was not a holder for value because it extended the term of payment without Prudencio s consent. Kung gusto niyo ng litigation, take note of the good theory of the defense. Inattack nila yung main obligation, Sec. 29 Pano natin magagawang hindi holder for value is PNB. Yung good faith element niya kasi wala. Sinimulan nila sa good faith, papunta yan sa value. y What is the extent of the liability of the accommodation party? Walang sinabi sa batas, pero ang laki ng responsibility niya. So by analysis, Court considered it a solidary co-debtor. Tiningnan niya yung limitations ng surety. When is a surety released from obligation. Tas pumasok sha sa ginawa ni PNB. y Value is no longer limited to good faith, kasi nga binago na yung mode of payment. Inextend mo yung liability niya with his knowledge. y Liability of an accommodation party such that y Made to believe, no other conditions will alter Travel-on Ibang accommodation ito. This was an accommodation check. Compare Atrium and Crisologo-Jose (JAM) Can corporations act as an accommodation party? YES, if [1] the corporation is authorized in its charter/corporate document to act as one OR there s no prohibition, [2] it passes the appropriate board resolution, [3] the signatory is the corporate officer authorized. Atrium Atrium is not HIDC because on its face it s not negotiable How can corporation become an accommodation party? Hi-Cement says we didn t get value, issued only as financial assistance. It wasn t for anything. Can the corporation validly do that? Crisologo-Jose What do we make of Sec. 29 does not apply ? Sino nagcorp na, sha na lang kakausapin ko. Trust fund doctrine: held in trust to answer for liabilities of the corporation, e.g. cannot declare dividends if there is not unrestricted earning. For the corporation only and not for another entity. Not expose itself, unless it s in the business of doing so e.g. insurance company, cover contingent liabilities of others OR there is approval of 2/3 majority of the shareholders or accommodate liability of subsidiary or third-party. If it acts beyond its authroity, primary or secondary purpose, that act is an ultra vires act. Yun yung sinasabi ni court. ANo ba business ni Mover? Trucking or dancers Bakit naman niya igaguarantee, nandun ba sa charter niya. Yes as a rule IF [1] it has authority from its board/shareholders as the case may be [2] not prohibited OR authorized by its charter [3] signatory is authorized officer specifically authorized to do so kailangan specific yung authority niya. Mejo tricky ito. If you take the cases independently, conflicting sha. ELEMENT4: NO NOTICE OF INFIRMITY in the instrument or DEFECT in the title of negotiator y May pinag-iba ba yun or madaldal lang yung batas? y OR na ito ha

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y y y

Sec. 56: Infirmity instrument e.g. cross check, Sec. 55: Defect person e.g. 5 centavos for the 10k check alam mo na kaya lang inendorse kasi nilasing lang, vitiated consent. What kind of notice is required? ACTUAL KNOWLEDGE

EFFECT OF BEING HIDC y Free from all defenses and can enforce payment Sec. 57 y OTHERWISE: subject sa defenses prior parties Sec. 58 y ONLY EXEMPTION: not HIDC but your transferor is HIDC so you are as if HIDC. Nagsesemantics yung law, assignee ka lang. step into the shoes. That s your AS IF title but in reality, CC na nag-aaply sayo, not NIL. It just so happens that your transferor can enforce blah blah, minana mo na lang talaga. You do have it, you smell like it but you are not it. For purposes of payment, it s good enough. NEXT WEEK: VOLUNTEER.

24 July 2010
Even superpowers and superheroes have weaknesses. Today, we will learn about Superman s red (no mam, greeeen!!!) kryptonite. Next week we will learn about that which nagpapalakas kay Superman. Not Lois Lane but the sun or red kryptonite. The real and personal defenses. Defenses are only available in certain situations. A HIDC is weak as against these defenses, hindi sha pwedeng magtago in the force field of I am a holder in due course. (RORY) What is the difference between real and personal defenses? Why do we even categorize? REAL DEFENSES Instrument Can be invoked even as against HIDC Example: Forgery (you should memorize this) What are the rights of the holder? 1. Enforce payment 2. Sue (if not paid immediately) Which of the two sets of defense compose the defenses of a HIDC? A HIDC cannot claim if the other party has a real defense. Only a signature that can be forged not the instrument itself. How do you know when a signature is forged? Compare it with the specimen. How can signature without authority happen? How can you sign something without your authorization? E.g. Signing through your agent, ask him to sign on your behalf Sino ng sinasabihan ng batas na: no right to retain ? Holder no right to discharge ? Drawee. Bakit? What happens after discharge? End of the life of the instrument. no right to enforce payment ? Holder or the payee Kung ganon, what else is the instrument for? Does that mean that instrument effectively becomes inoperative? Because of these effects, consequently, aren t we saying that the instrument is ineffective in itself? What remains in the life of the instrument? If it is negotiated validly. E.g. Rory issued checked Dianne fell into the hands of Krissy and she forged Dianne s signature and then indorsed it to Angel who encashed it to the Drawee Bank for payment. o Can the drawee bank pay Angel? Yes mam. o Sino yung no right to retain and enforce payment? Angel. Sino yung no right to discharge? Drawee bank o PERO they come within the last clause of the provision. Exception. o Krissy can never claim. She is the cut-off. o Dianne? Cut-off rule o Angel can claim from Krissy kasi immediate parties sha. CUT OFF RULE: the transaction is effectively interrupted upon the happening of the forgery. Parties affixing their sig prior to the forgery cannot be liable to parties who get hold of that instrument after the forgery. Drawee bank does not have authority to discharge the instrument kasi not flowing from instructions of Rory. Naputol kay Krissy yung valid instruction ni Rory. Walang bisa as far as Rory and Dianne. NOW TO THE REPORTS PERSONAL DEFENSES Title of holder Immediate parties and the original/holder

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DBP v Sima Wei (Tima) Cross check tas ipapaendorse. Look at your classmates, 10-20 years from now, you ll be surprised where they ll land. In your analysis what is the defense? Personal defense that the check was complete but not delivered Eliminate the big question mark. Demonsrate that DBP ws holder was valid negotiation holding the instrument. Diana asks: did Westmont overturn the ruling here as to the privity ? Mam: not overturn. Precisely, court said that it was more on grounds of efficiency rather than legal principles. We re taking this desirable shortcut , you ll end up paying anyway. Only the infant and corporation can avail but it s a personal defense as to them. To demonstrate that view on complete but delivered, incomplete but undelivered. Gempesaw (Lucas) What was the defense here? It wasn t forgery, real pirma niya yun. Pwede siguro masustain kung mrong attendant circumstance wherein the negligence. In certain sitch, the world of nego instruments law is still subsumed under laws of civil code. I know, I know real defense yan, BUT kasalanan mo naman kung bakit nagkaforgery. Alam kong crosscheck yan, di dapat naendorse. How else would you have pursued the case of your client? Sino ba pa bang pwede niyang idemanda? Sino ba yang sina Romero and Lam? Bank and its officers, hidni sinunod ang bank and protocol. Sue galang and the bank. And Galang for estafa and qualified theft. PAGE 690 effect of first indorsement. First paragraph. ihighlight niyo ang ruling n a ito. You can cite this sa bar para may bala kayo. Republic Bank v Ebrada (Frances) Pano nalaman yung forgery? Nagpunta kasi yung heir sa Bureau of Treasury. May nafire na employee sa Republic Bank. Dapat imaginin niyo yung mga kaso ng mga kliyente niyo. :P Si Ebrada kasi yung last endorser. Be clear with the principles, i.e. what was pronounced in Gempesaw. There s a cut-off rule, all parties subsequent to the forgery cannot claim to the prior but they can claim against each other. Bank should not have negligence. Ebrada: Bank paid last endorse make good on warranty, previous endorser. In which case, personal-personal na sila. Infected. Sorry cut-off, heaven-hell.

