PRE-WEEK NOTES re Mercantile Law € wTABLE OF CONTENTS |. LETTERS OF CREDIT AND TRUST RECEIPTS A. Basic Concepts. B, Rights and Obligations of Parties C. Remedies Available: ~.. & W. NEGOTIABLE INSTRUMENTS LAW Requisites of Negotiabilty Forgery and Material Alteration Negotiation. Rights of the Holder. Checks mooo> Wl, INSURANCE LAW Basic Concepts so seers ee , Perfection of the insurance Contract rennnannnenemnnni a i Rights and Obligations of Parties . 8 Rescission of Insurance Contracts z EELS “ Loss 7 sient : 6 moog> IV. TRANSPORTATION LAW Common Carriers Obiigations and Liabilities Defenses of a Common Carrier Extent of Liability V. CORPORATION LAW General Principles - ‘Stock vs. Non-Stock Corporations. De Facto Corporations and Corporations by Estoppel Board of Directors and Trustees. Powers of Corporations ‘Stockholders and Members Foreign Corporations. H. Mergers and Consolidations. Vi. SECURITIES REGULATION LAW A. Registration Requirement; Exemptions 8. Prohibitions on Fraud, Manipulation, and Insider Trading CC. Protection of Investors. 7 pom> RBs o7moom> RESKBRSR Bee Vil. BANKING LAW ‘A. The New Central Bank Act; Banks in Distress B. Secrecy of Bank Deposits. ©. The General Banking Law of 2000 . Philippine Deposit insurance Act REReE VII INTELLECTUAL PROPERTY LAW A. Patents B. Trademarks. C. Copyright 288 fv | 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS SN 7 a0%. ANTI-MONEY LAUNDERING acT Covered Institutions. and their Obligations Covered and Suspicious Transactions Safe Harbor Provision, ‘When Money Laundering Committed Authority to Inquire into Bank Deposits Freezing and Forfeiture mmoom> SSRREL xX. E-COMMERCE ACT ‘A. Legal Recognition of Electronic Data Messages, Documents, and Signatures.. B._Presumptions Relating to Electronic Messages C. Admissibility and Evidential Weight of Electronic Data Message or Electronic Document D, Obligation of Confidentiality... 83s DATA PRIVACY ACT ‘A. Personal v. Sensitive Personal Information B. Scope Of the ACE nnn - : ey C. Processing of Personal Information D._ Rights of the Data Subject xi. z FINANCIAL REHABILITATION, INSOLVENCY, LiQuI | PAYMENTS. LIQUIDATION, AND SUSPENSION OF A. Basic Concepts B. Modes of Rehabilitation : C. Liquidation , 68 D. Suspension of Payments 69 E. Remedies, 70 THIS IS THE INTELLECTUAL PROPERTY OF THE SAN BEDA UNIVERSITY COLLEGE OF LAW CENTRALIZED BAR OPERATIONS. THE UNAUTHORIZED COPYING, REPRODUCTION, MODIFICATION OR DISTRIBUTION OF ANY OF THE CONTENTS OF THIS BOOK IS STRICTLY PROHIBITED. 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | ¥MERCANTILE LAW RAITT AR EIATRAU ETD a OPT RATONS 0 NaI Fes Nh eS fd POR iL Gnlemamen - As Basle Concepts ed 7 Define Lotter of Credit. A letter of credit is an engagement by a bank or other person made at the request of @ customer, also Called the Applicant, that the issuer will honor drafts or other demands for payment upon compliance with the conaian® sPecfied in the credit (Prudential Bank v. Intermediate Appelate Court, G.R. No. 74886, December 18, 1992), | 2. What Is the Doctrine of independence? Contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual 1 seperation (Keng Hua Paper Products Co., Inc. v. CA, GR. No. 116863. February 12, 1998). Wassures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from deterring whether the main contract is actually accomplished or not (Transfekd Phitppines. Inc. v. Luzon Hydro Co, GR. No. 146717, November 22, 2004) By the independence principle, the bank determines compliance with the letter of credit only by examining the shipping documents presented; is precluded trom determicing whether the main contract is actually ‘accomplished or not (Bank of Amenca, NT & SA v CA, GR. No. 105395, December 10, 1993) 3. When is the fraud exception principle applicable? Fraud 18 an exception to the independence principle The fraud exception applies when the beneficiary, {or the purpose of drawing on the credit, presents. certficabons or documents thal the beneficiary knows to be matenalty untrue (Transtiekd Phiippines. Inc v. Luzon Hydro Corporation, GR. No. 146717, November 22, 2004) In such cases, an injunction may le to preclude payment of the credit However, being exceptional, fraud {exception injunction must issue only upon the concurrence of the following requisites: there 18 clear proot of fraud D__ the fraud constitutes abuse of the independent purpose of the letter of credit (and not fraud pertaining to the main agreement), and © itreparable injury might follow if muncton is not granted (Tranefleld Philippines, Inc. v. Luzon Hydro Corporation. GR No 146717, November 22, 2004) 4. Discuss the doctrine of strict compliance? ‘The doctnne of stnct compliance provides that the documents tendered must strictly conform to the terms. Of the letter of credit. The tender of documents by the beneficiary (seller) must include all documents required by the letter A comespondent bank which departs from what has been supulated under the letter of credit. as when it accepts a faulty tender. acts on its own risks and may nol thereafter be able to recover from the buyer r the issuing bank. as the case may be, the money thus paid to the beneficiary (Feati Bank and Trust Co. v CA, G.R No. 94209, Apni 30, 1991). 