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Commercial Law Review Glenn Tuazon, 4-A Atty.

Jack Jimenez SY 2010-11 4 Quizzes (50 each) + MT (100) + Finals (100) divided by 4 = Final Grade •


Order to pay (bill of exchange)

If it does not comply with the requisites of negotiability, it is still a contract, but not covered by the NIL. Either: o o Payable to order – negotiated by indorsement, and delivery Payable to bearer – delivery is sufficient N.B. If payable to a specific person, it is not negotiable

Part 1: Negotiable Instruments Law

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HISTORY: contrast a negotiable instrument with a non-negotiable PN:

Four basic contracts involved: o o o o 1. Making 2. Drawing 3. Negotiating 4. Accepting  To show consent


First objection: a person stepping into the shoes of the seller is exposed otherwise to the defenses that the buyer may launch against the seller  Law’s solution – exempt from personal defenses


Second objection: “I don’t know the maker, I just know the one negotiating it to me. How will I know he’s solvent?”

Law’s solution – will make the indorser liable regardless (Accumulation of secondary contracts) The more indorsers, the more you can sue

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N.B. But for all, there must be delivery

Basic principles: NIL is for justice.

Two general parts in the law: o o 1 – what makes an instrument negotiable 2 – rights and obligations of parties



Bad faith: So if a person is in BF, he cannot invoke

defenses. (Ex. Issued a negotiable instrument to pay for a car that is defective. The indorsee knows that the car is defective, he is in bad faith.)

Two basic forms: o Promise to pay (PN)

2. Estoppel – ex. A father allowing a son to steal a check and forge his signature is estopped from denying it


3. Comparative fault

If a bank honors a check with a forged signature, the bank is considered negligent too But if the negligence of the drawer outweighs the negligence of the bank, the law shifts the fault to the drawer

If one signed another name or a symbol, it will bind him if he intended for it to bind him Location is immaterial


2a. Must contain a promise or order to pay  Need not use exact words, even equivalent words are fine Creates a NEW obligation to pay, not a mere acknowledgement of an old debt


4. The law will only protect you from personal defenses if you are a holder in due course (Sec. 52)   Good faith With value

  o

Before overdue (see below) With no notice of defenses •

Exception 1: date of payment is mentioned, or at least, a date of maturity Exception 2: insertion of “or order” (words of negotiability) in the old terms

5. General rule: there must be demand , before an instrument becomes overdue. Exception: If time is of the essence.

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Authorization to pay or a mere request does not create a binding obligation to pay.

Ex. Reserve requirements of banks must be kept afloat, so overnight, banks sometimes transact with each other “An overdue instrument is shouting to the high heavens – I have been dishonored!”

2b. The promise to pay or order must be unconditional  Do not look into evidence aliunde. You must confine yourself within the four corners of the instrument to deem whether it is absolute. Fall back on obligations and contracts – distinguish between uncertain events and certain events, although indeterminate (ex. Moment of death of mother-in-law)

Requirements – found in Sec 1. 2-9 are elaborations of such.

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1a. It must be in writing

1b. It must be signed – symbol of consent

2c. Sum certain, and payable in money  Because it is meant to be a substitute for money

Also, specify the denomination. number.

Cannot just be a


If payment is by installment, for the instrument to be valid, the amount of installments must be indicated and the date of maturity of each installment is specified.


3. Payable on demand or on a determinable future time 4. Payable to order or bearer   Need not use exact words But there must be reasonable certainty so people know from whom they could demand payment Ex. instead of “order”  pay to X or his indorsees; pay to X or his assigns Ex. instead of “bearer”  pay to X or holder; pay to X or possessor


“Promise to pay Jose Cruz or order P100,000 in 10 installments.”  not negotiable

You have to specify both AMOUNT and WHEN EACH is due. You cannot just give the starting point (ex. Nov 2005)

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If there is an acceleration clause – failure to pay an installment will make the entire balance due and demandable. It is now valid to stipulate payment in foreign currency. If you talk about an exchange rate, you have to talk about at least 2 currencies. It cannot be just one.

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5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated with reasonable certainty  If name of the drawee is left blank, it is an incomplete instrument which can be filled up as a remedy

Under Civil Code, general rule is attorney’s fees are not recoverable, except when there is written Stipulating such makes the NI more attractive. stipulation.

Most cases involve fraud, by taking advantage of the features of the law. Sec 2: when a sum is certain o Even when there is a stipulation of interest. writing. It must be in

Ex. “I will pay reasonable attorney’s fees in case there is failure to pay” – is this a sum certain? Yes. Because you know how much is due at the date of maturity (it doesn’t matter what you pay after maturity). This is the reckoning point – at the date of maturity, is the sum certain? ALSO, stipulations on attorney’s fees is always subject to court control anyway.


The stipulated rate controls – there is no more ceiling on interest rate. But it is unconscionable, it is void, and the rate is reduced to 12% (in circular 416). If there is stipulated interest, without a rate, 12% as well.