31 July 2010
BPI v CA Even if the word negligence does not appear in the law, it has been interpreted to include and contemplate negligence that precludes one party from raising it. E.g. when we discuss checks, court keeps on talking about comparative negligence. Memorize the negligent acts of Highlight: value of case is the discussion on unless otherwise precluded to include negligence as something that prohibits or precludes party from raising defense of forgery. If you look at the dispositive, when you talk about the negotiable instrument, you don t look at negligence. BUT as the court has explained in this case, somehow equity also plays portion in the resolution. So the ending is 60-40. Court recognized can be deemed at fault or negligent. Was there forgery? There was forgery in the pre-termination agreement, pretended to be the person receiving, winidraw yung amount, it was a diabolical scheme. Nasan na si Susan Lopez? Oh diba hindi sha kasali sa estafa case? She was able to get away with an evil laughter. Daming lapses. So when you work in the bank teller lang naman ako. Machecheck naman ng manager ko. You will all be fired and liable to pay EGF. Associated Bank v CA Patrick slides the board. Case of the negligent hospital. P203,000 for 30 checks in 3 years. Forged check. Drawee bank cannot debit the drawer. Forged indorsement. Forged check Drawer v Drawee bank (forged upon issuance) From the beginning, the Lord did not create that signature. Forged indorsement Drawee bank v Other indorsers (basis: warranties) formulate your case here May inissue talagang document, but somewhere along the way, you lost your way and fell into sin.

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Compare with the BPI case: it was a negligence among banks In this case, not only among banks Associated: negligence among banks, and other parties (e.g. drawer Province of Tarlac) Exception: Negligence Tarlac was negligent, it allowed Pangilinan. Maraming relevant rulings. Very meaty ang case. Summary. 1. Court made a distinction between a bearer and order instrument. In bearer, signature is not necessary. Order: essential to transfer title. What is the effect? The drawee bank cannot refuse to pay, it s the delivery that brought about the negotiation 2. Forged check and forged indorsement. 3. Confusion WON collecting bank is in fact an indorser. In order to indorse it for clearing in the clearing house. It s not to further transact but to reimburse. BUT in this case, the court clarified, the bank that indorses the check for presentment to the indorsee bank is also an indorser. As you will learn later, indorser upon presentment issues certain warranties. The only thing that defeats this forgery are warranties. Holder in due course: most powerful green kryptonites is forgery but it is also defeated by red kryptonite i.e. warranties Mam read Par2 in 631. 4. Drawee bank is not similarly situated as the collecting bank. Hindi sila equal. Because drawee bank makes no warranty as to the genuineness of any indorsement. The drawee bank s duty is to verify the genuineness of the drawee s signature, but he has duty of promptly informing presentor upon discovery. If there is delay, negligence comes in. Result is 50-50 Tarlac and Associated Bank. Is there any rhyme or reason for the proportion? 60-40 and 50-50? I don t know how that will guide us in the future. E.g. negligent ho talaga kayo, pero tingnan natin baka mas negligent din naman yung kabila. PNB v CA Court gave several examples of material alteration. Isa isahin natin yung examples. 1. Change order to bearer does away with indorsement 2. What will happen if you put Marion there? Anything that changes the identity of the payee. Francisco v CA Court gave several examples of material alteration. Jessa Cedeno for Best Actress in the role Atty. Charo.

FOR THE NEXT SEGMENT OF OUR SITCOM, I have asked five of your classmates to do some role-playing. They will step up to the stage. Primarily liable
Maker [promissory note] Acceptor

Secondarily liable
Drawer [bill of exchange] Indorser - General - Qualified

Maker (Nathan) A. Primarily liable B. Warranties: 1. Payment according to the tenor 2. Existence of payee 3. Capacity to negotiate C. Unconditional Drawer (Jances) A. Secondarily liable B. Warranties: 1. Payment according to the tenor 2. Existence of payee 3. Capacity to negotiate

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C. D.

Conditional: Upon due presentment and procedure taken pay the instrument and to tenor Can limit his liability (due recourse)

General Indorser (Candice) A. Secondarily liable B. Warranties: 1. Payment according to the tenor 2. Existence of payee C. Capacity to negotiate D. Genuineness of the instrument E. In all respects, what it purports to be F. Has good title to the instrument bakit sha lang ang nagsaabi ng good title? Kasi nga sila drawer at maker eh mga originators. You re the one who issued the instrument, no need to extend that warranty. But in this case, since Candice is not the creator, she must warrant her good title G. All prior parties had capacity to contract. Substantially different set ang mga warranties ni indorser from the originators of the instrument. Basis of most of the liabilities that we will see in the cases. In the case of PNB v Tarlac, Associated Bank was the general indorser. At indorsement, valid and subsisting Drawee (Melvin) A. Why is it important to identify the drawee bank from the acceptor? Acceptor (JB) A. Primarily liable B. Warranties 1. Existence of drawer 2. Genuineness of drawer s signature 3. Drawers capacity and authenticity of the drawer C. Two kinds of acceptor 1. General 2. Qualified It is infirmity kapag conditional ang acceptance/coupled with a conditional? Notification Why is it important to notify the condition? Pertains to the liabilities of the drawer If there is condition imposed When will acceptance happen? Upon presentment When you talk about acceptance, you already talk about the discharge. Qualified Indorser (Candice) A. Secondarily liable pa rin but with qualifications B. Warranties (in addition to general indorser s warranties) 1. No knowledge of any fact C. Difference from general? D. How do you make a qualified indorsement (e.g. without recourse, say I m a qualified indorser , I m a general indorser without recourse construe against general liability) What if you said I m just an accommodation party therefor I only signed as a qualified indorser. Accommodation is not one of the means by which you qualify your indorsement. Irregular Indorser (Candice) 3 personalities!!! y Sapiera v CA: no indication kung anong klase shang indorser. No indication what capacity. You simply signed at the back. y Equitable Bank v Ong: checks were converted to manager s check. Take note of this one, what is the distinction? Drawn upon the bank, set aside funds to satisfy the check o PCI bank who was the drawee, wala pang liability but upon acceptance pinadaan niya sa clearing process so naging acceptor si drawee bank. Liable to Ong. As good as the money it represents. y Wee Siong Ben: Instructions to issue cross check. You have to memorize the warranties of the parties and important distinction. Who is primarily and secondarily laible. Para alam niyo kapag nagproblem na tayo. On the fourteenth, our quiz will involve transfers. Kalokohan sa istorya, baka pumasok. Collecting bank is only an indorser. But since may negligence sha, naattributan sha ng negligence. Shared warranties. Sila yung nagcreate.