5. What claims are included in the warehouseman's lien? ‘A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands, for: 2 Alllawful charges for storage and preservation of the goods, ©. All lawful claims for money advanced, interest, insyrance, transportation, labor, weighing, coopering, and other charges and expenses in relation to such goods, and, ©. Allreasonable charges and expenses for notice and advertisements of the sale, and the sale of goods: where default had been made in satisfying the warehouseman's lien (Warehouse Receipts Law. Sec. pa B. Rights and Obligations of Parties: 3... 2° 6. What are the rights of an entruster? The following are the rights of an entruster: (PROCaP) 8, He is entited to the Proceeds from the sale of goods, documents or instruments released under a ttust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt b. He is entitled to the Return of goods, documents or instruments in case of non-sale: 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 1NOTES Gran ger ras confared.n hm ine ISTO! roy, > 2 Doctor documents, or instruments, ang EEK 2019 PRE-W' 9910 comply wih any of the tag <8 {g00ds in a public sale in case of de lure ant between the entuster and the errusteg a Conditions of the trust receipt or any other ag! aetna Cae Sodk7| 0 nS ot rotate ntonaed pubic a (Ts! Races ” 7. What are the obligations of an entrustee? K-RO) ‘The following are the obligations of the entrustee: (HoORM ss 2 Perieien Se aegeccmts or struments 0 tus a i crs dace wan eins onc cmvstones ct eres, Toor the same to the entruster to the @. lecewe the proceeds ints fr the entrusor and turn over ne So extent oy the amount owing tothe antruster or as appears pe ‘heft, piferage or other casualties, 44. Jnsure the goods for thoi total valve agai 5 eee ae e poe ‘said goods or proceeds thereof whether in money of whatever Separate and capable fenification as pr the entrust 1a ees a ahold upon the expiration ofthe erm of the trust oF upon demand ofthe erin, to Retum such unsold goods, documents, or instruments; and 4. Qbserve all other terms and conditions ofthe trust receipt not contrary t0 the provisions of the Try Receipts Law (Trust Receipts Law, Sec. 9). 8 What are the obligations of the appilcant-writer? credit and obliges himsetf to reimburse the issuing bank upon ‘The applicant-writer procures the letter of Gi No. 105895, December 10, 1983 receipt of the documents of title (Bank of America, NT & SA v. CA, 9. What are the obligations of the issuing bank? f the credit, the a The issuing bank undertakes to pay the beneficiary, in accordance with the terms o . the amount fon the letter upon due presentation and surrender by the latter of the documents specified in the leer (Prudential Bank v. IAC, G.R. No. 74886, December 8, 1992). 10. What are the obligations of the beneficiary? The beneficiary, who in compliance with the contract of sale ships the goods to the buyer and delivers he document of title and draft to the issuing bank to recover payment (Bank of America, NT & SA v. CA, G.R. No. 108398, December 10" 1053) ae C.RemediiAvallable | SSNs 41. Albert, a merchant in Manila, entered into a contract with Edgar where he undertook to deliver 1,000 ‘sacks of jasmine rice to Edgar in Cebu. Edgar obtained a commercial letter of credit from M Bank in favor of Albert where M Bank agreed to pay upon presentation of the bill of lading of the goods issued by N Navigation Co. ‘4, Albert shipped the cargo through F Transportation Inc., and presented to M Bank the bill of lading Issued by F Transportation, Inc. in demand of the credit. M Bank paid Albert. Finding that the draft had already been paid and the amount debited from his savings account with M Bank, Edgar filed an action against M Bank to recover. Will Edgar's action prosper? b. Assuming that Albert shipped the cargo through N Navigation Co. However, upon Edgar's receipt of the shipment in Cebu port, almost half were found wet and unfit for consumption. This prompted Edgar to ask M Bank to dishonor the draft. Thereafter, Albert presented the letter and the