Sec 3: promise is unconditional o Instructions on how payment will be entered into the books of account does not affect unconditional nature


Sec 4. it is still negotiable (ex. o Differentiate:  When the maker may choose to pay before a certain date. so you do not apply Sec. and there is an additional undertaking other than payment of money. he can prevent it by complying with the additional security. o 2nd situation: “same… if the holder feels unsecure. It is payable out of a particular fund. HELD: Metrobank is wrong. o Elizalde: Person bought cars. secured with a CM over vehicles. The PN said that the payment is secured by the CM. Test: does the promise to pay rely on the terms and conditions of the security? If so. it is negotiable. • o  o BUT a reference from which fund the obligation would be paid does not destroy negotiability if payment is not limited to come from such fund. deed of sale) makes the NI subject to the terms and conditions of the contract. since the rural bank warranted the treasury warrants by negotiating it to Metrobank. and is not dependent to the CM. “No money should be paid out of the Treasury without an appropriation for that purpose” (Constitution). because here. he may demand that I post reasonable securities. Metrobank is suing the rural bank to recover. Else. Metrobank allowed withdrawal. because the promise to pay is still conditional. he can declare the entire balance due and demandable. Elizalde sought to collect. Other view: negotiable – because the undertaking to put up a security is merely an accessory obligation. He issued a PN. the holder has the absolute option to make the obligation due and demandable. because the treasury warrants are not negotiable instruments. payable at determinable future time Statement of how the original obligation came about does not affect conditionality o 1st situation: “Pay Jose Cruz or order… if the holder feels insecure. (better view)  But it will become non-negotiable if mention of the prior contract (ex.  FACTS here: X deposited treasury warrants with a rural bank. he can declare the entire balance due and demandable. This makes it conditional.”  One view: non-negotiable – because date of maturity becomes uncertain because holder can accelerate payment. not source of payment. The rural bank deposited with Metrobank. HELD: Negotiable. The date of maturity is not uncertain because acceleration is within control of the maker. it is not negotiable. It was negotiated to Elizalde by the car selling company. Issue is whether the statement of security (CM) made it non-negotiable. Even before the treasury warrants were cleared by the clearing house. and if I fail to do so. The latter is not negotiable.”  It is not negotiable. 66.  o Abubakar: A Treasury Warrant is not negotiable. The warrants were spurious. Neither does “reimburse yourself” affect TEST: it must indicate the source of reimbursement. “on or before June 15”  maker can pay before June 15 at his option) .

however. Thus. Does not specify place where it is drawn or payable 4. Soriano: A money order is not negotiable. it is upon demand o o o Authorizes confession of judgment if instrument not paid upon maturity  o N.• Effect: all other secondary contracts are discharged. Bears a seal 5. • Sec 6: omissions which do not affect o o 1. it is still negotiable because the holder can ALWAYS demand money o o If hinged upon a contingency. Philippine Education v.” under Postal Regulations.B. obligation to pay is conditional. Designates currency in which payment will be made • Sec 5: additional provisions that do not affect negotiability o o • o GENERAL RULE: Other obligation or undertaking aside from payment of money makes it non-negotiable (“secured by CM over my car. Not dated 2. depending on different grounds where the post office can refuse to pay. o Holder can require something other than payment of money  If option is upon holder to demand either cash or rice. the SC said. it can only be indorsed once. Also. because although it says “pay to the order of. which I will keep in good condition”) EXCEPTIONS: Authority for holder to foreclose pledge/CM or collateral securities Sec 7: When it is payable on demand o o o Upon sight or presentation Instrument is silent on when payment is made When it is overdue   As to the maker. he is discharged BUT as to the indorser. non-negotiable even if the event or condition happens. this is not valid. Failure to mention consideration  It is presumed in this contract o 3. it is not • Effect: everybody becomes secondarily liable by ripening their obligation.   Waiver of venue Waiver of exemption from execution  When the holder may absolutely choose to have the obligation due. It benefits everybody. this is a void stipulation • Waiver of benefit of law  Waiver of notice of dishonor Sec 8: When it is payable to order o [It may be upon order of] .

or drawee 2. Order of fictitious person o 5. which anyone can encash if lost and found In this example. Order of payee who is not maker. Requestor had as security a time deposit (Security Bank). is the depositor? It is the "bearer. Two or more payees jointly  Ex. (Caltex) 2. One or some of several payees  Ex. but he indorsed the check to himself nonetheless. He drew a check payable to a corporation where he was just the corporate secretary. It is a bearer instrument. his partner. GENERAL RULE of the following three cases: there must be intent by the maker or drawer of the NI that the instrument be issued to a fictitious person (knowledge is paramount) Weller and Martin: Either partner can sign or issue checks." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Drawer  Ex. Caltex and Security bank are in dispute. HELD: it is payable to bearer. and was not authorized to indorse. Drawee 4. then it is not negotiable. HELD: It says that the deposit is payable to the depositor. Pay to the order of Jose Cruz AND Manuel Santos o o [As explained by Phil. according to the document. Holder of an office for the time being (ex. requestor maxed his credit line and . Law Library]: The Certificates of Time Deposit are negotiable instruments. sued the bank for restoration of the amount. it is not complete until Jose indorses it. sec. The Drawer did not intend the payee (the Corporation) to get the proceeds of the check. and the depositor is bearer. The documents provide that the amounts deposited shall be repayable to the depositor. Rather. Treasurer of the city of Makati) If the drawee is not indicated with reasonable certainty.. To person or bearer 3. for that matter. He was just the corp. Y.o o 1. And who. Pay to the order of Jose Cruz OR Manuel Santos  o o 6.   o o 3. because there has to be delivery (at least two parties to a contract) disappeared. [yada yada yada] Bottomline. whosoever may be the bearer at the time of presentment. Expressed as such  Caltex: [unclear facts] Caltex required collateral for a credit line. X wanted to steal money from the partnership. drawer. Jose Cruz writing a check saying “Pay to the order of Jose Cruz” – this is better than making a check paid to cash. the amounts are to be repayable to the bearer of the documents or. EVEN  • Sec 9: When it is payable to bearer o 1. Caltex accepted it.