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Shared warranties General indorser maraming winawarrant. Acceptor marami talaga. Kasi ito yung kailangan niyang tapatan. Immediate obligation to pay. Plus acceptors are unique warranties with respect to the drawer. Bakit unique (yung iba kasi shared shared) to the drawee-acceptor. (existence of the drawer, genuineness of the drawers sgianture, drawers capacity of authenticity of drawer)? Drawee/acceptor has relationship with the drawer, it s the only entity who can vouch for the drawer s capacity. Usually if it s a check, what is the relationship between depositor and bank? Loan lender borrower relationship, so unique sa kanila yun. This set of warranties is unique to the acceptor.

14 August 2010
Why is that qualifier relevant, instrument governed by special laws or rules on bank. Specially governed. Distinguish check from other bills of exchange Crossing a check payable to cash: Leo does it all the time. What are the effects of crossing a check: three effects Handy manual for understanding checks. Section on clearing Thrift banks not allowed to offer checking accounts only saving. Commercial lang allowed. So to go around that they were allowed to issue Negotiable Order of Withdrawal. It was explained that by issuing a check, do you already guarantee payment? Does that constitute payment? Not yet. Negotiable instrument is not a legal tender. Just a substitute for money. Only legal tender constitutes payment. When you issue a check, you haven t paid yet your lender. It s not an assignment of funds. The check does not constitue an assignment of fund against which it is withdrawn. Yung NOW is an assignment of funds. Kasi nga winithdraw mo na sha. Pp v Reyes y The court was asked is the NOW negotiable? Yes. It is negotiable like cross checks. But cross check is negotiated only once but in that sense, produces same effect as cross check. Ang labo niya diba? So pano niyo irereconcile. It s too confusing a rule, if you encounter in the bar. How do you answer it? How do you characterize that instrument, just cite Pp v Reyes to be safe and describe it as having the effect of cross check and remember the effect. Don t go beyond and explain the rationale of a negotiable instrument, don t argue with the court saying it was wrong because Mam Dimalanta said so. Wag niyo ko babanggitin! What now is the obligation of bank against which the cross check is issued? Deemed to have been issued or undertaken the warranties. Warranties of an acceptor? How is acceptance made? How do you know that it s been accepted? There are two kinds of acceptance: only relevant for checks is acceptance for: Presentment for acceptance Presentment for payment Acceptance for payment. Pano malalaman ni Zarith that the check has been accepted? May itatatak sha. What does the stamp say? May specific language ang clearing house rules whch is how you know it will be acceptance. Cleared through the PCCH. ALL PRIOR INDORRSEMENTS AND LACK OF INDORSEMENTS GUARANTEED. Why is this important? Collecting bank is the last indorser and also a general indorser (therefore all the warranties attach esp genuiness of prior indorrsements the box stops with him). The bank warrants that all prior indorserments are genuine and in trun could hold liable except if drawee bank fails to inform the collecting bank. Drawee bank has to comply with obligation to notify in 24 hours. Why is it the obligation of the drawee bank, he keeps the account. He should be the one who recongnizes the signature. Uy forged yung depositor ko jan, don t encash. Do you see how they work now in realtion to checks? While NIL is quite dated, in respect of checks, rules are still relevant. Pag checks may specific rules yung clearing house and Bangko Sentral. Sec. 186: what s a reasonable period? Case to case basis supposedly but 6 months sha under the clearing house. Specific regulation on what is not rerally provided for in NIL What is certification? Equivalent to acceptance. It does not really pay out when it certifies. You don t need to pay me but certify this check. Nagpalit yung relationship, no longer with Zarith and Leo but becomes between bank and Zarith because bank by certifying the check, accepted that check. Oh sige, ako na may obligation magbayad sayo. That s the eefect of certification. Very rare that the bank does this. What normally happens, if you don t get the cash and tell bank I want you to issue me a certified check, they will give you manager s check or cashier s check (kung company). What is a manager s check. As if the drawee and drawer are one, only in NIL. Drawee transforms into acceptor. That s what manager s check is about. Beauty: mas malalim bulsa ni bank kaysa depositor. So you would want a manager s check.

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PCIB v CA May mga checks which were payable to CIR. Syndicate that perpetuated this scheme. Today, this is highly unlikely to happen because BIR no longer accept perosnla check and company check. Manager s check. Very unlikely to happen today. Relevance of the case (also Republic Bank v CA): What was the number inserted in the two cases? 9 Relevant ruling of PCIB and Republic Bank: 1. Last endorser bears the lost but the unqualified endorser shall be read together with clearing house rules. 2. Every bank that issues check for the use of the customers should know WON the check is genuine. Ito mabigat. Ang winawarrant ni endorser: Three obligations of the drawee bank. a. genuiness of the signature. But in this case, ang dagdag ang court ng b. sufficient funds c. detect alterations, erasures, intercalations (add something) thereon possess appropriate detecting devises All of a sudden, nagkaron ng obligation ang drawee. Mabigat ang hinihingi ng court. It s not an excuse anymore na hindi obvious. Meron ka bang devise to uncover for altercatlations? Welll only my teller s eyes. What defines appropriate? Case to case basis. What was appropriate in 1991 could no longer be appropriate today. Allow for that flexibility. You won t find these obligations in the code. PCIB v CA --- In re: detecting forgeries and alterations. Go back on the principle of negligence who is more negligence. Acceptor Citibank is also found to be negligent. Dahil hindi pumasok sa 24 hour period, negligent. Allied Bank Go to arbitration. It had appropriate detecting devices yet there was still fraud. In those cases, even if lumampas ng 24, pwedeng makarecover is drawee bank but settle first with arbitration under clearing house rules. That s their first venue. SIHI v IAC and Bataan Cigar v CA and Bataan Cigar v CA very impt case for cross checks and liabilities that arise from cross checks. 3 effects of crossing a check. please memorize as articulated by court in SIHI Was SIHI deemed HIDC because it was a second indorser of cross check? Can you be HIDC if you were holder of crossed check which has already been indorsed? NO. But can you recover? YES. You are still a holder although not in HIDC. What is you weakness if not HIDC? Defenses, no enjoyment of presumptions. May kailangan na patunayan. What are the rights of a holder again? To be paid and to sue It s not the end of the world for you if you accept a crossed check. Do not jump over the cliff. May rights ka pa rin but you don t enjoy the presumption and subject to defenses. How can you institute your case now? Leo Adrian Zarith crossed check nga pala ito! Adrian bayaran mo ako! Hindi na ako HIDC, pano ba ayn? Pay me now or return to me what I paid you for this check. Ayaw ni Adrian. Prove your case in court! Classmate help me file a case against Adrian. Holder I can sue. How do you now formulate your evidence in that case? How counsel? You earn your keep. State only ultimate facts in the complaint. Check is also an evidence of indebtedness. You don t do things clearly. Ikaw na maglalabel nyan para sa client mo who just go around the world not realizing that what they re doing is a transaction. Kunin mo lahat ng resibo at memorandum. SUMMARY OF RULES IN THE OTHER CASES 1. Duty of draweee bank Republic Bank v CA Acceptor PCIB, Allied Banking Collecting bank PCIB, Allied Banking 2. Rules on Crossed check SIHI, Bataan Cigar 3. Rules on Cashier s check BPI v Roxas 4. Payment by check GENERAL RULE: APL, Papa; EXCEPTION: BPI v CA Not payment until encashment Types of checks 1. Crossed check 2. Cashier s check 3. Manager s check 4. Certified check 5. Stale check PAL has strong dissent. CJ Narvasa and Feliciano. But the rule is still the rule, until today. What was the exception as pronounced in that case? Take not of the distinction among the cases.