bill of lading to M Bank for payment but the latter refused, May Albert enforce the credit? ¢. Supposing that the shipment never arrived at Cebu port. Edgar discovered however that Albert hhad already drawn on the credit by presenting a forged bill of lading, Thus, Edgar refused to pay M Bank. May M Bank recover from Albert what it pald to him? . Answers Yes. The doctrine of strict compliance provides that the documents tendered must strictly conform to the terms of the letter of credit. A correspondent bank which departs from what has Bee ‘stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and must beat the 4oss of improper payment (Feat! Bank and Trust Co. v. CA, G.R. No. 94209, Apri 0, 1091), In IS 2] 2019 SAN BEOA LAW CENTRALIZED BAR OPERATONS12. 13. MERCANTILE LAW & case, M Bank paid Albert espite the fact that the bill of lading was issued by F Transportation Inc. instead of N Navigation Co, Edgar may recover from M Bank Yes, The independence principle assures the seller or the beneficiary of prompt payment independent of any breach of the underlying main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not (Transfield Philippines, Inc v. Luzon Hydro Co. GR No. 146717, November 22. 2004). In this case, Albert needed only to present the bill of lading Issued by N Navigation Co for the goods and M bank will be justified in paying Albert after confirming that the bill of lading strictly complied with the terms of the letter of credit. Hence, Albert may enforce the credit. No, The fraud exception principle only gives ground for an injunction to resist payment to the beneficiary. In this case however, not only has payment already been made to the beneficiary, the fraud exception is being used against the issuing bank. M Bank has the independence principle in its favor and it is entitled to recover from Edgar without prejudice to any damages M Bank may be held liable for if the payment was attended by its own fraud or negligence. In relation thereto. itis Albert who must bring the proper action to recover the amount paid to Edgar (Transfield Philippines, inc. v. Luzon Hydro Co., GR. No, 146717, November 22, 2004) What are the remedies of the warehouseman when more than one (1) person claims the title or possession of the same deposited goods? The following are the warehouseman's remedies in case there are adverse claimants: a, The warehouseman may, either as a defense to an action brought against him for non-delivery of the {goods or as an original suit, whichever Is appropriate, require all known claimants to interplead (Warehouse Receipts Law, Sec. 17); or b. The warehouseman shall be excused from labiity for refusing to deliver the goods to the claimant/s Until the warehouseman has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel claimants to intarplead (Warehouse Receipts Lew, Sec. 18). What are the remedies of the entruster when the entrustee fails to comply with the terms and conditions of the trust receipt? The entruster’s remedies are 8. Extrajudicial Canceltation/Rescission of Trust including right to restitution: i. Cancel the trust; and fi Either— a) Take possession of the proceeds realized from the sale of the entrusted goods; or b) Take possession of the goods, documents, or instruments subject of the trust and sell them ‘at a public or private sale (Trust Recelpts Law, Sec. 7), . File an action for collection of the amount of the Joan; . Bring a civil action for damages for fraud under Article 33 of the Civil Code which shall be separate and distinct from the cnminal action under Section 13 of P.O. No. 115 (Prudential Bank v. IAC, G.R. No. 74886, December 8, 1992): and 4d. Initiate criminal proceedings for estafa upon failure or refusal of an entrustee to retum the objects of the trust; (Trust Receipts Law, Sec. 13) il. NEGOTIABLE INSTRUMENTS LAW 4. 15. A. Requisites of Negotiabbiity? 95.725 gpa When is an instrument negotiable? ‘An instrument to be negotiable must conform to the following requisites: (NUPOA) I must be in Whiting and signed by the maker or the drawer Must contain an Unconditional promise or order to pay a sum certain in money Must be Payable on demand, or at a fixed or determinable future time Must be payable to Order or to bearer Where the instrument is Addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty (Negotiable Instruments Law, Sec. 1) eaoce F obtained a loan from Y in the amount of P650,000.00, evidenced by a promissory note which states “I promise to pay THE HOLDER’ the amount of P650,000.00 on or before January 1, 2020, Signed, F." Is the note negotiable? 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 316. 