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Nego Sundiang Notes 2k
Nego Sundiang Notes 2k
I. GENERAL CONSIDERATIONS
Q: What is a negotiable instrument?
A negotiable instrument is a written contract for the payment of
money which complies with the requirements of Section 1, NIL; which by its
form and on its face is intended as a substitute for money and passes from
hand to hand as money so as to give the holder in due course the right to
hold the instrument free from personal defenses available to prior parties.
Q: What are the stages in the life of a negotiable instrument?
BILL OF EXCHANGE
1. the mechanical act of writing
PROMISSORY NOTE
1. preparation and signing (writing)
PROMISSORY NOTE
An unconditional
promise in writing made
by one person to
another, signed by the
maker, engaging to pay
on demand or at a fixed
determinable future
time a sum certain in
money to order or to
bearer
BILL OF EXCHANGE
An unconditional order
in writing addressed by
one person to another,
signed by the person
giving it, requiring the
person to whom it is
addressed to pay on
demand or at a fixed
determinable future
time, a sum certain in
money to order or to
bearer
CHECK
A bill of exchange drawn
on a bank, payable on
demand
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~Point of Impact
No; they are not fully guaranteed by the government to be
used for the payment of debts, as required by sec.52 of the new central
bank act. Also, art.1249, NCC specifically states that negotiable papers
and other mercantile documents do not produce the effect of payment
until they are encashed or when through the fault of the creditor, they
have been impaired. (art.1249, NCC; sec.52,NCBA)
Q: What is the difference between a bill of exchange and a promissory
note?
BILL OF EXCHANGE
- is in the nature of an unconditional
ORDER
PROMISSORY NOTE
- in the nature of an unconditional
PROMISE
CHECK
-always drawn on a bank
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Q: Does the phrase a sum certain in money mean the same thing as a
certain sum of money?
No, they dont mean the same thing. A sum certain in money
refers to a fixed amount, whereas A certain sum of money makes no
reference to a fixed amount.
Q: would an additional fee to the principal amount payable and stated
on the face of the instrument affect negotiability?
No, the instrument is still negotiable as per sec.2, NIL
Q: what are the requirements for the said installments?
1. The number of installments must be stated
2. The maturity dates for each installment must be stated
Q: Suppose the 2nd installments maturity date wasnt fixed?
The instrument is still negotiable, the installment shall be
payable on demand
Q: the instrument says I promise to pay Juan php100,000 from my salary
in san beda college of law. Is it negotiable>
No, the promise is conditional (on the availability of funds), it
contravenes sec.1, NIL
Q: Is there a difference between the phrase bearer, Juan dela Cruz and
Juan dela Cruz or bearer?
Yes, the former phrase employs the word bearer as an
adjective, the latter, a noun. Consequently, the former phrase would
make an instrument non-negotiable.
Q: What is the difference between a negotiable instrument and one that
is non-negotiable?
*Refer to table contained in the notes on Summary of Doctrines,
pages 1 and 2
Q: What is the effect should the payee fail to give notice of dishonor to
an endorser?
The endorser is discharged
Q: Does sec.1(e) apply to a promissory note?
Obviously not. There is no drawee to speak of, in terms of
promissory note
Q: Suppose the instrument gives the holder an option to require
something to be done instead of demanding payment in money, is the
instrument negotiable?
Yes, if the HOLDER is the one given the option. If, on the other
hand, it is the DRAWER/MAKER who can choose to do anything other
than pay the holder in money, the instrument is not negotiable.
*see: sec.3(d), NIL
Q: When can we say that the instrument is still negotiable when it states
a source of funds for the payment of the instrument?
The general test is to ascertain whether or not the source of
funds so stated carries the GENERAL CREDIT of the maker or drawer. If
it does, the instrument is negotiable. If it does not, and it merely carries
the credit of a PARTICULAR fund, the instrument is no longer
negotiable.
*Recall: one of the essential requisites of negotiability is that
the promise or order to pay a sum certain in money must be
UNCONDITIONAL
Q: If an instrument states a particular fund out of which reimbursement
is to be made by the drawee, is it rendered non-negotiable?
No, what renders the instrument non-negotiable is when the
fund for PAYMENT is particularly specified, not one for reimbursement.
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There is a difference between a fund for payment and a fund for
reimbursement.