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Stale check defined in IBank v Spouses Gueco What is the rationale? Why required paid immediately? The drawer is the one maintaining the funds. You don t expect him to not make galaw his account for unreasonable long period of time. Para mong hinostage yung account niya. Kawawa naman sha. 75-80% multiple choice and true or false 20-25% problem solving, very minimal. Most problems reserved for the finals. Rules in Yang v CA Sift through, is David a HIDC? Somehow there is a disconnect on how the checks arrived in the hands of David. You ll have to go through the process of was he a HIDC? What presumptions are enjoyed by HIDC? Given those enjoyed presumptions, who now has the obligation to rebut the presumption. At the end of the day, HIDC is the winner. That is how powerful he is. Habulin mo si Prem. Sa kanya mo itanong kung pano niya nakuha yun. No classes on Aug 21. Please make use of the holidays to read. Remember. You tried to benefit from the absences of your classmates by invoking bonus, no recitation, extra points. Benefit from their misery. Next week you use the holiday to study for midterms. Mostly objective and rules. Codal 3 hour exam.

These are the things she highlighted last Sat, August 14 1. Effects of a crossed check as discussed in the State Investment House and Bataan Cigar cases 2. NOW Checks as discussed in People vs. Reyes 3. PCIB vs CA and Republic Bank vs CA rulings: i. Last indorser bears the loss but it should be read together with the 24-Hour Clearing House Rules ii. Every bank that issues checks should know that drawer s signature is genuine, whether there are sufficient funds to cover checks issued and the bank should be able to detect alteration, intercalation, erasures and super-impositions. Banks therefore, should have appropriate detecting devices for uncovering forgeries and alterations Rules to Remember: i. Duty of Drawee bank Republic vs CA 1. 2. ii. iii. iv. As acceptor PCIB, Allied Bank As collecting bank PCIB, Allied Bank

Rules on Crossed check State Investments, Bataan Cigar Rules on Cashier s check BPI vs Roxas Payment by check not payment until encashed 1. 2. Rule: PAL, Papa Exception: BPI vs CA

Types of checks i. Crossed checks ii. Cashier s checks iii. Manager s checks iv. Certified check v. Stale check Ibank vs Gueco Exam is on Aug 28. Please come early. We will start promptly at 9. Same room. 1. Most of the exam questions will be True or False and Multiple choice questions 2. Only about 25% will be problem-type questions

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Please get a copy of the clearing house rules from the Law center photocopy center. We will resume normal classes on Sept. 4 Presentment for Acceptance

11 September 2010
2 sets ang jamming natin this morning. Ihuhuli ang discharge.

(Earla!!!) Why don t you need to present a promissory note? Unconditionally promise to pay. Bill of exchange only after necessary procedures have been taken. 2 kinds of presentment: jecky pelaez crush ni Venus. 4th year daw. Ano itsura nito??? Bakit mo sha crash? 1. Acceptance BE (not PN) 2. Payment PN/BE When did we last encounter this discussion? Liabilities of the parties. Tie up this discussion on presentment to discussion of who parties primarily liable and who are parties secondarily liable on the instrument. Primarily liable: maker, acceptor Secondarily liable: drawer, indorsers No longer have to do any further action in order to give rise to liability for payment. BE: may liability na rin but still certain acts needed to be done in order to move forward in the process of discharge of the instrument WHY THE FUSS? What happens during presentment? Look at S132 NIL Presentment only occurs when a DRAWEE is involved. In a BE there are always three people involved (except when drawer is also drawee). Sign that he assents to pay the instrument upon the order of the drawer. BILLS LANG ANG ACCEPTANCE. INEEMPHASIZE KO ITO, SANA MAKUHA NIYO PLEASE. WHEN presentment for acceptance REQUIRED? §143 1. Payable after sight OR for date of maturity E.g. XYZ: Pay to X or order P5000 30 days after sight. Sgd. Pedro Cruz Indorse to A or order. Then indorsed + delivery to B? 2. Expressly stated E.g. XYZ: Pay to X or order P5000 after presented for acceptance. Sgd. Pedro Cruz Para lang yan yung mga instrument na may tatak na non-negotiable, no brainer na kailangan talaga ipresent muna. 3. Pay elsewhere than the drawee s place. E.g. XYZ Davao Branch: Pay to X or order P5000 at XYZ UP Campus Branch. Sgd. Pedro Cruz Presentment for acceptance is required! How do you know if it has been accepted by Davao? 2 steps involved to realize the value of the instrument. You are X. WHEN is presentment for acceptance NOT REQUIRED/EXCUSED? A. §148 1. DRAWEE - dead, absconded, fictitious person, not having capacity to contract by bill 2. Exercise of reasonable diligence, presentment cannot be made 3. Refusal on some other ground although presentment has been irregular B. §147 - time is insufficient Law has not specified instances wherein delay is excused Can the drawee be excused from payment? NO