since there was no intent that they actually get the money (even if the supposed borrowers really exist). The officers indorsed the checks to Rodriguez. and X signed it with intent to steal. Rodriguez v. He then makes the officers sign the checks. HELD: Rodriguez spouses won. had the officers sign the checks (the officers did not know that the employees didn’t exist).  American Sash: Had a payroll clerk. So the officers who wanted to borrow more. Contention of PNB: it is intended for fictitious persons. it issues postdated checks. If. HELD: [N.] It was not a bearer instrument. For the payee to be fictitious. Name of payee is not name of existing person  Classic example: payable to cash  o 5. For the checks to be considered as payable to fictitious persons. Rodriguez issued discounted checks. the SLA does not have enough money. These ghost employees did not actually exist. Issue: is this payable to fictitious persons. the fact must be known to the person issuing the negotiable instrument. when the ones who indorsed were the officers and not the supposed borrowers. The DRAWERS were the officers who signed the checks. Last indorsement is in blank • Sec 12: Ante-dating or post-dating does not affect negotiability . But most of the time. and Y signed it not knowing X’s intent.B. The SLA has a policy: when a member has an outstanding loan. • Assume same facts. in turn. PNB: Employees of PNB formed a savings and loan association (SLA). both must have same intent. Rodriguez rediscounts the checks (issuing checks lower than face value). had current accounts with PNB. in accordance with the usual procedure. to circumvent this. The borrowers thus endorse the checks to Rodriguez. issued postdated checks to the “supposed borrowers” (but really for the officers). then it does not become payable to bearer. however. first. and the clerk collected money. they cannot get another loan. It fell under this provision. and the checks issued to them were from a closed account. the company required two signatories to all checks.IF the payee actually existed or not. Meanwhile. Rodriguez spouses meanwhile. they made it appear that it is the other members who are borrowing. the checks issued to Rodriguez. Their intent controls. Whenever the SLA lends to members. the Rodriguez spouses did not know that the supposed payees were not the real borrowers (when it fact it was the officers). Clerk padded payroll with ghost employees. the court found that there was forgery because the drawer did not know the payees were fictitious. which bounced because the SLA account was shut down – since the checks they issued were cleared. Contention of spouses: How can PNB accept the indorsement of those checks. who prepares checks payable to employees. PNB must reinstate the amounts to the Rodriguez spouses. o 4. Here. So the checks DID NOT become payable to bearer because they DID NOT KNOW that the ghost employees were not part of the payroll. PNB found out about this and closed the SLA account. The SLA.

Sec 13:

o When the date of acceptance is not inserted by the drawee, the holder may insert date of issue or date of acceptance • Sec 14: o

No. He is not a HIDC.


What if he places the wrong date?

When it is wanting of a material particular – the person possessing it has prima facie authority to fill up the blanks

If negotiated to a holder in due course, that is the correct date as far as the holder in due course is concerned – even if it is not Purpose: the law protects a holder in due course, who is relying on that date in good faith o

CONTROLLING FACTOR: The blank or incomplete instrument must have been delivered with intent that the holder turn it into a negotiable instrument

In a case, a person signed an instrument in blank and left it with the bank. The bank filled it up with an amount. What happens?  The amount inserted by the bank controls.


But what if the one who put the wrong date presented it for payment to the acceptor/drawee?  Not valid. Cannot claim. o

What are the two requirements for this instrument to be enforceable?  1. It must be filled up in accordance with the authority given to him 2. It must be filled up within reasonable time



A check drawn by X says “Pay to the order of Y P10000 thirty days after sight.” It was accepted by E on Sept. 15, but did not date the instrument. Y negotiated it to Z, telling the latter that the instrument was accepted November 1. Z placed in the instrument this date. • Can he collect from E? o Yes, even if it is more than 30 days from acceptance. Z is a HIDC and the Nov 2 date is true as to him.

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X gave a check with a blank amount to Y, telling Y that he should fill it up according to what X ultimately owes Y, but not over P50000. X owes Y P30000, but Y put P60000.  Can Y collect P60000 from X? •  No. It was beyond the authority given him.

If Y inserted the wrong date instead and did not indorse it to Z, can he collect from E?

Y indorsed the check to Z, a HIDC. Can Z collect P60000 from X? • Yes. The defense does not apply to him.


Case: X works abroad, but allows property to be rented out, and the payments are deposited in an account. The husband (retired lawyer) however withdraws money from that account for his own support, to X’s ire. X asked her inaanak to hire a lawyer for this purpose. The inaanak hired a lawyer but subsequently terminated the services so she asked for a return of the acceptance fee. The lawyer said that he will return the fee in installments. X asked the inaanak to sign a piece of paper claiming that it was a “witness” signature that the lawyer will pay X back. But X actually made it appear that it was a PN where the inaanak promised to pay money to her five years prior, corresponding to the attorney’s fees. HELD: The court believed the contention that the inaanak never intended for the signature to be for a PN. There must be intent to leave a signature to make a PN.