*Notice here that negotiability is NOT affected because the
order to pay is still unconditional. The drawee must pay, and then later
on reimburse himself. If there arent enough funds for reimbursement,
well thats between the drawer and the drawee. The important thing is
that the obligation to pay the payee or holder has been met
unconditionally.
Q: When do we say that the sum payable is certain?
When the amount that is to be paid can be determined on the
face of the instrument in accordance with Sec.2, NIL
Q: Who is a holder?
The holder is a payee or endorsee in possession of the
instrument. Depending on the TYPE of instrument, the holder is
1. A payee or endorsee who is IN POSSESSION of the
instrument, if the same is an ORDER instrument; or
2. The one IN POSSESSION of the instrument, if the same is a
BEARER instrument
Q: What is the difference between Negotiability and Assignability?
NEGOTIABILITY
pertains to special kinds
of contracts (i.e.: those
involving negotiable
instruments or
documents)
HDC is free from
personal defenses
Re: CONTRACTS
INVOLVED
Re: AVAILABLE
DEFENSES
Re: CAUSE FOR THE
CONTRACTS
Re: LIABILITIES OF
ENDORSER
Re: WARRANTIES
Re: ACQUISITION OF A
BETTER RIGHT BY
HOLDER OR
ASSIGNEE
cause is presumed
endorser is not liable
unless there be
presentment for
payment/acceptance
a general endorser
warrants the solvency of
the principal debtor
a holder may acquire a
better right than the
prior endorser (i.e. as in
the case of a HDC under
the shelter rule)
ASSIGNABILITY
pertains to all manner of
contracts in general
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~Point of Impact
Q: What are the types of endorsements?
3. RESTRICTIVE
-the endorsement either (a) prohibits
further negotiation; (b) constitutes
the endorsee the agent of the
endorser; or (c) constitutes the
endorsee a trustee; if it prohibits
further negotiation, the instrument
ceases to be negotiable
1. SPECIAL
-specifies the person to whom or to
whose order the instrument is to be
payable
-legal effect: for subsequent
negotiations, the instrument requires
the endorsement of the person so
specified
2. BLANK
-does not specify any person to whom
or to whose order the instrument is
payable
-legal effect: the instrument is payable
to bearer (if it was originally an order
instrument, it ceases to be payable to
order and becomes payable to bearer.
After this, it REMAINS a bearer
instrument, even if a subsequent
endorser endorses it specially)
**important:
an instrument that STARTED OUT as a
BEARER instrument may be converted
to an order instrument and
reconverted again to a bearer
instrument; but once this is done i.e.:
once an order instrument becomes a
bearer instrument , it stays a bearer
instrument. The only way to simplify it
is that a bearer instrument may only
become an order instrument ONCE
that is, when it was originally made as
a bearer instrument and subsequently
endorsed specially. If it became a
bearer instrument because of an
endorsement in blank, it cant be
converted to an order instrument.
Point of no return, reached.
4. CONDITIONAL
-payment is conditioned by either the
happening or non-happening of an
event
-legal effect: the party required to pay
may disregard the condition and go
ahead and pay, however, the person
who is paid must hold the payment or
its proceeds IN TRUST, and wait for
the event to happen or not. It does, or
doesnt, the endorsee/trustee must
return the money or its proceeds.
5. QUALIFIED
-the endorser negatives personal
liability by writing the words without
recourse or sans recourse or others
of like import on the instrument
-legal effect: the endorser becomes a
mere assignor of the title to the
instrument, but negotiability of the
same is not impaired
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Q: what is a blank endorsement?
*see: sec.34
Q: Under sec.40, why should the special endorsers be held liable, despite
the fact that the instrument remains a bearer instrument anyhow?
Because of the accumulation of secondary contracts. The
endorsements made by these people are, in and of themselves,
contracts for which they may be held liable.
Q: Under Sec.38 (ie. qualified endorsement), to whom does the phrase
without recourse refer to? Without recourse against whom?
Against the qualified endorser
Q: Under Sec.39 (i.e.: conditional endorsement), what is the reason that
the person paying may disregard the condition?
The relativity of contracts. The payor is not a party to the
principal contract, which is why he may disregard the condition and pay
before it happens.
Q: What is conditional here? (sec.39)
The endorsement
Q: Do all types of restrictive endorsements destroy negotiability?