17. wen 18. “WEEK NOTES 2019 PRE the instrument i trom the 1208 of ony rrument is determined "Fit can be legally ascertained. the ‘es. The. ay of an insrument i deter tots i Cate sorecinnn at toler nets, te mn pais crag case Promised 10 Bay the th No 97753. nts Law f (Prippines) nc. v8 CA. CF Trot fotow the lanaueg® of Heat ne ran sa Of the note. An instrument need tangoo® an a terms dry rene rteton CONT i, vi wes dese holderfoearr ofthe note atthe te of demand, Nes 2 ranking app whereby its clients C&M 80nd a requyg nee re none’s fingerprint scanner to transfer from ‘ame bank, whether in the name or 2” ft sent ABC Bank a Preliminary Noticy hese electronic fund transfers for 42? mak ware inthe character of accept. ‘ode, As legal counsel for ABC Ban tn 2018, ABC Bank launched an onli the bank, authorized and authenticat Srroled account a specified amount to another secre Stquesting cent or another depositor. 10 2049, the SN. Oe Assessment of deficiency Documentary ‘Stamp T» ‘de to the bat 2010 arguing that the online fund tranaterordare madi 10 roe Grate which are subject to OST under Section what la the basis of your protest? semen cages are not negotiable instruments a8 they do instructions given through electronic data messages are not nego va come msructons glen Westy sony under Socton 1 ofthe Negotble iniurens Lt he eect aaa aseen ee yet contain en uncondionel order 10 pay 8 Sum ceric TAINO Re EN payment set meee rt on bre account of eve als 26 2 ey oe pect party There being no such ut order of peymont te bearr but to» specaly desianated NP Vie nan that wil Wager the impositon of the DST ung, Section 181 of the Tax Code (HSBC v. CIR, G.R. No. 166018, June 4, 2014). in «Juan Dela Cruz” dated June 15, 2019 in the amount of Fred iesued a Malakas Bank checkin favor of “Juan Dele Cra ee a ot Malakas Bar srssats finn So apn Bernt han cae vers waren en feet ae rp es a nto he made a demand for the return of the P30,000.00 claiming that the check had been wrongfully paid as It had been stolen by his child's nanny. He also presented the driver's license of a “Juan Dela Cruz” who he claims was hie intended payee. He also showed records that Juan Dela Cruz had previously Sts tn cas aa een acs boa Ste waka Se ats cee oe oa ts na te bec ane instrument. Is the bank correct? No, the bank is incorrect. Under the fictitous payee rule, a negotiable instrument payable to the order of a fictitious or non-existing person will be treated as @ bearer instrument provided such fact (that the payee was fictitious) was known to the person making it so payable (Philippine National Bank v. Rodriguez, G.R. No, 170325, September 26, 2008). In this case, Fred has offered evidence that he had intended a real person to be the payee which remains unrebutied. Moreover, the presumption of the Jaw is that instruments are order instruments. The burden of proving that the payee 's “fictitious” is on the bank. It has failed to discharge this, burden. Moreover, the law recognizes what is called the “commercial bad faith exception.” Commercial bad faith ‘exception applies when the drawee and/or the transferee is proven to have acted “dishonesty” such that ithad “actual knowledge of the facts and circumstances that amount to bad faith” (Philippine National Bank v. Rodriguez, G.R. No. 170325, September 26, 2008). In this case, there are records showing that the same person had always encashed Fred's checks made payable to a “Juan Dela Cruz,” Hence, Malakas Bank had actual knowledge of facts and circumstances that made its negligence amount to bad faith. “ae 1B Forgerdind Material Aledtiation::-- aap ager ‘The Municipality of ABC maintains a current account with MNO Bank. municipal Prom Ac give amon subsidy 072 Hostal sare nsgentsasare ve unene, For this purpose, ABC issues checks drawn against MNO Bank and signed by Mayor G. For the first yoar, itwas agreed that ABC will deposit said checks directly with a bank account of XYZ Hospital with another bank. However, starting the second year, R, the cashier of XYZ Hospital began to personally collect the checks from ABC claiming that he was authorized to make the deposits on behalf of XYZ Hospital. 6 months later, XYZ found that it had not been recelving its monthly subsidy. When R Was confronted, he went absent without official leave. it was later found in audit that R had been endorsing the checks to himsalf by signing as T, the hospital's chief, and depositing it Into hie necoumt with ORS ee eeERERe gainer beth Mn Bree Pital filed an action against QRS Bank. QRS in urn (QRS, ABC, MNO), any?” jank and ABC. What are the liabilities of the defendants 4.