Ex. You cannot sue if you hold checks that were not delivered to you. You never acquired a right over them.

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BUT a HIDC will not be subject to this defense (Like Sec. 14)

BPI Family Savings: BPI issued a check payable to City Treasurer of Iloilo to pay for local taxes. They did not deliver it to the treasurer, and just gave it to the employee. The employee used it to pay for somebody else’s local taxes. HELD: There was no payment because BPI never delivered it to the city treasurer, so BPI cannot claim to have paid. Associated Bank: Somebody was selling RTW clothes, and shopping malls (buyers) issued crossed checks. Somehow, the checks fell into the hands of someone else, who indorsed it to someone else, and were deposited to Associated Bank. The seller was wondering why she wasn’t being paid. [If you are legalistic, the RTW seller must sue the shopping malls, etc., because the checks were not delivered to her. In turn, the shopping malls, etc. must sue the drawee banks, and then the drawee banks sue Associated Bank why it cleared the checks. HELD: The SC allowed the RTW seller to sue Associated Bank directly because it cleared the checks. (Same in Westmont Bank case) It may be showed that delivery between immediate parties is conditional, or for a special purpose. Ex. A godson is taking the CPA test, but X is not in the Philippines. He gave P10,000 check on the condition that he pass the test. The godson cannot enforce payment on the check. BUT if the godson negotiates the check to a holder in due course, the law will protect the HDC.


Sec 15: incomplete and undelivered instrument


Will not be a valid contract in the hands of any holder, as against the person whose signature was placed on the instrument prior to delivery (real defense)  BUT indorsers are liable

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Ex. Left signed checks, and an employee took them and filled up amounts.  Incomplete and undelivered instrument. Ex. Officers of country club went abroad and left signed checks for payment of checks. Abusive employees put their own names and signed their own names. HELD: By presigning checks and leaving them with employees, it became possible for them to do this. The officers were negligent and shared in the loss (60-40).

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Sec 16: Complete but undelivered instruments. o NI is incomplete until delivered • Sec 17: Rule of interpretation


Words prevail over figures

3. Signature in separate paper (“allonge”) because the instrument has no more space 4. Estoppel 5. Signing under trade/assumed name 6. Instrument can be negotiated by mere delivery

Romero: Amount indicated in words is One Million Two Hundred Pesos. Amount in figures: 1,200,000. Balance in the account is 1,100,000. The check bounced. The words prevailed.

 • Sec 19/20


Payment of interest    Runs from date from instrument Or if none, date of issue


To avoid liability as signing agent:    A) agent must disclose he is an agent B) disclose his principal C) he has authority

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Not dated  assumed to be dated from time of issue Written > printed provisions If ambiguous whether a bill or note, the holder has the option to treat it as either Ambiguous role of signature  deemed an indorser  Because the indorser has the least liability among all characters in a NI

Minority/incapacity of corporation o Maker of a PN cannot refuse to pay to a holder on the ground that the indorser is a minor. Neither can he raise the defense that the prior indorsee is a minor. ONLY the minor can raise the defense of minority, no one else. Can apply this principle by analogy to other incapacitated persons (Ex. corporation action ultra vires) Exceptions:  1. The minor actively misrepresented his age and it appears that he is physically of such age 2. Minor kept fruits/benefits 3. Minor spent the money in good faith


• Sec 18 –

If “I promise to pay” note is signed by two or more persons  deemed solidarily liable



GENERAL RULE: person whose signature does not appear on the instrument is not liable EXCEPTIONS:


   1. Duly authorized agent signing for principal  2. Forger liable for signature he forges Sec 23 – Forgery

it is NOT a forgery • A B or bearer-C (signature forged by D)-D-E o NOTE: This is an instrument payable to • The person to whom the note was given is presumed to be intended to receive the note (because he knew the intended payee) o Different situations:  1. Practices imitating a specimen signature (warranted the instrument) • EVEN if it is a bearer instrument. NOT duress in inducement 4. no need for indorsement. A will claim that there was no delivery of complete .o The person whose signature is forged did not give consent to the contract  o Except when he is estopped • A (signature forged by B)-B-C-D-E o o E cannot collect from A E can collect from B (forger) E can collect from C. not knowing it was a negotiable instrument. o Can E collect from A?  Depends. Signature is copied • • May be done by tracing. • • Misled to signing instrument. D as indorsers There are different instances of forgery: o  1. then A (signature forged by B)-B-C-D-E o Indorsing an instrument that need not be indorsed leads to a warrant of such  2. in general.  3. Fraudulent impersonation • In this case. when he thought it was something else. Fraud in esse contractus • Fraud in factum. If E is not a holder in due course. delivery is sufficient. Duress amounting to forgery [ORDER INSTRUMENT] A-B-C (signature forged by D)-D-E o E cannot collect from A or B (since it is an order instrument. there is a cut-off to A and B. Promissory note bearer. since C’s signature is forged) o o E cannot collect from C (no consent) E can collect from D as indorser •  It must be duress in the execution (ex. Grab the hand of the intimidated).