No, only the one which prohibits further endorsement
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~Point of Impact
fraud or illegality affecting the instrument to have all the rights of the
HDC in respect of all parties prior to the latter. (Sec.58)
*NB: the shelter rule allows an innocent holder to derive his title from a
holder in due course. The scenario contemplated by the law is one
where the negotiation of an instrument was tainted by fraud or illegality
before it came into the hands of the present holder. The present holder,
therefore, who had nothing to do with the infirmity in the instrument,
may derive his title from the HDC before him, and will himself be
deemed a HDC.
Q: What is the exception to the shelter rule?
A prior party who was NOT a holder in due course may NOT
purchase the instrument from the sheltered holder (who is of course, a
HDC) and gain a clean title thereto.
*NB: suppose a prior party had something to do with the fraud tainting
the negotiation of the instrument. He allows an innocent person to
purchase it. The innocent person, by operation of law, becomes a
sheltered holder, a holder in due course. May the prior party again
purchase the instrument from the sheltered holder and claim to be free
of all personal defenses? Obviously not. The shelter rule cannot be used
to circumvent the law. The rule under sec.58 is not available to the
person repurchasing the instrument, if he was party to the fraud before
the sheltered holder acquired the instrument. Such a person is not
allowed to improve his position by reacquiring the instrument from a
HDC. In the event of repurchase, the instrument, as regards him, would
still be subject to both personal and real defenses. This was the ruling in
the case of Fossum v. Hermanos, et. al., 44 Phil 713, 717-718.
Q: Suppose the instrument was defective, but the defect was not
apparent. Does this destroy due course holding?
No, sec.52 requires that the instrument is complete and regular
on its face. If the defect was not apparent, the holder may still be
deemed a HDC.
Q: What are circumstances that destroy due course holding?
1. Irregular and defective instruments
2. Taking the instrument when it was overdue
3. The holder has notice of the infirmity or defect in the
instrument
4. The holder did not take the instrument in good faith
5. The holder did not take the instrument for value
6. The holder ignored circumstances which should have put him
on inquiry (i.e.: the check was crossed)
7. The holder was not a HDC, and was a party to an illegality
during negotiation, and he tried to reacquire the instrument
from a subsequent HDC.
PARTIES LIABLE
Acceptor
(see: sec.127)
Accommodation
Acceptor
(sec.29)
NATURE OF LIABILITY
PRIMARY
BILL OF EXCHANGE
General Endorsers
(see: sec.62)
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General Endorsers
(sec.66)
Endorsers of Bearer
Instruments
(sec.67)
Accommodation
Endorsers
(sec.29)
Maker
(see: sec.60)
PROMISSORY NOTE
PRIMARY
General Endorsers
(see: sec.62)
Endorsers of Bearer
Instruments
(see: sec.67)
-An irregular endorser is one who signs in a peculiar manner, whose name
appears on the instrument where one would naturally expect anothers. (Ogden,
Negotiable Instruments, 4th Ed., p. 226)
Acceptor
(sec.127)
CHECK
Drawer
(sec.61)
-The NIL has special rules for the liability of IRREGULAR ENDORSERS:
1. If the instrument is payable to the order of a 3rd person, an irregular
endorser is liable to the payee and all subsequent payees
2. If the instrument is payable to the order of the maker or drawer, or is
payable to bearer, he is liable to all parties subsequent to the maker or
drawer;
3. If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee (sec.64)
SECONDARY
Accommodation
Endorser
(sec.29)
Accommodation
Acceptor
(sec.29)
Accommodation Drawer
(sec.29)
IMPORTANT:
-An accommodating partys liability is not strictly primary and secondary, per se.
It depends on what capacity the accommodating party signed either as maker,
drawer, endorser or acceptor. This is because the accommodating party, by
lending his name, becomes a surety for the accommodated party. Ergo, the
capacity in which he signs determines his liabilities liabilities that may either be
primary or secondary. The same principle goes for persons signing as agents if
they fail to sign in accordance with sec.20.
Drawer
(sec.61)
Accommodation Maker
(sec.29)
SECONDARY
PRIMARY
Q: Are the primary and secondary liabilities the same as the liabilities for
warranties?
No, The primary and secondary liabilities of the parties stem
from their obligations to pay the sum certain in money stated in the
instrument. The liabilities for warranties stem from the warranties made
by the parties to an instrument, which warranties are separate and
ancillary contracts to the principal one involving the sum payable stated
in the instrument.
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PARTY
1.
ACCEPTOR
2.
1.
GENERAL ENDORSER
2.
3.