| 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS19. oe en eT a. MERCANTILE LAW 4 QRS Bank and the Municipality of ABC shall bear the loss pro rata, tne SRS Batt = colecing bak bound by ts warans as» general nose check ransacons SSS URS aren 19 bank oF last endorser generally suffers the loss because it has the duty to ascertain Crewe is on esvorion tron adorsements considering that the act of presenting the check for payment to the the genuineness of the i ty, the party making the presentment has done its duty and due diligence to ascertain ipa genuneness ofthe indorsements, (Metrobank & Trust Company vs, BA Finance Corp., G.R. No. 179962, . ?) Because T's indorsements were forgeries, the collecting bank commits a breach of said warranty (Associated Bank v. CA, G.R. No. 107382, January 31, 1996). to eee Municipality. on the other hand, may be held liable for contributory negligence. Failure by the drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is Precluded from asserting the forgery (llusorio v. CA, G.R. No. 139130, November 27, 2002). In this case, the Truicipalty was negligent when it alowed to collect he checks without ascertaining his autho from XYZ MNO Bank cannot be held liable as it cannot be faulted for relying upon the guarantees of QRS Bank (Metropolitan Bank and Trust Company v. 8A Finance Corporation, G.R. No. 179952, December 4, 2009). Emile, single proprietor of a business concern, Is about to leave for a business trip and, as he so often does on these occasions, signs several checks In blank. Emile feels secure about this as he has an arrangement with the bank for almost 5 years already that the bank should call him to verify if the amount of the check exceeds P100,000.00. He instructs Helen, his trusted secretary, to safekeep the blank checks and fill them out only when required to pay maturing accounts during his absence. And as he has always don: ‘8 matter of practice, he forbade Helen from writing checks to bearer because he never writes bearer checks himself. Holen fills out one of the checks by ‘a. One day, in need of cash to pay Carlos for a purcha placing her name as payee, fills in the amount, endorses and delivers the check to Carlos who accepts it in good faith as payment for goods sold to Helen. A few days later, Helen regretted her actions and confesses to Emile what she did. This prompted Emile to call and direct the drawee bank to stop payment on the check. Can Carlos still enforce the check against Emile later? b. Unknown to both Helen and Emile, Ferdinand, Helen's boyfriend, was able to obtain one of the blank checks. Using a typewriter, Ferdinand typed “Cash” and “One Hundred Thousand Pesos Only”. He made a mistake however and both of the phrases appeared above the line meant for “Pay to the Order of”. Realizing his mistake, Ferdinand re-typed “One Hundred Thousand Pesos Only” in the line meant for “Amount in words”. Ferdinand successfully ‘encashed the check and upon discovery, Emile immediately demanded the return of the 100,000.00 wrongfully paid. The Bank however raised the defense that there was neither forgery nor material alteration. Moreover, as the check was payable to cash, it had the absolute duty to pay the bearer upon verification of the genuineness of the signature appearing thereon. |s the Bank correct? ¢ Given the facts of the problem, is the bank solely liable for any loss which may arise from the misuse of the pre-signed checks? Answers: ‘a. Yes. Under Section 14 of the Negotiable Instruments Law, a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument ‘operates as a prima facie authority to fil up as such for any amount and such may be enforced by a holder in due course as if it had been filled up strictly in accordance with the authonty given and within a reasonable time. In this case, Carlos is a holder in due course who may enforce the instrument even against Emile because the defense of want of authority is merely a personal defense which Eile may raise against Helen, but not Carlos. Emile’s recourse is to recover the amount he is made to pay Carlos from Helen. b._ No. Itis admitted that there is no forgery as Emile's genuine signature does appear on the check. Nor js there any material alteration as the entries made by Ferdinand do not fall into any of the acts ‘enumerated under Section 128 of the Negotiable Instruments Law. Be that as it may, there appeared on the face of the check itself indications that should have put the bank on inquiry given that its bound te onercise extraordinary diligence. It is not disputed that the amount in words had been typed twice, with one line appearing on the space intended for the “payee.” Moreover. given the amount oft Chock, and given the attendant circumstance of the patent defect on the face of the check itself, the bank should have called Emile to confirm the transaction. A bank's ltabilty to dishonor checks is not limited only to cases of forgery or material alteration (Bank of America NT & SA v. Philippine Racing Club, GR. No. 150228, July 30, 2009). 