he warranted it. the indorser warrants the instrument as what it purports to be. No consent. o NOTE: if a bearer instrument is indorsed even if it is not needed. he may collect from A since it is payable to bearer o Can E run after C?  No. 62.instrument by B since C stole it from him  Unaccepted •  If E is a holder in due course. the acceptor admits the instrument is genuine when he accepts and pays. forged. X accepted as drawee. Bill of Exchange • A. because he cannot trace his right to them [cut off by the forgery].  Neither can he run after A or B. indorsement Warranted by NOTE: If X did not accept. then he cannot be recovered from. because he did not accept. Forger Can E run after C and D? o  • Yes.  2. Bearer  Accepted others. Order   o Accepted Unaccepted • Can E run after B? o Yes. • Can E run after X? o Yes. Can E collect from A? o No. o Sec. because by indorsing the instrument (even if bearer). C’s indorsement was A’s signature on an order instrument was forged by B and then indorsed to C-D-E.  He can run after D. o • But the same answers apply for the 2. o What is X’s remedy?  To sue B. Drawer o 1. NOTE: Apply the same rules on indorsement of a bearer instrument  if there was indorsement even . the forger.

father saying that his son’s forgery of his signature was genuine) 2. B’s order was cut off by forgery. and not the indorsers. forged C’s signature  D  E. • EXCEPTIONS to general rules: o o 1. Indorsed to C. indorsed to D. then E. B C. X accepted and paid.  • A issued BOE payable to B or bearer. HELD: Not negligent. • E cannot run after A (cut off) or B or C. Remedy of the acceptor is to just run after the thief. there is warrant of the genuineness of the instrument by the indorsers. indorsed to D. did not accept. D • Cannot go after B. even if C’s indorsement to D is forged. What happens? • X can debit A’s account because A promised to pay bearer. who was in the car. • Can go after A if E is a HDC. C did not order X to pay D. would the drawee have been able to stop or freeze payment?  A issued BOE payable to B or bearer. When there is unreasonable delay by the drawer in informing the drawee about the forgery  Drawer can check the statements sent by the bank to him Test: If the drawer had acted quickly. who forged. then the payee can still collect from A (because he just promised to pay the bearer). the forger. The friend forged his signature in a check book left lying there.  • PNB v Quimpo: o Left check book with his friend. Cannot go after A if E is not HDC. indorsed (warranted)  A issued a BOE payable to B or order. C’s signature was forged. then E. E is the bearer. He can run after D. • BPI v. What happens to E’s claim? NOTE: If it’s a bearer instrument. • X cannot debit A’s account. C’s signature was forged. • X cannot get back the money from E. • • • Cannot go after X. because A ordered to pay B or order. X did not accept the BOE. no consent. Indorsed to C.if there is no need to do so. Can go after D. • C can run after D. X accepted the BOE. cannot trace title to him since C’s signature is forged. • X can get money back from E because X only admits A’s signature is genuine (which it is). Casa Montessori: . When there is estoppel (ex. no reason to suspect friend of bad faith. Cannot go after C.

The signatures of the officers of MWSS were forged. HELD: MWSS must bear the loss for failing to exercise caution – did not ask printing press to surrender plates. PNB paid them. HELD: An external auditor is not an employee. so he was able to indorse the checks through forgeries. • Gempesaw: o Gempesaw owes several groceries. He managed to forge the signatures of the officers of Casa Montessori over a long time. He trusted his secretary. did not confirm or examine the invoices. before signing the checks used to pay the suppliers. They had a private printing press print their checks. Split accountability – 50-50 o • MWSS v. account for spoilage. Bank argued Casa was negligent. Secretary forged his signature. who he asked to reconcile bank statements. It is an independent contractor. Sued bank. so you cannot blame Casa for negligence in hiring an employee. HELD: Triumph was negligent for not reporting the theft. Check book was stolen. the collecting bank must return the money to the drawee bank  Basis: Sec 23 – because the payee did not indorse the check • Ilusorio: . and Gempesaw signed the checks without verifying the statements. CA: o MWSS did not have their checks printed by the central bank. but triumph did not report it to the bank. Split accountability – 50-50 o • • Cases on Comparative fault principle Security Bank v. But JJ believes that the bank should have been held negligent for authenticating the checks. HELD: Province was negligent. Cashier was able to forge when he picked up the checks. o • General rule: o If the indorsement is forged. She trusted a bookkeeper blindly. When she ordered supplies. etc. which refused to reinstate the amounts. HELD: Ilusorio should bear the loss for his negligence. The bookkeeper was able to steal more than P1M. Province issues checks to the physician/head of the clinic. but he was still hanging around. because Casa had no way to know the auditor was stealing money. Province of Tarlac: o Province of Tarlac had account with PNB. receipts. The cashier already retired. Triumph Lumber: o • o Robbers broke into Triumph Lumber. the bookkeeper prepared the checks. Robbers were able to cash checks.o An external auditor was hired to reconcile records. o Ilusorio was leaving for abroad and he left his checkbook with his secretary. because he was precisely the one tasked with safeguarding the school records and comparing with bank records. for allowing the cashier to pick up the checks even when he was retired. and MWSS did not examine the signatures in the bank returns. HELD: Negligent. Estoppel does not apply.