ENDORSER OF A BEARER
INSTRUMENT
4.
1.
QUALIFIED ENDORSER
2.
3.
4.
WARRANTIES
The existence of the drawer, the
genuineness of his signature and
his capacity and authority to draw
the instrument;
The existence of the payee and
his then capacity to endorse
*sec.62
That the instrument is genuine
and in all respects what it
purports to be;
That he has good title to it;
That all prior parties had capacity
to contract;
That the instrument is, at the time
of his endorsement, valid and
subsisting
*secs.66, 67
That the instrument is genuine
and all respects what it purports
to be;
That he has good title to it;
That all prior parties had capacity
to contract;
That he has no knowledge of any
fact which would impair the
validity of the instrument or
render it valueless
*sec.65
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5.
1.
2.
presentment for
payment within the
required period to
the maker
BILL OF EXCHANGE
1.
Presentment for
Acceptance
2.
If the bill is
dishonored by nonacceptance, notice
of dishonor should
be given to the
endorsers and
drawer; protest for
dishonor is required
if the bill is a foreign
bill
If the note is
dishonored, notice
of dishonor should
be given to the
endorsers
3.
If the bill is
accepted,
Presentment for
Payment; if the bill
is dishonored upon
presentment for
payment, notice of
dishonor must be
given to secondarily
liable persons;
protest must be
made if the bill is a
foreign bill
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2.
3.
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instrument;
1.
DRAWER (sec.114)
where the drawer and the drawee
are the same person
1.
ENDORSER (sec.115)
when the drawee is a fictitious
person or person not having
capacity to contract, and the
endorser was aware of that fact
at the time he endorsed the
2.
2.
3.
3.
4.
5.
*NB:
Notice to these persons under these circumstances is no longer necessary
because they either (a) knew of the dishonor beforehand; or (b) were
themselves responsible for the dishonor
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No, an omission to give notice of dishonor by non-acceptance
does not prejudice the rights of a HDC subsequent to the omission
(sec.117)
Q: What is protest?
A formal statement in writing made by a notary public at the
instance of the holder declaring that the instrument has been presented
for payment or for acceptance but the same was dishonored. It is
generally indispensable only for foreign bills of exchange, however, the
need for it may also be waived.
Q: May protest be made for inland bills?
Yes, although the NIL only requires protest for foreign bills,
there is no prohibition against making a protest for the dishonor of
inland bills. (sec.152, sec.118)
Q: In what instances is protest necessary?
1. Where a foreign bill was dishonored by non-acceptance
(sec.152)
2. Where a foreign bill, previously accepted, was subsequently
dishonored by non-payment (sec.152)
3. Where a bill is sought to be accepted for honor (sec.161)
4. Where a bill is to be presented for payment to an acceptor
for honor (sec.167)
5. where a bill is dishonored by an acceptor for honor
(sec.170)
Q: What are the legal effects of a waiver of protest?
1. Protest itself is waived;
2. Presentment for payment or acceptance is also deemed
waived;
3. Notice of dishonor is also deemed waived
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where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
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-If the endorsers signature was forged, the cut-off rule operates to bar
recovery from the parties prior to the forged endorsement. A
subsequent holder may not therefore enforce payment against the
drawee, the drawer, or the payee because parties prior to the forgery
may set it up as a defense (unless of course they are precluded from
doing just that)
instrument
4. Material Alteration
5. Ultra Vires act of a corporation
6. Fraud in Fact
7. Illegality
8. Vicious force or violence
9. Lack of authority
10. Prescription
11. Discharge in insolvency
-Obviously then, where the facts of any problem do not present a case
where it was the PAYEES signature that had been forged, application of
the short-cut rule is not advisable.
VI. DEFENSES
Q: What is a personal defense?
One which involves the relationships of the parties between
and amongst themselves, wherein there is a true and valid underlying
contract but where, for various reasons (i.e.: fraud, duress, mistake,
prior breach of contract by the holder, etc.), the defendant is excused
from his obligation to perform.
Q: What is a real defense?
One which involves the instrument or the underlying contract
itself, wherein there is an absence of one or more of the essential
elements of a contract or where the admitted contract is vitiated
Q: What defenses may be raised against a HDC?
Only real defenses those which call into question the
instrument or the underlying contract.
REAL DEFENSES
1. Minority (available only to the
minor)
2. Forgery
3. Non-delivery of an incomplete
PERSONAL DEFENSES
1. Failure or Absence of consideration
2. Illegal consideration
3. Non-delivery of a complete
instrument
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1.