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS |S2019 PRE-WEEK NOTES "A BN COLE OF LAM CNA BAR ARATE wnd circumstance that Emile has never wrote a O tne ei Case where one of Emile's checks was made Moreover, the bank has knowiedge Me i nal case heck to bearer Hance. as this was an exceptional case wher ote oe Ee payable to “CASH, the bank's negligence (Philippine National Bank v. Rodriguez, GR. No. 170325, September 26. 2006) ©. No, The practice of signing checks in blank is a dangerous policy especially it t's not shown thatthe ‘owner ofthe checks didnot pul in place appropriate safeguards or intemal controls 0 prevent the pre- ‘igned checks from being misused (Bank of Amenca NT & SA v. Philippine Racing Club. GR. No, 180228, July 30, 2009) In tis case, Emvle’s instructions to Helen are not sufficient t0 prevent the misuse of the checks. Clearly, the two instances of misuse show the inadequacy of his safeguards When unauthorized payment results from the failure of the owner of the check to act as a prudent businessman would under the circumstances, he may not avoid lability (Gemnpesaw v. CA, G.R. No, 92244, February 9. 1993) Thus, while the bank clearly had the last clear chance to avoid liability, Emile must share the burden of any loss which results from his dangerous practice (Bank of America NT & SA v. Philippine Recing Club, G.R. No. 150228, July 30, 2009). 20. Brad and Sally entered into a contract of sale where Sally insisted that she would only accept XYZ Bank's manager's check as payment. Thus, Brad purchased an XYZ Bank manager's check leveraged by his newly opened savings account. Brad then sent to Sally a photocopy of the manager's check in order to prove that he was ready to comply with his obligation and urged Sally to deliver the goods, Sally however failed to do 80. Thereafter, an employee of DEF Bank called XYZ Bank to inform them that Sally had deposited the check with it. The branch manager of XYZ Bank confirmed the issuance of the said check which prompted DEF Bank to clear and pay Sally. When XYZ bank Informed Brad, Brad immediately informed XYZ Bank that what was deposited and encashed with DEF bank could not have been genuine as he still had the manager's check in his possession. It seems Sally had used the Photocopy of the manager's check to falsify one. Is XYZ bank lable for clearing the spurious managers check? Yes. the Supreme Court held that banks hold themselves out to the public as experts in determining the {genuineness of checks and the corresponding signatures thereon. Stemming from their primordial duty of diligence, one of a bank's prime dutias ws to ascertain the genuineness of the drawer's signature on check being encashod This holds especially true for managers checks 9s the check and signature being ‘authenbcated are the bank s own Thus Brad's failure to nform XYZ Bank that the deal did not push through does not justify XY7 Bank's cunfrmabon and cleaning of a fake check banving the forged signatures of its own officers As the chock remained in Brad's possession, he was entitled to a reasonable expectation that the bank would not release any funds corresponding to the check (Land Bank of the Philippines v. Kho, G.R. No. 205839-40. July 7, 2016) 21. What is the lability of the collecting bank if it presents » forged or materially altered check? A collecting bank is an wndorser, and Is therefore liable for the warranties under Section 66 of the Negotiable instruments Law in check transactons, the depositaryicollacting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considenng that the act of presenting the check for payment to the drawee is an assertion that the party making the preseniment has done its duty to ascertain the genuineness of the indorsements. If any of the warranties made by the depositary/collecting bank tums out to be false then the drawee bank may recover from it up to the ‘amount of the check (Metrobank & Trust Company vs BA Finance Corp., GR. No. 179952, December 4, BEL eds ee ae 22, AP Issued 2 negotiable order note to RR for P10,000.00 payable in 6 months. The following month however RR needed P4,000.00 for an emergency. He therefore indorsed the note to MS writing “to MS, for P4,000.00." 