you file your ITR with the BIR.R. [?] Price v. they deposited a worthless check with Insular Bank of America (not funded). because Mellicor (drawer) never indorsed the check. Neal o See Jack notes • PNB v. o 4.”) to Ford. in a bearer instrument) o o HELD: Citibank must return the money to Ford. Check: G. Great Eastern sued for return. because Ford ordered it to pay the BIR. The employee showed a fake BIR receipt (“See. The person who deposited collected from Bank of America. but presentment for payment. A party whose signature is forged is not liable  Unless he’s in estoppel o 2. In their internal records. 2001 • Mellicor: o • Maasim forged endorsement of Mellicor. which they substituted with the check issued by Ford Philippines. I paid BIR na. when it paid. they made it appear the worthless check was deposited. This is NOT a case of negotiation. A Holder in Due Course acquires good title if forged indorsement is not necessary for his title  (ex. • Rules on clearing . because it admits the genuineness of the signature of the drawer • Ford Philippines: o Before. Citibank honored the check. The bank manager (who was complicit) was criminally liable. • Four general rules: o 1. They sued. So you cannot use the “warranty argument” o o JJ doesn’t agree with the court as regards Insular Bank of America’s liability. and then PNB presented check to HSBC for payment. A person negotiating an instrument after forgery is liable (due to warranties) o o Citibank was guilty only of negligence. which is the Insular Bank of America. which Citibank disobeyed. An acceptor who pays on a BOE cannot recover the money because he admits the genuineness of the signature of the drawer 3. CA o o See Jack notes. The person was able to withdraw money for HSBC. So the employee of Ford was tasked to pay sales tax (P18M). HELD: HSBC must return. too Acceptor cannot get back the money. made payable to a payee (for payee’s account only). Instead. Ford had to pay BIR again. It says “for payee’s account only” and there was no indorsement from BIR. the authorized collecting agent of BIR. 121413 29 Jan.

But Jack says that a donation is a “simple contract” and the law simply requires consideration sufficient to support a simple contract.: Travel agency sued on the basis of a bouncing check issued by a guy bringing in passengers. there is no need to prove the check was issued for valuable consideration In civil law.  Here. What is D’s status as holder for value? . love. If it dishonors it. generosity. Consideration Then the checks will be physically given to the drawee bank. C. you do not have the amount. the doctrine applies to the forged signature of the drawer. affection. the drawee bank returns the check to the clearing house.o Checks are brought to a clearing house and are run through a clearing house. So love and affection is valuable consideration.]  o New rules (to prevent ping-pong of checks):  If a check is dishonored. o • • Ex. There is a presumption of valuable consideration. and that the check was for such amount. The CA was wrong for asking the agency to prove the value of the ticket purchased. But the SC wrongly applied the 24 hour rule to the payee’s forged signature. The computer will return the amounts paid. but there is no consideration. consideration is presumed o o Travel Inc. The drawee bank has 24 hours to honor/dishonor the check. then to D. [Usual reason why one failure is allowed – drawn against insufficient funds] What is the effect when the drawee does not return the check within 24 hours? • Rule on holder for value vis-à-vis prior parties: o Rule: Where value is given for the NI. in BP 22. cannot be considered valuable consideration. o Under the law. BUT this 24 hour rule SHOULD NOT apply when it is the payee’s or indorsee’s signature that is forged. • reverse. while you are litigating. B indorsed it to C for consideration. etc. But since the computer cannot o A issued a PN to B. the holder is a holder for value in respect to all parties who became such prior to [the time consideration was given]  • • The drawee cannot ask the computer to reverse the entries. Any return beyond 24 hours: time-barred. BUT you are not precluded from suing to collect after. They check the magnetic strips on the checks. The amount will then be transferred to the collecting bank. until the drawer informs them.  o [Glenn’s note: Sundiang says love and affection. because the drawee bank has no way to find out. you can only present it one more time. are valid consideration. etc.

) The surety company is a holder for value to the extent of P500K. not receiving any part of the proceeds. o o • • Absence of consideration is a matter of defense against a person not a HIDC (personal defense) Partial failure of consideration is a proportionate defense. Surety company asks for collateral (ex. • Rule on holder who has a lien on the instrument: He is a holder for value only to the extent of the lien. o Company appealing a lost case posts supersedeas bond (ex. The surety company. B only delivered 5 cars. and that he will pay. It was not pursuant to the corporation’s business. treasury bills. Some banks try to get borrowers to get surety companies to sign borrowing agreements. the drawee. in exchange for 10 cars.000). As a general rule: a corporation cannot be an accommodation party to an instrument. is deemed an accommodation party. even if the company issued a certificate of time deposit negotiable for P1M. money market placement. the payee. Sue agents for acting in excess of authority. even if the holder for value knowing him as merely an accommodation party at the time that holder took the instrument. A and b are parties who became bound prior to the value given. .  Clark: But note that independent consideration for the surety/accommodation is not an absolute prerequisite. Mrs. D is a holder for value with respect to A. Beltran. not the corporation. Somebody issued a check for P20000 for 10 sacks of rice. the issuance of the check was ultra vires. cash. Jose sued the corporation. By accepting. Want of consideration is a defense against the payee. time deposit. etc. he admits authority of the drawer to draw the instrument. Decided to settle. B. and countersigned by the VP). Only lends his credit. • • Jose: o o  o Yes. and C because C gave value. [Same facts] X. The other party’s lawyer.  Liable to a holder for value. The acceptor cannot use want of consideration as defense. because there is no business purpose to such [unless that is the business of the corporation]. The client of Beltran was supposed to pay. The consideration that supports the surety is the same consideration for the original obligation. Can A launch the defense of partial failure of consideration against B? Ex. helped settle by issuing a company check (check of a corporation. The seller however only delivered 5 sacks of rice. [Same facts] X accepted. HELD: He can only sue for P10000 Want of consideration between drawer and payee cannot be invoked as defense of drawee who accepted a BOE (Cornell) o A drew a BOE for the amount of P10M in favor of B. Accommodation parties o Signs as party but does not received consideration or value therefore. Can X refuse to pay on account of partial failure of consideration? Dispute over parcel of land. signed by the President. The check bounced. •  No. from the underlying contract. Surety companies charge premiums for signing as co-makers. P500. HELD: Here. did not accept.