2.
3.
-a REAL defense
FRAUD IN INDUCEMENT
-persons who signs the same is aware
that he is signing a negotiable
instrument, and intends to sign it, but
was only induced to do so through
fraud, his consent having been vitiated
by it
-a PERSONAL defense
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A forged signature is wholly inoperative and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to be enforce
such a right is precluded from setting up the forgery or the want of
authority (sec.23)
TYPE OF INSTRUMENT
PARTY WHOSE
SIGNATURE WAS
FORGED
Maker
PROMISSORY NOTE
Subsequent holder
cannot enforce payment
against the drawer,
drawee or payee
Endorsers prior to the
forgery may set up the
real defense of forgery
EFFECTS
Endorsers subsequent to
the forgery are still liable
BILL OF EXCHANGE
Endorsers
Endorsers precluded
from setting up forgery
as a defense are liable,
despite having endorsed
the bill prior to the act
of forgery
Endorsers
If the note is payable to
BEARER, the forged
signatures may not be
set up as a defense,
because the signature of
the endorser is
unnecessary to pass title
to the instrument the
maker is still primarily
liable on the note.
Drawer
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~Point of Impact
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5.
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Q: What are the acts which discharge simple contracts?
1. payment or performance
2. loss of the thing due
3. condonation or remission of the debt
4. confusion or merger of the rights of creditor and debtor
5. compensation
6. novation
7. annulment or rescission
8. fulfillment of a resolutory condition
9. prescription
(see: art.1231, NCC; check notes for oblicon)
6.
expressly reserved
Because the assurance of the drawer
and the endorsers is to pay according
to the tenor of the instrument. An
agreement to extend the time of
payment varies the original
undertaking of the secondary parties
(compare art.2079, NCC re: guaranty;
same principle applies)
EXCEPTIONS: (a) the extension was
made with the consent of the
secondary parties; (b) right of
recourse against secondary parties
was expressly reserved
4.
5.
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One drawn by a depositor upon funds to his credit in a bank
which a proper officer of the bank certifies will be paid when duly
presented for payment
Q: Is certification completely similar to acceptance?
No, certification is equivalent to acceptance (sec.187) but they
differ in the sense that (a) certification done at the instance of the
HOLDER results in a discharge while ordinary acceptance does NOT
discharge; and (b) in certification, the bank debits the drawers account
at the time of certification, not after, as in ordinary acceptance
Q: How does certification operate?
Upon certification, the bank debits the drawers account, in
effect setting aside the funds to meet the check if and when it is
presented for payment. The funds that were set apart are no longer
within the control of the drawer but have been precisely segregated for
the purpose of paying the check. This is why certification procured by
the holder discharges the secondary parties because the certified
check would now operate as an assignment of part of the funds to the
credit of the drawer (sec.189). The theory is that the holder, by
requesting such certification instead of payment, enters into a new
contract with the bank, and not one within the contemplation of the
drawer or a prior endorser. The drawer and the endorsers are expecting
that the check will be presented for payment only and not for
certification, hence they are discharged.
*The bank virtually says that the check is good; we have the
money of the drawer here ready to pay it. We will pay it now if you will
receive it. The holder says, No, I will not take the money; you may certify
the check and retain the money for me until this check is presented. The
money being due and the check presented, it is his own fault if the holder
declines to receive the pay xxx (1 Morse on Banks and Banking, p.920; cited
in PNB V. National City Bank of New York, 63 Phil 711, 717-720)
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But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
Q: What is the relationship between and among the drawer, drawee
and payee of a check?
DRAWER
X
DRAWEE
X
PAYEE
X
DRAWER:
-has privity of contract with payee
-has privity of contract with drawee
-has right of recourse against drawee bank
DRAWEE:
-has privity of contract with drawer
-has recourse against drawer, in some instances
-no privity of contract with, or right of recourse against, payee
PAYEE:
-privity of contract with drawer
-recourse against drawer
-no privity of contract or right of recourse against drawee
*EXCEPTION: payee has right of recourse against drawee via tort action
under art.19, NCC (abuse of right), if he can prove that (a) drawee has a
legal right or duty toward him; (b) the right or duty was exercised in bad
faith; and (c) for the sole intent of prejudicing or injuring another (HSBC v.
Catalan, GR Nos. 159590 and 159591; October 18, 2004)
Q: What is a collecting bank?