3 months later, FD took the note from MS for P10,000.00. When it fell due, FD demanded 10,000.00 to AP. ‘Was RR's indorsement to MS valid? b. May AP resist liability on the note against FD? Answers: ‘a. Yes. The indorsement is valid. The NIL does not prohibit the indorsement of only a part of the amount payable, The only effect of an indorsement in partis that it cannot operate as a negotiation of the instrument (Negotiable Instruments Law, Sec. 32). Instead, the indorsement may be considered as. {an assignment of the credit on the instrument and MS, as assignor, acquires the right to collect up to 4,000.00. 6 | 2019 SAN BEDA LAW CENTRALIZED BAR.FEE —eOoOoOoOoOoOoOoO 23, 24, 25. MERCANTILE LAW Z es, but only in part. As the partial indorsement was apparent on the face ofthe instrument. FD cannot Glaim to be @ holder in due course (Negotiable Instruments Law, Sec. 52). He is however a valid ‘88sign€e Up to P4.000.00 and steps into the right of RR to demand up to P4,000,00 subject to any other personal defense AP may have against RR. Absent any such personal defense, FD may demand payment of up to P4,000.00. . si Dy Righte of tie Helaitisaternimieetonrsticrr? HOLDER IN DUE COURSE Shirley sold a second-hand car to Bob for P1.5M payable in 2 Installments. For this purpose, Bob Issued 2 checks in favor of Shirley. After the first check had been pald a month later, Bob notified Shirley that the car was showing some problems in its roadworthiness. He asked Shirley not to deposit the remaining check while he determines if the problems were already present prior to the sale. Despite Bob's notification when the second check fell due, Shirley deposited the second check but It was dishonored as Bob had already issued a stop-payment order on the check. Thus, Shirley filed an action to demand on the second check. She argued that she was a holder in due course. Is Shirley correct? No. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties. among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Negotiable instruments Law, Sec. 57). A holder in due course Presupposes at least one negotiation of the negotiable instrument. In this case, Shirley is the payee on the check and so there are no prior parties as between her and Bob, Moreover, she cannot claim to be free from any personal defense Bob may have against her as there is a direct privity of contract between them. Hence, Shirley is not a holder in due course and Bob's defense of partial failure of consideration due to breach of warranty against hidden defects will lie to preclude payment to Shirley. DEFENSES AGAINST THE HOLDER R. the president of M Inc., issued a check drawn for P4,500,000, payable to RS Corp. M Inc. was in the business of selling yachts. RS Corp. was an affiliated corporation in the business of furnishing and upgrading yachts. The check was issued in accommodation of M Inc.'s VIP client, C, who needed funds to upgrade the yacht he bought from M Inc. When RS Corp. deposited the check, it was dishonored for insufficiency of funds. RS Corp thus filed an action to enforce the amount on the check upon M Inc. as the accommodation maker since the check was drawn on M's account. Will the action prosper? No. The issuance or indorsement of a negotiable paper by a corporation without consideration and for the ‘accommodation of is prima facie ultra vires. Hence, one who has taken the instrument with knowledge that the corporate check had been issued or negoliated merely for accommodation of another, with or without consideration, cannot recover from corporation as a holder in due course (Crisologo-Jose v. CA, G.R. No. 80599, September 15, 1989) Jn 1991, A obtained a loan from B Corporation. As security for the payment of the loan, A gave two (2), ‘open-dated checks, both payable to the order of B Corporation. From the time the checks were issued, they were held in a safe, kept together with other documents and papers of B Corporation by C, its president, until his death in November 2004. When the checks were discovered, demand was made to ‘A, but the latter refused to pay. B Corporation dated and deposited the checks on December 22, 2004 Predictably, the checks ware dishonored. A was charged with violation of BP Bg. 22. In his defense, A raised that his obligation is deomed paid since the check delivered to the respondent had been impaired by the latter's fault. Is A discharged from the liability represented by the instrument? Yes. Section 119(d) of the Negotiable Instruments Law states that a negotiable instrument is discharged by any act which will discharge a simple contract for the payment of money. A check, therefore, is subject to Prescription of actions upon a written contract which must be brought within ten years from the time the nght of action