but it still ultimately negotiated. AFP asked Y.• Prudencio: (JJ doesn’t agree) Negotiation o Construction project. Fall back on the NCC. the released funds could have improved the project. HELD: Prudencio spouses are accommodation parties. o Or to a paper attached to it o • Indorsement must be of the entire instrument. rather than ensure the certain failure of the project. Must comply with requirements of putting it in a public instrument and indorsement. X’s sister. But the project died anyway. which makes accommodation parties liable to holders for value. Borrowed from PNB for working capital. The project was failing. The bank required two other signors. 52: definition of HIDC – point in which a person must be is in GF is when he took the instrument. JJ’s comment: the law says “Holder for value” not “HIDC. Sec. o Indorsing only part of the amount will make it cumbersome. PNB agreed to release part of the security money to help the project. Correct? HELD: Yes. it was in BF. on installments) Types of indorsements: o Special – specified person to whom it is being indorsed Blank – does not name any person • Maniego: o X was exchanging a post-dated check for cash to the disbursing officer of AFP. o SO IF YOU FOLLOW THE IMPORT OF SEC 29. The firm got the Prudencio spouses who issued checks. When pledging a NI. but was held civilly liable. PNB sued Prudencio spouses. That’s what an accommodation party is tasked to do – when the check bounces. o See Caltex case. because it knew that the spouses did not receive consideration. then the Prudencio spouses should pay PNB because PNB is a holder for value!!! EXCEPTION: When it has been paid in part (ex. The release of the funds happened long after. It is subject to personal defenses. • Indorsement must appear on the instrument itself. The court held that PNB is not a holder in due course. there are no specific provisions. to sign as accommodation indorser. Ex: A check for P100K is negotiated to Jose Cruz for 50K and Manuel Santos for P50K. PNB took a risk. o o o o • PARTIAL indorsement is treated under law as an assignment. When PNB released a portion of the money. Prohibited to indorse to 2 or more indorsees severally. Y was acquitted for conspiracy charges. • When a bearer instrument is indorsed although unnecessary.” You cannot claim PNB was in bad faith when it released the money because the project was already failing. she pays. o  Indorsement of an order instrument in blank  can convert the indorsement into a special indorsement by writing his name . The check bounced.

waiving notice of dishonor. This ensures that the order instrument does not become a bearer instrument Ex. 65. B indorses to C. defenses against indorser can be raised against indorsee because he is just an agent X. because indorsee is a HIDC. What can C do? • B (indorsee named as trustee)  • Rights of indorsee in restrictive indorsement: o o o A) collect payment B) bring action indorser could bring C) transfer rights.” . for collection only (as agent only) Yes. • Types of restrictive indorsements Negotiability Passing of title Yes Consideration presumed Yes Defense available X. A issues a PN to B or order for P50K. because there is transfer of title o Ex. indorses it to C. as trustee for Glenn Tuazon Yes. D indorses to E “without recourse. defenses against indorser cannot apply to him Yes. because the indorsee is a mere agent of the indorser X. that the maker is insolvent) To Jose Cruz. because there is no transfer of title    Warrants his valid title All prior parties have capacity to contract That he is not aware of any fact that makes the instrument valueless • (ex. because title transfers Pay to Jose Cruz only X o o But qualified indorser still has some warranties under Sec.  Genuine as to what it purports to be • (ex. C CANNOT put “To C. but subject to same trust Yes Yes.” The contract must be consistent with the tenor of the indorsement • • Qualified indorsement o Done by writing ‘without recourse’ – although the instrument is still negotiable This can be done if the instrument will fall due for a long time (ex. not forged or materially altered) To Jose Cruz. and the indorser does not want to be insecure for such a long time. if allowed to do so C can insert “To C” over the signature to keep it an order instrument. 5 years). but subject to same restriction that he only holds it for collection X. A issued a PN to B or order for P10K. then C to D. but in blank.