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hiryu kimiko
But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
exists, and also because the payee-depositor is liable under the same
warranties of a general endorser (sec.66, NIL)
*IMPORTANT:
- The drawee bank is not only bound by the NIL with regards to the
negotiation or handling of a check, it is also bound by the rules on
clearinghouse regulations enacted by the Central Bank, through the
Philippine Clearing House Corporation (PCHC) and its regional arms.
THE 24-HOUR RULE: the drawee bank must return checks or items
cleared through the PCHC within 24 hours (think: especially applicable to
forged checks where the forged signature belongs to the drawer) to the
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NEGOTIABLE
INSTRUMENTS
2K
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NEGOTIABLE
DOCUMENTS OF TITLE
hiryu kimiko
But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
Re: GOVERNING LAWS
NIL
Code of Commerce
Transfer of Credit or
Money
Holder may be a HDC
By Negotiation
By Assignment
An ORDER instrument
may be converted to a
bearer instrument
Re: CONVERTIBILITY
THROUGH
NEGOTIATION
A BEARER instrument
may only be converted
to an order instrument
ONCE if it was
originally a bearer
instrument
Re: WARRANTIES
Once a bearer
instrument, always a
bearer instrument
All parties (i.e.: drawers,
makers, endorsers) to a
negotiable instrument
are bound by their
respective warranties
NCC (Arts.1507-1520)
Warehouse Receipts
Law (WRL);
Trust Receipts Law (TRL)
Transfer of Goods
BEARER DOCUMENT
By delivery
(Art.1508, NCC)
*POSSESSION is controlling - the
warehousemans obligation follows
the possessor
ORDER DOCUMENT
By endorsement
(a) in blank; or
(b) to bearer; or
(c) to a specified person
If the document is endorsed to a
specified person, he may again
negotiate the document in blank, to
bearer or to another specified person
(Art.1509, NCC)
*ENDORSEMENT is controlling the
warehousemans obligation follows
the endorsement (if endorsed in blank
or to bearer, warehousemans
obligation follows accordingly)
Q: Does the transfer of a NDT result in the transfer of title to the goods?
Yes, because transfer of the document controls the transfer of
goods. Negotiation of a document has the effect of manual delivery so
as to constitute the transferee the owner of the goods. The direct
obligation of the bailee issuing the document to hold possession of the
goods is owed to the transferee from the moment of negotiation
(Art.1513, NCC)
Q: Suppose the document was not negotiated but merely transferred to
the holder, what are the effects?
The person to whom it has been transferred and not negotiated
acquires as against the transferee the title to the goods, subject to the
terms of any agreement with the transferor (i.e.: person in possession
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But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
becomes an assignee of the goods), and the transferee may convert the
plain transfer to negotiation by compelling the transferor to complete
the negotiation process (Art.1515; secs.42,43, WRL)
Q: what is the effect if there was in fact an intent to negotiate the
document but possession of the same is retained by the transferor?
The interest of the prior transferee may be defeated if the
document is subsequently transferred to a purchaser in good faith
without notice. The subsequent negotiation of the document under any
sale or other disposition to any person receiving the same in good faith
and for value and without notice of the previous sale, mortgage or
pledge, shall have the SAME EFFECT as if the first purchaser had
EXPRESSLY AUTHORIZED the subsequent negotiation (sec.48, WRL)
*No, Art.1544 of the NCC on double sales does NOT apply to the
second sale of a negotiable document like a warehouse receipt. The law
(WRL) practically negates the will of the first purchaser and assumes
that buyer 1 willingly permitted sale number 2.
*Read this together with the right of the purchaser to compel
the transferor to complete the negotiation this is why.
Q: What are the rights of a person to whom a NDT was duly negotiated?
1. He acquires such title to the goods as the person
negotiating the document to him had or had ability to
convey
2. The direct obligation of the bailee issuing the document to
hold possession of the goods for him as if such bailee had
contracted directly with him
(Art.1513, NCC; Art.41, WRL)
*Think: the goods follow the document of title, BUT notice that
NO ADDITIONAL RIGHTS are conferred over the goods to the
transferee.