accrues (CIVIL CODE, Article 1144). Where the instrument is not dated, it will be considered to be dated as of the time it was issued (Act. No. 2031, Sec. 17(c)). In this case, no written extrajudicial or judicial ‘demand was shown to have been made within the 10 years following the checks’ issuance in 1991. Prescription has indeed set in (Evangelista v. Screenex, Inc., G.R. No, 211564, November 20, 2017, Covered Case). ‘Alternative answer ‘Yes. While the space for the date of the check may be left blank by the issuer, it must, however, be filed Up strictly in accordance with the authority given to the payee and within a reasonable time (Act. No. 2031, Sec. 14). Also, a check must be presented for payment within a reasonable time after its issue (Act. No. 2031, ‘Sec. 186). in this case, it was not filed within reasonable time since its issuance in 1991 as it was filed only in 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS |7Ba os cee pees WEEK NOTES 2019 PRE- of acion is now barred By laches (Evangelista v. Screengy. n- cause 200 or more than 13 years later. The GAR. No. 211564, November 20, 2017, Covered Case) What does it mean for a bank to certify a check? . wher sich itis drawn, the certification is equivalent to acceptance cere by the bank on which tis aut in the hands of the can nt anon ht in rn ae they have been set apart forts satisfacbon, and that they shall be so app sented and thi for payment. tis an understanding thatthe check is good, and shal corte fo be good. nd INS Corton binding on the bank (New Pacific Timber v. Honorable Sener, J, Decor 41) checks it had issued to the orders of x tand crossed as payable o X and Y. was unt with BBB Bank which neither X nor Y owned, J Corporation discovered an anomaly involving ele Y. The subject checks were drawn aust pas ~ : colar Pere he en nea ane, han anh Seve ek rnc Grsactn ae ted earners nna ie pratense ‘checks and that it had relied on BBB Bank's express guarantees. ens Bank on nether hand invokeg Mee raee eer eee irhegncs eco aby Doce 1 ks. The Supreme Court has ruled in Bank of America vs. Assocstod Gaicons Bana haa seen cases ne Labites of tha Grawoo Dark afd colecing bank sha be ‘Sequential. On the one hand, the liability of the drawee bank is strict by nature and so the drawee bank must relum the unlawfully paid amount to the drawer even ifthe bank had acted with due diligence and in good faith However, the drawee bank may in tum seek reimbursement from the collecting bank on the ground of the latter's negligence in allowing the deposit of crossed checks payable to a specified payee in the account of another. Therefore, in this case, AAA Bank is able to pay J Corporation for the payment of the value of the checks, without prejudice to full reimbursement by BBB Bank Further, the doctrine of comparative negligence Is not epplicable because AAA Bank only acted upon the guarantees made by 8BB Bank under prevailing banking practices, There 1s n0 negligence on the part of AAA Bank which will preclude it from recovering fully from BBB Bank, as general indorser (Metropotan Bank v Junnel's Marketing Corporation, G.R. No, 235511, June 20, 2018, Covered Case) In payment of welding electrodes, A Co. issued three (3) checks payable to the order of SSPI on July 10, 2019, July 16, 2019, and July 28, 2019, Each check was crossed with the notation “account payee ‘only and was drawn against XYZ bank. The records do not identify the signatory for these three (3) checks, or explain how RU, A Co.'s purchasing officer, came into possession of these checks. The records only disclose that RU presented each crossed check to XYZ Bank on the day of each’s issuance and claimed that he had a good title thereto. He demanded the deposit of the checks in his Personal account with the said bank. XYZ bank acceded to RU's demands on the assumption that RU was acting with A Co.'s authority. The bank also relied on RU’s status as a valued client. Thus, XYZ bank accepted the checks for deposit in RU personal accounts and stamped “ALL PRIOR ENDORSEMNT AND/OR LACK OF ENOORSEMENT GUARANTEED” on their dorsal portion, RU Promptly withdrew the proceed of the checks. What is the effect of A Co.'s act of crossing the checks? if learing House Corporation (PCHC). XYZ however, experienced delays in verifying the signature on t poration (| ). hours after XYZ Bank received it, the check was ruled ax forged sont ‘to vrifcation by expats 3 eee Seu rey i ead et hed aiready doomed the check cleared as it was ot returned to urs pursui rule. not retut fetehour ne? = XYZ Bank lost its right to dishonor the check due (0 8 | 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS