Nego Lists

What are the requirements for the negotiability of a commercial document?

1. It is written and signed by the maker or drawer
2. It is an unconditional promise or order to pay a sum certain in money
3. It is payable on demand or at a fixed determinable future time
4. It is payable to order or bearer
5. If It is addressed to a drawee, he must be named or otherwise reasonably ascertainable

When is a holder a holder in due course?

1. Received the instrument complete and regular on its face
2. He became a holder before it is overdue or without notice that it was previously
dishonored, if such was the fact
3. He took it in good faith and for value
4. That at the time it was negotiated to him, he had no notice or knowledge of any
infirmity on the instrument or defect on the title of the person who negotiated it to him

What are the instances under Sec. 119 that effectively discharges a negotiable instrument
1. Payment in due course by or on behalf of the principal debtor;
2. Payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation
3. By the intentional cancellation thereof by the holder
4. By any other act which will discharge a simple contract for the payment of money
5. When the principal debtor becomes the holder of the instrument at or after maturity in
his own right

What does a general indorser warrant to subsequent holders in due course of a negotiable
commercial instrument
1. That the instrument is genuine and in all respects what it purports to be;
2. That he has good title to it;
3. That all prior parties had capacity to contract
4. That the instrument is, at the time of his indorsement, valid and subsisting
5. In addition, he engages that:
a. On due presentment of the instrument, it will be accepted or paid, or both,
according to its tenor
b. And that in case of dishonor and the necessary proceedings of dishonor be duly
taken, he will pay the amount to the holder, or to any subsequent indorser who
may be compelled to pay it.

Notice of dishonor is not necessary to hold the drawer liable when:

1. The drawer has countermanded payment
2. The drawer and the drawee are the same person
3. The drawer is the one to whom presentment for payment was made
 4. The drawer has no reason to expect that the drawee or acceptor will honor the
instrument
5. The drawee is a fictitious person or is incapacitated

Notice of dishonor is not necessary to hold the indorser liable when:

1. The drawee is a fictitious person or is incapacitated, and the indorser had knowledge of
this at the time of indorsement
2. The indorser is the one to whom presentment for payment was made
3. The instrument was made or accepted for his accommodation

Cite instances under the NIL when notice of dishonor may no longer be necessary to hold
parties who are secondarily liable
1. When there is a waiver of notice of dishonor
2. When there is a waiver of protest
3. Notice of dishonor is not necessary to hold the drawer liable when:
a. The drawer has countermanded payment
b. The drawer and the drawee are the same person
c. The drawer is the one to whom presentment for payment was made
d. The drawer has no reason to expect that the drawee or acceptor will honor the
instrument
e. The drawee is a fictitious person or is incapacitated
4. Notice of dishonor is not necessary to hold the indorser liable when:
a. The drawee is a fictitious person or is incapacitated, and the indorser had
knowledge of this at the time of indorsement
b. The indorser is the one to whom presentment for payment was made
c. The instrument was made or accepted for his accommodation
5. When there has already been a notice of dishonor to non-acceptance
6. When, after the exercise of reasonable diligence, notice of dishonor can’t be served

Under what instances may a person secondarily liable on the instrument be discharged?
1. When the instrument is discharged
2. Upon the discharge of a prior party
3. Upon the intentional cancellation of his signature by the holder
4. Upon valid tender of payment of a prior party
5. When there is an agreement binding upon the holder for the extension of time of
payment, unless recourse against the person secondarily liable is reserved
6. Upon release of the principal debtor, unless recourse against the person secondarily
liable is reserved
Letters of Credit:

Parties to a letter of credit:

1. Buyer or importer
2. Seller or also known as beneficiary
3. Opening bank – usually the buyer’s bank which actually issues the letter of credit
4. Notifying bank – correspondent bank of the opening bank through which it advises the
beneficiary of the letter of credit
5. Negotiating bank – usually any bank of the opening bank in the city of the beneficiary
6. Paying bank – which buys or discounts the drafts contemplated by the letter of credit, if
such draft is to be drawn on the opening bank or on another designated bank not in the
city of a beneficiary
7. Confirming bank – confirms the letter of credit issued by the opening bank, upon the
request of the beneficiary

What are the 3 distinct and independent contractual relations in a transaction involving a
letter of credit:
1. Contract of Sale – the contract between the buyer and the seller
2. Contract of the buyer with the issuing bank
3. Letter of credit proper in which the bank promises to pay the seller pursuant to the
terms and conditions stated therein

What is the independence principle? (note: ü can use any of these answers, depending on
what you want to memorize)
1. There is an independence of the contractual relations (i.e. contract of sale, letter of
credit and bill of lading) from each other such that a bank need not look into the
contract of sale to fulfill its obligations under the letter of credit. In fact, even if there’s a
breach in the contract of sale between the seller and buyer, the bank is still bound by its
obligations under the letter of credit and so is the buyer.
2. The independence principle provides that regardless of any breach of contract in the
main contract of sale between the buyer and the seller, the bank will be bound to pay as
long as the seller presents and delivers the documents as provided in the letter of credit
agreement. In essence, the contract of sale and the agreement between the bank and
the seller are independent of each other.

What is the fraud exception rule?

1. The exception to the independence principle (?)
2. The rule has 3 requisites which, if all are present allows the bank to refuse payment:
1. The fraud must be proven by clear evidence
2. The fraud must be related to the independence principle, and should not pertain to
the contract of sale between the buyer and seller
3. There will be substantial injury or great difficulty in collection if the injunction is not
granted.
What is the rule of strict compliance?
1. Under this rule, the seller must strictly comply with the conditions of the letter of credit,
such as submitting a certified delivery receipt or a bill of lading, in order for the bank to
pay him. Without such compliance, the bank is not obligated to pay.

Cite 3 significant difference between commercial and standby letters of credit

Commercial LOC Standby LOC

1. Instrument for facilitating a contract
of sale
2. Parties merely have to submit the
necessary documents
3. Beneficiaries must submit the
fulfillment of a contract
1. Security for the non-performance of
an obligation
2. Breach of obligation must be shown
3. Beneficiaries submit a showing of the
breach of contract