*Here lies the crucial distinction between NDTs and NIs. Under
the NIL, a holder in due course may acquire a better right than his
transferor (i.e.: he gets a clean title to the instrument); whereas the
transferee of a NDT acquires merely what the transferor had or could
give (owing to the fact that NDTs are found under the law on Sales, the
maxim applies: nemo dat quod non habet. One cannot sell what he does
not have if the person who deposited the goods with the bailee who
issued the document is not legally entitled to the goods, no such title to
them will be acquired by the transferee of the document of title EVEN IF
he is a holder for value)
Q: Suppose the goods were sought to be repossessed by an unpaid
seller. May he run after the purchaser of the warehouse receipt?
No, no sellers lien or right of stoppage in transitu shall defeat
the rights of any purchaser for value in good faith to whom the receipt
has been negotiated, nor shall the warehouseman be obliged to deliver
or be justified in delivering the goods to an unpaid seller UNLESS the
receipt is first surrendered for cancellation (sec.49, WRL)
Q: What is the significance of the unpaid seller presenting to the
warehouseman the receipt for cancellation? Why cant the
warehouseman deliver the goods prior to the surrender of such a
receipt by the unpaid seller?
The surrender for cancellation of the receipt by the unpaid
seller means that the unpaid seller has validly reacquired the receipt
from the holder for value
Q: May the warehouseman validly refuse to deliver the goods to a
person claiming them?
Yes (secs.31, 49, WRL; art.1519, NCC)
*Flag this as another key distinction with negotiable
instruments under the NIL, the parties liable may NOT validly refuse to
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But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
pay a holder in due course (except, of course, when they can raise real
defenses against the HDC)
Q: Who may negotiate a NDT?
1. The owner
2. A person to whom the possession or custody of the
document has been duly entrusted by the owner
(art.1512, NCC; sec.40, WRL)
*Theres a massive conflict in THIS particular area of the Civil Code
negotiation of NDTs, owing to these 2 provisions:
ART.1512
A negotiable document of title may be
negotiated:
(1) By the owner thereof; or
(2) By any person to whom the
possession or custody of the
document has been entrusted by
the owner, if, by the terms of the
document the bailee issuing the
document undertakes to deliver
the goods to the order of the
person to whom the possession
or custody of the document has
been entrusted, or if at the time
of such entrusting the document
is in such form that it may be
negotiated by delivery
ART.1518
The validity of the negotiation of a
negotiable document of title is not
impaired by the fact that the
negotiation was a breach of duty on
the part of the person making the
negotiation or by the fact that the
owner of the document was
deprived of the possession of the
same by loss, theft, fraud, accident,
mistake, duress, conversion, if the
person to whom the document was
negotiated or a person to whom the
document was subsequently
negotiated paid value therefor in
good faith, without notice of the
breach of duty or loss, theft, fraud,
accident, mistake, duress or
conversion.
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But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
This is Dean Sundiangs analysis. (I ask you, though: Do the provisions of
the NIL [sec.23] apply suppletorily to the negotiation of NDTs? Would it not
be more in line with civil law to apply the Statute Frauds and deem the
contract entered into by the thief as unenforceable for violating
Art.1403(1) because he entered into it by forging the signatures of the
owner or the duly authorized representative and thus entered into the
contract in the name of another person without having been given proper
authority or legal representation? Just thinking aloud Kimiko)
Q: Do the endorsers of a NDT make any warranties?
No, endorsers are not liable for the failure of the bailee to
deliver the goods. Only the transferor of the document makes any
warranties in favor of the transferee
Q: What are the warranties of a transferor of a NDT?
1. That the document is genuine
2. That he has a legal right to negotiate or transfer it
3. That he has knowledge of no fact which would impair the
validity or worth of the document; and
4. That he has a right to transfer the title to the goods and
5. That the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been
implied if the contract of the parties had been to transfer
without a document of title the goods represented thereby
(Art.1516, NCC; Sec.44, WRL)
Q: when is a document of title (particularly a warehouse receipt)
deemed non-negotiable?
When it states that the goods received will be delivered to the
depositor or to any other specified person (Sec.4, WRL)
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But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
No, the warehouseman is still liable to a person to whom the
negotiable receipt has been or shall be negotiated for value without
notice of the proceedings or of the delivery of the goods (sec.14, WRL)
The warehousemans remedy is to enforce the bond required
by the court or to run after the person who obtained the release of the
goods
Q: May the warehouseman refuse to deliver the goods on account of an
adverse claim over them?