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Pag yung instrument may maturity date in terms of payment, tas hindi kaya, dapat excused sha. E.g. no flight back to Mnaila so hindi maipresent for payment. Drawers and indorsers (secondarily liable are not excused), otherwise they would have been excused E.g. XYZ Davao Branch: Pay to X or order P5000 at XYZ UP Campus Branch, 2 days from acceptance. Sgd. Pedro Cruz C. sige maya na lang natin idiscuss sa kinds. Look at §141: kinds of qualified acceptance. The law allows qualfieid acceptance, but what is your right as holder of instrument? Look at §142: rejection of qualified acceptance, 141 and 142 operating together, as if presentment for acceptance has been dishonor. Hindi niyo na kailangang irepeat yung process: Present qualified I reject present again to be unconditional presentment okay na hindi sabihin na dapat unqualified. KINDS OF ACCEPTANCE 1. General §139 is clear; assents without qualification to the order of the drawer 2. Qualified Rights of respective parties when qualified acceptance is issued? This becomes more relevant and clearer on bills in a set. When partial acceptance is taken How is acceptance made? When, how, to whom. §145 present to all because their obligation is joint not solidary. If company is insolvent may receiver. How much time does drawee have to accept? 24 hours. §136 -- §137 (destroys / refuses within 24 hours = deemed acceptance) Refuses when to Davao Branch then the following morning, imagine this situation because there are implications here. Pag nadestroy, hindi mo na manenegotiate. Right to have the instrument returned to you within 24 hours basta hindi pa naaaccept, when you have it in your possession, what can you do? Ayaw sabihin ni drawee yung decision niya kasi di pa alam. Pag binalik sayo, di mag-ooperate yung deemed accepted. What can you do when instrument returned to you? Negotiate further! How do you know when it is accepted? Communicated in writing and signed by the drawee. §132 What if drawee refuses to write? Can drawee accept on a separate sheet of paper? Yes §134 (Gen) Can acceptance be made in advance? Yes §135 How do you know if it has been accepted in advance? It must be in writing, signed by the drawee. Not in the code. If that s part of the terms of you parting with your money, kung condition mo para pautangin sha, pre-apporve na yung BE, dapat merong something in writing signed by the drawee para alam mong nag-unconditional promise of acceptance na si drawee. Can you present for acceptance instrument that is incomplete? §138 Can there be constructive acceptance? Yes, §137 as if it has been accepted. When you re asked what are the instances of constructive acceptance you look at §137 What is dishonor by non-acceptance ? §149 1. Duly presented but refused or could not be obtained 2. Excused and not accepted DAIF drawn against insufficient funds So what do you do according §151? immediate right of recourse against drawer and indorsers (persons secondarily liable) never forget 1 and 2 liability How do you avail of your §151 rights? Most likely si indorser ang kilala mo so sa kanya ka pupunta. no presentment for payment is necessary doorbell. Then what? How do you operationalize that law? What happens in instances of dishonor, what is normally the twin act/obligation when there is dishonor? NOTICE OF DISHONOR. It doesn t mean that you dispense with Notice of Dishonor because that s your trigger against persons secondarily liable. That s fundamental. GR: Why would it be required? Make good the amount? Notice of dishonor brings the obligation to the attention of the drawer since 2ndarily liable lang sha. Drawer has relationship with drawee: Drawee what s this? Bat di mo inactionan yung instrument ko? He also needs to explore and protect vis-avis this particular bill. He would not deny liability because he will be liable, but required to protect themselves in their respective position. NI is supposed to facilitate commerce so di mo talaga alam san sha makakarating but your rights as a party is to protect your interest arising from that instrument.
st nd


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When the law says you have immediate right of recourse it s not payment kagad. It s still notice. Maya we do the step by step process in putting in effect an instrument that has been dishonored for acceptance.

Next week: Discharge, general bonded warehouse act, warehouse receipts Sept 18 Karri will report on general bonded warehouse act Sept 25 letters of credit October 2 trust receipts October 9 Comprehensive finals

Drawer B/E payee (vs. Drawee) Indorses to B Indorses to C Presents to drawee for acceptance on 11 Sept, 9am within 24 hours requests for return: 1. Returned within 24 hours, no notice if accepted or dishonored (Scenario A) 2. Returned after 24 hours, without notice of acceptance or dishonor (Scenario B) C indorses to D indorses to E. Situation in a nutshell: Binalik lang, no action placed on the instrument. What can E do? INSTRUMENT: To: XYZ, Pay to Payee or order P1000. Sgd. Drawer SCENARIO A: As if no effect the first presentment, naresuscitate yung life niya. SCENARIO B: Binalik mo nung 10 AM, Sept 12. Kaya umabot ulit sayo. Ikaw pa rin si drawee. May kailangan ka pa bang gawin? DEEMED ACCEPTED. Yung yung hinahanap ko mga 30 minutes ago pa. Naglapse na yung period for the drawee to transform into acceptor so law transform him into acceptor. Para shang Cinderella. Baliktad. After 24 hours, naging Cinderella. Otherwise, drawee will just not do anything. Did you refuse or did you just fail to return it to me? Constructive acceptance yan. May person primarily liable na. Can still choose whether to accept If C were the one who remained holding the instrument, what can C do now? Suppose there had been no further negotiation on the instrument. Walang tatak si instrument. No signification whatever. Dianne points out 150. C was a holder in due course, can present it to the bank, deemed to have accepted the instrument. As far as C is concerned, it s dishonored. BUT if C further negotiates it (making him in bad faith), but E did not know C s bad faith. On face of instrument, E had no notice of any infirmity. So it s deemed accepted. Sino na yung mga nadischarge ng liability? As far as C is concerned, who remains liable on the instrument? Pag wala pang acceptor, drawer and indorser lang muna yung pwede niyang puntahan. What is the effect of notice of dishonor on C? Sino ang dinischarge ni C nung further negotiated sha? Drawer and prior indorsers. Hindi kasi sha nagbigay ng notice. Since as to him, dishonored na nga yung instrument. Si E had no notice so pwede niya habulin all other prior indorsers. Hello confucion? Holder goes to drawee, presenting instrument for acceptance. Within 24, return bill to me. Bank did not say/do anything. After 24, binalik ni drawee kay holder without any action. Holder kuha niya. Chi and Venus formulation: If he gets, as if hindi inaccept (supposedly in his favor yung katamaran ng bank) kasi nga pag in his possession na ulit he can renegotiate it na. Ma am will sort this out first. Kthxbai.

Both for PN and BE, kailangan presentment for payment? Under §70, What is presentment for payment?

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When is presentment for payment necessary/required? To charge the drawer and indorsers. When is presentment for payment NOT necessary/required? Magulo ang 70, inuna ang not To charge the maker and acceptor How do you get paid if you don t need to charge the maker and acceptor? How do you do a presentment for payment? §74 Instrument itself must be exhibited. You have a PN maturing today. What do you do? Show the instrument, then say pay me na now. You have a BE maturing today. What do you do? I go to drawee bank, kaso Sabado. Next business day. May rule jan on Saturdays. Hanggang noon pwede. May bangko na open ng Saturday whole, go BDO! Present the instrument for payment and then wait for clearing. When do you know when your payment is sufficient? §72 §73 any person ba talaga yan? Pano kung may magtataho sa tapat nila? Pwede ba sa kanya? Reasonably connected anak niya, may dalang baso para bumili ng taho.

suki ka ba? Lumabas yung

Person 2ndarily liable are excused from being charged with liability. When is presentment for payment excused? §82 Waiver for presentment. Waiver of protest. No right to expect §79. think of a situation 1. In a case. - Drawer withdrew all the funds. 2. Stop payment 3. Drawer and drawee are one and the same. Malabo mangyari kung individual. Manager s check (though magkaiba yung signatory). When not necessary to charge the indorser? y §80 compare with §115 (made for accommodation of such indorser) Pag accommodation party, kaya lang pumirma yung isa is to pay the name. y §82 also applies to an indorser