Generally, no. No title to or right to the possession of the goods
on the part of the warehouseman shall excuse him from liability for
refusing to deliver the goods according to the terms of the receipt
(sec.16, WRL)
EXCEPTIONS: (1) The warehousemans title or right is derived
directly or indirectly from a transfer made by the depositor at the time
of or subsequent to the deposit for storage; (2) The right is based on the
warehousemans lien.
Q: Under the WRL, what defenses may the warehouseman raise for nondelivery of the goods?
1. Loss of destruction of the goods without his fault
2. Failure to satisfy bailees lien (sec.8)
3. Failure to surrender the NDT(sec.8)
4. Lack of willingness by the person claiming the goods to sign
acknowledgement of receipt (sec.8)
5. Receipt by the bailee of a request by or on behalf of the
person lawfully entitled to a right of property or possession
in the goods, not to make delivery (sec.10)
6. The bailee has information that the delivery about to be
made was to one not lawfully entitled to the possession of
the goods
7. Delivery to a claimant with a better right
X. LETTERS OF CREDIT
Q: What is a letter of credit (LOC)?
An engagement by a bank or other person made at the request
of a customer that the issuer will honor drafts or other demands for
payment upon compliance with the conditions specified in the credit
(Prudential Bank v. IAC, 216 SCRA 157, 267)
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hiryu kimiko
But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
Q: How does a letter of credit operate?
1
2
3
4
5
6
7
8
The seller may not trust the opening bank (usually because the
opening bank is a foreign and unfamiliar bank), in which case,
he may use the facilities of another, better-known and bigger
bank known as the confirming bank. The confirming bank
usually carries a dollar account maintained by the opening bank,
and thereby assumes the obligation of paying the seller upon
presentment of the tender documents. The seller may now
proceed against the confirming bank for the payment of the
credit. In this regard, the confirming banks liability is primary,
as if the credit was issued by it and the opening bank jointly.
The paying bank is the bank against whom the drafts are to be
drawn. It may or may not be the opening bank.
*Behind the scenes, before the seller and the buyer both get their ends
of the deal, other banks may play a hand in the credit transaction
o
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hiryu kimiko
But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
3.
*Other contracts include the contract of carriage between the seller and
the carrier for the goods, the contract of surety between the seller and
the warehouseman or bailee for the keeping of the goods, and the
various credit agreements between intermediary banks regarding the
negotiation of the drafts drawn against the letter of credit
Q: What is the Independence Principle?
The independence principle is a doctrine embodied in the
Uniform Customs and Practice for Documentary Credits (UCP) adopted
by the International Chamber of Commerce, which essentially holds that
the contracts involved in a letter of credit arrangement are to be
maintained in a state of perpetual separation.
*The parties to these different transactions may not co-opt the rights of
recourse or remedies found in each transaction, nor are they obligated
to go beyond the respective responsibilities of each of the transactions
in order to determine the propriety or validity of the others.
Q: Is the issuing bank the only party who may invoke the independence
principle?
No, other parties (i.e.: even the beneficiary, in proper cases)
may invoke the principle
Q: What is the Fraud Exception?
An exception to the independence principle, which holds that
when the beneficiary, for the purpose of drawing on the credit,
fraudulently presents documents to the confirming or paying bank
which contain material representations of fact that are untrue, and
which the beneficiary was aware of, the buyer may seek an injunction
against payment. (Transfield Phils., Inc. v. Luzon Hydro Corp., GR No.
146717, November 22, 2004)
*Requisites:
1. There is clear proof of fraud
2. It is an abuse of the independent purpose of the LOC and not
merely fraud under the main agreement
3. Irreparable injury might follow if injunction is not granted or the
recovery of damages would be severely impaired
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hiryu kimiko
But this is the world we live in and justice does NOT always triumph. This isnt the wild west
where you can clean up the streets with a gun even though thats exactly whats needed.
~Point of Impact
Q: What are the obligations of the entrustee?
1. Hold the goods, documents or instruments in trust for the
entruster and dispose of them strictly in accordance with
the terms and conditions of the trust receipt
2. Receive the proceeds in trust for the entruster and turn
them over to the extent of the amount owing to the
entruster as appears on the trust receipt
3. Insure the goods for their total value against loss from fire,
theft, pilferage, or other casualties
4. Keep the goods or proceeds thereof separate and capable
of identification as property of the entruster
5. Return the goods, documents or instruments in the event
of non-sale or upon demand of the entruster
6. Observe all other lawful terms and conditions of the trust
receipt
(sec.9, TRL)
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