When does this happen? §83 1. Duly presented but not piad dishonor talaga 2. Excused but overdue and unpaid constructive dishonor kasi walang action, excused yung presentment pero di Mas exciting ung by non-acceptance diba? Ito basta di lang binayaran eh. Magkaiba ang PN at BE. What do you need to do to charge person 2ndarily liable? Promissory Note Bill of Exchange Present for payment Present for acceptance (unless excused) Kung bayaran OK Kung inaccept OK Kung hindi (not paid OR dishonored) Kung dishonored or not accepted notice of dishonor under §89 By non-acceptance issue NOTICE OF DISHONOR If foreign bill PROTEST If accepted present for PAYMENT By non-payment issue NOTICE OF DISHONOR If foreign bill PROTEST Mas tedious mag-enforce ng liability kapag B/E. kasi hindi lang sa maraming step, maraming pwede mangyari in between steps. Ang common, imporatnte ditto, NOTICE of DISHONOR 1. 2. 3. FORM orally or in writing §96 Sufficiency of contents 5 yan lahat Who gives the notice - §90

Dun sa masalimuot nating kwento kanina, si E ang dapat magbigay notice. Si C and D rin. Kasi they might be held liable for the instrument. Ganda sana nung example ko kayak o nga sinulat, nasira talaga.

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4. To whom - §89 If you don t give notice, you discharge. 5. §92 and §93 inure provisions principle of inured benefits i.e. What s diff between two provisions? IMPORTANTE YANG DALAWANG YAN HA! Ito na naman ako, nag-eemphasize. Where notice is given by or on behalf of the holder, it inures to benefits of all subsequent parties and prior parties with a right of recourse with party against whom it is given. Maker PN Payee A B C presents to maker who dishonored C notifies B, A and maker this is §92 If (if ha ) C notifies B only BUT B notifies A and maker §93 says it inures. Si C yung nagbenefit sa notice done by B to A and maker. As if C gave them notice. Kasi nga possible na hindi na niya kilala lahat. Are there situations when notice of dishonor is not required or is excused? Is it possible that you can still hold the persons liable even if you don t give them notice? 1. §114 antok na me zzzZzZZZZZZZz 2. and also §115 (not required for indorser) 3. §112 4. §113 Kaya ko nilalagay sa board para nacocompare niyo sa dati. When acceptance is not required tas pakonti nang pakonti. Then compare when notice of dishonor is not required. Side by side niyo sila. Excused na sa presentment of non-A and non-P, di ka pa required magbigay ng notice of dishonor. PROTEST is important only pag may foreign bill. Which is no longer in fashion. Instead of foreign bill, letters of credit na lang. mas foreign rules talaga nag-aaply sa letters of credit.

How do you make it? What is it? Paraphrasing §178: One instrument composed of several parts each referencing to the other parts. It s the ewhole that constitutes but one bill. Can you negotiate the parts separately? If you have 5 parts, you hold 2. What powers do you have? Di mashadong importante to, but just understand the concept. Can the person liable thereon discharge the whole? §186 What does except otherwise provided ? §181 and §182 so kahit bills in a set sila, each together comprising the whole, you can actually negotiate the sets as if they were separate instruments under §180. BUT as to the accepter, look at §181 and 182. Purpose of bill in a set: to allow for a series of transactions. Middle of year, allows you to raise personal defense in respect of those bills not earlier bills. Ngayon ang ginagamit talaga LoC na lang. hindi na agad naggigive rise ng liability. Acceptor s liability under §181 and §182. ito lang ang imporatnte dito. Scope and extent of acceptor s liability.

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17 July 2010
Revisit the confusing part last time. Let s all revisit the rule. 136 AND 137 sets down period for drawee to accept the bill when presented. It has 24 hours to accept, if it accepts the ff calendar day, dates back to date of presentment. Ano mangyayari pag di inaccept within time prescribed? What niyo idrawing ito sa exam booklet niyo! Drawee has 24 hours to decide whether to accept or not. (136) Within the 24 hours, ang daming pedeng mangyari in 24 hours. In this univers of negotiable instrument. y Drawer can request for the return of the instrument. (imply from Sec 137). o When the drawer requests the return of the instrument, the drawee can REFUSE to return the instrument or he can actually DESTROY the bill. Effect: Deemed accepted (137) o Refused here is the return of the bill y Drawee does not accept OR acceptance as required by law NIL is refused E.g. of acceptance as required by the act: what does that mean/pertain to? How do you know? Expressed in writing, signed by the drawee o Drawer must treat the bill as dishonored. (Sec. 150) o Refused here is acceptance as required by the law. o If it s not in the manner

Discharge is important because Why is it a necessary stage in the life cycle of negotiable instrument? Always go back to the warranties of each party. at the end of the day, someone has to be liable for the instrument whether primary or secondarily liable. If you are the holder/payee, how do you actually know when it will actually cease, please Lord let it end? Di mo na alam kung san na nakarating yung promissory note na ginawa mo lang as exercise sa class. Kaya nga Pedro Cruz yung name niyo dapat dun. Hindi yun in BF kasi nga you delivered it to me in GF. At the end of the day, what really matters is the discharge of the instrument? INSTRUMENT y What scenarios can you get discharge of the instrument. Buti na lang mga PN niyo ay fictitious drawee. How do you know when instrument is discharged? y §119 y Yung mga first time na naririnig ito at sinasabayan si Stella na magbasa, makinig kayo. y E.g. sa exam, sabi cite completely the different manners in which instrument is discharged. y What if payment is not made by principla debtor, hindi sha magkaqualify as discharge. Buhay pa yung obligation. What happens then? o E.g. PN made by one of the Angelas in the class. Bearer instrument. May lumapit sa kanila bigla not member of this class I m presenting this for payment. Does this discharge the instrument. P100 lang naman, aawayin pa ba kita jan? o What if pumunta sakin yung bearer nung notes. Can you pay this instrument? Kinalat ko nga pala sa oval yung leaflets nila. Binayaran ko, nadischarge ba yung instrument? Instrument is back with me after ko itinapon. What can I do with that instrument? LISTEN. Babalikan ko kayo bilang kayo ang pricnipla debtor. Kasi only principal debtor can discharge the instrument. y Payment by accommodated party? Review your notes on accommodation. What if the accommodating party cancels the instrument, there is intentional cancellation by the accommodated party. Sabi sa law by the holder if the intentional cancellation by someone else, it does not discharge the instrument but the instrument is already cancelled. How do you cancel? Pero buhay pa yung instrument nay un, pano mo ipepresent? In case of conflagration. We don t say it got burned we say, there had been conflagration. How do prove the existence of the liability? Does that man liability can no longer be satisfied? NO, but how do you go about it? Instrument itself ceases to exist so magiging claim na sha as payment of loan but the liability remains. Wala na nga lang NIL to proceed of, civil case na sha. y Payment of sum of money. Acts discharging simple contract. May specific act ba tayo na dapat tinitingnan? Go to 1231 of the CC and review the list there tho I don t expect you to memorize that for the exam. y When the principal debtor becomes holder after maturity in his own right. What is a scenario when the principal debtor is holder not in his own right? E.g. accommodated party, agent, maker nung note at the same time agent of the holder. If he has the note, he s appointed agent of holder somewhere along the way. Yahoo discharged na kasi may merger na kasi holder me! May tama sha pag naisip niya yan. Kasi alam natin na hindi naman sha in his own right at that instance. y Distinguish between cancellation of instrument and renunciation of rights. Bakit ba may §122 kung meron nang item 3 sa §119? May form kasi sila na sinusunod. Intentional cancellation has no prescribed form, what is impt is the matter of intention. If unintentional cancellation the effect under §123 is the cancellation is inoperative. What is the effect of X? Dapat iexplain ang effect. Look at the requirements of renunciation: o Absolute and unconditional o In writing unless delivered to person primarily liable. y Sophisticated holders are aware of these forms.

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PARTY SECONDARILY LIABLE (Jances) y Discharge of parties 2ndarily liable. o Draweee and the holder agree to extend the y Valid tender or payment made by a prior party. o How does that work? Pag nagtender ka sa court. Is the instrument discharged? No. What happens then, what can the party (e.g. indorser) do? Indorser may cancel signature. o Accepted by accommodation, paid by party accommodating party. y What is the rule again on material alteration? Does it discharge the instrument? What is the effect of material alteration? Discharge the instrument and all prior patties thereto who did not give their consent to such alteration. y Material alteration of a date/sum nagkaisa kayong lahat! Those who assented to alteration are not discharged. (iba yung discharge sa §119 dito ha. The instrument is avoided as to them.) Papasok ka na sa issue ng defenses. y Any other thing you want to say about discharge? Otherwise, we will be discharged. y That concludes presentation of NIL.

REPORT 1. i didn't get 2. impt differences warehouseman interrupts all the warranties that would have been given by an indorser. indorser is not a guarantor, which ordinarily under NIL secondarily liable, hindi sha same thing as indorser under warehouse receipts act. sagot nga kasi ni warehouseman yun. he's in this business for profit. 3. warehouseman's lien: impt admittedly the general concept of WHM lien, this is my take, in practical terms, it s not going to be relevant or useful. what are goods stored in storage usually goods with value, agricultural products, heirlooms, antiques, documents, with the onset of electronic or digital way of storing information, warehouses are also passe kasi lahat passe. In schools or in hospitals or law offices, necessarily you have paper transactions pa rin. records are printed pa rin and you still keep it. there are digital copies but you also have to store physical documents somewhere. storage companies business to store physical documents. the value of that information, antique, heirloom agri products would be more impt to you as the owner of the goods, versus the WHM. mas mahalaga sayo na makuha yung gamit na iniwan mo kay whm. mas impt na makuha mo document mo. the likelihood of whm in enforcing a lien is very minimal. the value of goods itself is more impt for the person than whm. 4. title of goods do not pass to the warehouseman. possessory in nature. hindi ownership. RULES ON COMMINGLING. Letters of credit. Including skipped protion. May reporter dib a. take that uop also coz same case. Transfield is very impt. Everyone must read it. Understand that case. Walang quiz!

25 September 2010
The basics are covered by Zarith s report. Very good comprehensive report. Take note of all the slides. Transfield is the more recent illustration in jurisprudence of the value of LOC. Very rare cases BUT it doesn t mean that it s not used. But LOC widely used as they are, do not give rise to litigation. Very useful, highlighted by the limited litigation involving the instrument because it s highly effective. Even if not major part of the bar, but since Meilou (who s familiar with international trade) is already there, baka dumami. More than anything else, it s a facility. Let s go to the cases now. Cite Transfield instead of Keng Hua for bar and finals. Kinds is only for bonus, not for main part. More widely used revolving LC and stand-by LC. Report by Ate Sche, JI and Adrian Transfield v Luzon Hydro Corporation It s also common for the other party to say no, I am excused. This is not among the grounds. Contrary to common sense but if your client is the one Transfield, wroth revisiting. Baka naman may built in excuse sa LC. But normally, the prevailing principle is the independence principle. Different levels ulit ito. During first NIL meetings, there s the universe of NIL and parallel universe of contracts. Turnkey construction contract. There s an LC in a parallel universe, so whatever happens in the construction contract universe, it does not affect the LC. But sometimes, there s a twilight zone wehre two universes intersect. That s what Transfield invokes. Force majeure. BUT as the court ruled: Independence principle prevails and regardless of what happened to your construction contract, the parties (bank) are bound to honor the presentment (like in NIL) of the LC. It s even stricter regarding strict conformity mas matindi yung requirements on presentment. Bank of America v CA

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Not only in EPC (which cannot stand on its own, performance bond in the form of SBLC and insurance), but also in sales contract, wherever you end up in after 2012, in a law firm OR in the OSG or in OGCC, how in a sales contract, LC is not to guarantee timely performance. It is the facilty for payment. Kasi nga cross-border, hindi pwede mail or DHL. Course through bank remittance or they don t want bayad lang pag receive or discharge sa port ( The board written by Maam: a. Turnkey engineering, procurement and construction contract Australia-RP b. Polyethylene sales contract (cross-border) Thailand-RP Dito nagkaroon ng fraud at the form of discharge, one of those instances (twilight zones) where universes of main contract and LC intersect. Analogous to Piercing the corporate veil in labor and corp. Here, you piece the 2. Bank of America acting in three capacities in this case: [1] issued LC in representation of Ayudhya, [2] advising bank which notifies the beneficiary of the existence of LC, mainly ministerial work. Because Ayudhya has no presence in the Phil so it needs correspondent bank. [3] confirming bank: says that everything is in order, not only in the apparent form. Meatier transaction than advising. More bayad. Twin of that is more obligation in terms of liabilities. Habulin mo si Inter-resin kasi may fraud. Bank work is not boring. Banks take forefront of commercial transaction.


3. 4.

Reliance Commodities v Daewoo Industrial Regulated commodity. 1. Discusses the 3 underlying contractual relationships NECESSARY if you have a LC a. Buyer and seller physical relationship; core contract, actual transfer of goods. b. Buyer and issuing bank seller told me to establish LC. Reimbursement arrangements (small contracts kakambal ng LC); mantle c. Issuing bank and beneficiary and seller LC proper; crust Walang papaya na bangko na dalawa lang. 2. Itong contract mo na buy and sell contract (in bgy parlance). But in international trade 3. It s not a surety agreement. Bank will not step in if you fail. Different ang LC. In case walang pumirma na number 2, when is a contract perfected? Meeting of the minds. If you don t accomplish 2 or 3, it doesn t mean you didn t accomplish 1. BPI v De Reny Fabric Industries Ordered dyestuffs but was given chalk. Differentiate this case from Bank of America (iba yung nadeliver from what was actually in the main contract) habulin yung nagdeliver BPI no independence principle, regardless of what happened to physical transcation, LC is affected. Bank under no obligation to scrutinize? What is the difference in terms of allegation? See the brilliance, not really of the lawyer, but how you package your case. They used the ground of loss. But in Bank of America, they used fraud. Pag fraud, back up your allegation of fraud. They could have packaged it as fraud but there was a deviation of the theory of the case from RTC. Bank should have insured? Bank has no control and say in the transaction. Later, we go to UCP. Code of Commerce is obsolete. International practice na ang sinusunod. Feati Bank v CA Rule of strict conformity/compliance. Why do the banks insist? Liabilities are attached depending on the roles they play. Confirming bank: bigger liability in the course of the transaction so the governing bank must insist even if your friend present your LC. Walang board certification. Habol ko na lang. Wag mo accept! Tulungan niyo na lang yung nag-yes kapag wala na shang trabaho. Liabilities are attached to the acceptance of the bank. If you want to develop banking practice, you learn why that is so. Branch of foreing bank, BSP. Magkano yung LC sa Transfield, $4.950M set aside from their funds and not use it. Sama sa reserves even if amount. Contingent liability. Walang board/secretary s certificate. Hinugot lang pala sa safe ng boss niya. Hindi naman pala authorized, liable yung bank for not following its own requirements for drawing. Prudential Bank Presentment for acceptance is not required. BUT presentment for payment is required nonetheless. Bec bank substitutes promise to pay in place of customer s promise to pay. Os you ll have to call on him for the fulfillment of the promise. Call on the LC to realize the payment. Sight draft nowadays but the more common/widely used term is SBLC and revolving LC. Only in cases of S143, NIL IBAA v IAC Primary obligations and not accessory contracts.

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LC is a primary contract. In same manner bank cannot refuse the seller. The bank at the same time cannot say that this is only an accessory contract. If your primary contract something goes wrong, then I am excused from my obligation. That does not hold water. I was asking you about revolving LCs grocery halimbawa ikaw si Mrs. Gempesaw. I doont want accountant anymore. I will just open a revolving LC with Bank of America where my suppliers get payment. No more forgery/incomplete and undelivered checks. Dahil di sha sanay sa LC, binayaran niya ng direcho. Can the bank now say you pay, 200K, I will deduct it from your P1M? No, that s IBAA v IAC. Go back to Transfield: y Up to page 312 a contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated they re all important. y FORUM SHOPPING not. Sabay sila. It was a very heated and controversial case. y If you re asked in the exam or bar, use UCP or ISP. What s our basis, as Filipino lawyers, for using LC and transactions in the Phil? It s not treaty, but what is the binding effect? Look at page 309 middle of first par. Obiter of the court. Justified by the CoC. Tie up international practice to local practice Art 2 of CoC. Is sight draft a NI under NIL?

2 October 2010
Underscore Sec. 4, it s a very long provision. Very important clause if there s anything that you need to study or focus on, not really memorize, the essence of the law. Pop quiz for Mr. Reporter. Indispensable parties entruster and entrustee. RELEASES. The real owner of the goods? Entrustee. Why? Because Vintola. Where in the law does it say that since it s the entrustee that actually holds the he should be the real owner. Basis for the court s statement in Vintola. I doesn t support the If it s not something tangible. Crucial language, the bank merely holds security title. Even if entrustee is or could be the owner, the entrustee or one signed right of disposal, ownership right includes right to dispose. Note the obligation of entrustee is to dispose of them strictly in accordance, so hindi absolute yung right to dispose, in fact controlled by entruster which dictates/governs terms of the trust receipts and obligation not to enjoy proceeds but remit the proceeds to the entruster. If the goods are not sold, return the same to the entruster. How to resolve it? Two possible scenarios: Who is the absolute/real owner of the goods? In the case of Vintola, entrustee. But it s possible that entruster holds the good. Whereby entruster who holds owns absolute title or security interest. Pwedeng yung pambayad if the goods Who holds title? Are bought and paid by him. Sometimes in fact upon signing of the TR. Sale agreement, loan agreement and TR. Released ang pera upon release of TR. Some of the cases contemplate installment but actually when you import computers from abroad magrerelease ng draw document. Draw down release the TR. Paid for the imported goods. In most cases, nabayaran na niya. Also correct in Vitola. Let s not ignore that S3 that entruster who owns or holds security interest. Pwedeng title, pwedeng security interest. Ag s snickers is only correct with respect to Vintola. It s not a straight point answer. Highlights. Use the how does it work. When you study, project finance or international financial credit, you ll see something like this. Tie up Vintola v IBAA and Prudential Bank Vintola Describe TR transaction.

Prudential Bank Take note: 1. Step by step procedure of what happens in case of TR 426-427 2. Discussion on why Vintola does not apply to this case. Maam s personal take: In 1995, the court sought to not really correct, make consistent the Vintola case and their decision in Prudential Bank. Tama namang may loan feature to a TR and security feature as well. The <3 of TR transaction is the security feature. FOR EXAM: if at all you need to sight, use Prudential Bank. 3. Failure to cancel was fatal to its cause 4. Security title becomes a lien upon the goods

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Lee v Rodil Not a violation of non-imprisonment for debt because it s the security feature that s protected by the provision of the alw. Even if law partakes of loan and trust feature. Allied Bank v Ordonez Alfredo Ching went to DOJ. State Investment v CA While there is no particular form required for TR, particularly describe the items Robles v CA Since there is no form required, even if it doesn t appear there, entered into in accordance with PD 115, transaction contemplated a TR, as provided in the law, then it will be decided on the basis of requirements. People v Nitafan Relevant feature of the law, i.e., When you encounter questions on the penalty on violations of TR? Cite Lee v Rodil and Nitafan. Colinares v CA Even in Prudential, court so far ruled in favor of upholding the rgiths of entruster under the law whether to dsubejct the entrustee to criminal liability or prevail over rights of entrustee. In this case, very sophisticatedly Court explained and took note of factual circumstances, when was the TR singed? After good have been delivered. Meaning vest ownership to supposed entrustee. Clearly bank only wants to use in its favor the penal provision of TR para mas malaki yugn threat nila sa nangungutang sa kanila. Not the intention of PD 115, but to promote and facilitate importation of goods. So pag nandito na, domestic transaction na. nothing more to facilitate. Took note of the factual circumstance to temper what could have been unbridled discretion of the bank in formulating the structure of its loan agreement. No bad faith on part of Colinares. Very close to the heart of classmate, kapitbahay ni Lou yung mga Colinares. Consolidated Bank and Trust Corporation v CA Bunker fuel oil from Petrophil Corporation . TIPS FOR FINALS NEXT WEEK 9-12 Same as last time True or False Concentrate on these topics: forerunners sa survey 1. Letters of credit 2. Discharge of negotiable instrument 3. Presentment for acceptance and payments 4. Checks 5. Gempesaw v CA 6. Warranties

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