and that he is duly authorized o • If there is date attached to the negotiation o o Presumed to be correct. he can sign his real name. and disclose the principal. so it will appear wrong name indorsed to real name • Conditional indorsement o The maker (or acceptor) may disregard the condition because the maker made an unconditional promise to pay. but the conditioned turned out to be unfulfilled after. there is mutual agency  • If D turned out to have forged C’s indorsement to him. The conditional indorser cannot run after the maker/acceptor because the M/A has every right to dispose of his obligation while he feels solvent. can E collect from D? • Yes. but rebuttable If no date. Because he warranted that the instrument is genuine as to what it purports to be. because other parties will not know that there was a mistake made If he wants. The indorsement is qualified. can E collect from D? • Yes. the remedy of the conditional indorser to run after the indorsee to get back the money. after signing as the misspelled name. He warranted his valid title to E. Instrument payable to cashier or fiscal officer o Assumed that the instrument is payable to the corporation he represents • If name is misspelled o Must indorse the instrument according to the misspelled name. • Payable to two or more payees – o o All must endorse But if they are partners. Can E collect from D? • No. the negotiation is presumed to have been done before it was overdue  Useful to establish HIDC • Signing of an instrument payable to bearer o [wait for discussion on Sec 65] . indorser cannot change the original obligation The o o The maker can also say “let’s wait and see if the condition is fulfilled” If the maker pays. more so. • Indorsed as an agent o Must state that he is negotiating as an agent. o o It can still be indorsed through mere delivery But the special indorser is only liable to those who can make title through his indorsement  If A’s signature turned out to be forged.

E cancels the indorsement of C to D. knew it was fake at time of indorsement = not HIDC • Not every restrictive indorsement will destroy negotiability  o o Only that in subsection A will destroy Crossed check is still negotiable • • Can strike out an indorsement not needed for his title Indorsement to a prior indorser o o A-B-C-D-E-B Can B run after C. Because it is payable to the order of B. Must have become a holder before it was overdue and without notice of prior dishonor. if so Instruments transferred without indorsement: o o Transferee will only step into the shoes of the transferor So defenses against transferor apply to the transferee too . and without notice his title is defective o o RULE: The indorser who is struck out and ALL indorsers after him are eliminated o  • Ex. • Rights of a holder o Can sue in own name Payment in due course discharges the instrument  Payment at or after maturity is in due course. E cannot draw title to the instrument. Instrument is complete and regular on its face 2. and E?  No. can E strike out B? • No. and you cancel C.  Rights of the Holder o ABCDE. If there is indorsement from A to Z. The law will not allow them to run around in circles. He loses the right to run after C. D. persons C to Y are discharged. • Sec 52 – Holder in due course [very important] o Requisites:   1. Did not know necklace was fake at time of transfer. because D lost his chance to run after C. D is also discharged. or else. o Example – bearer instrument: can strike out indorsements B to E  If it’s an order instrument. You cannot take him out. Because they in turn can run after B too! There is compensation under law. the reckoning point is that time of indorsement Ex.• Indicates a place o Law of that country will govern as to questions of indorsement o But the transferee can compel the transferor to indorse it  BUT in determining whether he is HIDC.

DEF sued to recover. Since the check was crossed. ABC sued X. Y told DEF not to present the check for payment right away. Y took the check and paid it to ABC hospital. the taker must inquire as to the nature of the indorser’s title Holder is aware Holder is not aware HDC as to installments not due on the face of the instrument HDC as to installments not due on the face of the instrument Banco Atlantico: o Holder not aware of the exercise of this option X paid Y a check. X launched defense of failure of consideration. it can only be deposited.  3. When he took. However. The test: o Did he take it? Was is honest for him to take the instrument under these circumstances? • • • • o • Gatchalian: o X issued a crossed check to Y. or negotiated it in breach of faith Fraud  ex. even if it was already due. Y altered the amounts. ransom money Unlawful means  ex. ABC refused to pay. . issuing it for a fake ring Duress  ex. but chose not to investigate further as to not be a HDC. issued for An installment is not paid and there is an optional acceleration clause Holder is aware of its exercise Not a HDC • A holder must be aware that something is wrong. The alteration was discovered. no notice of infirmity in instrument or defect in title of the indorser • • This elaborates #3 Defect in title of indorser = if he took it through unlawful means. stolen check Illegal consideration marijuana  ex. o o Rule on instruments payable on installments: Knowledge Holder is aware Effect HDC as to installments not due on the face of the instrument Not a HDC Status on payment An installment has not been paid and there is no acceleration clause An installment is not paid and there is an acceleration clause (automatic) An installment is not paid and there is an acceleration clause (automatic) An installment is not paid and there is an optional acceleration clause   • Similar case: State Investment House and Bataan GENERAL RULE: If the checks are crossed. illegal consideration. in order to buy a car from Z. but it did not. Took it in GF and for value 4. Y deposited it in DEF (her bank). ABC should have inquired as to the title of Y. drawn against ABC bank. and to let Y to draw the amount anyway. Issue: is ABC a HDC? No. and the value of the check was greater than his bill to ABC hospital (which gave change). X stopped payment.

o • Rights of HDC: o o o 1. the drawer. o Yes. But the court used HDC anyway. Those persons are HDCs and the defense of failure/lack of consideration does not vest. customs.] • Maybe JJ meant qualified indorsement under 38? • May a payee be a HDC? . Y sued Z. since that is half the value of the check. the car delivered had the wrong chassis number. Claimant is not a HDC. and the check had a notice of prior dishonor due to DAIF (drawn against insufficient funds). too. He is a HDC only to the extent of half the check. and Y only paid half of the agreed consideration. Free from personal defenses 3. X issued a post-dated check to Y with value of P100K.o o Issue: is DEF a HDC? No. Y stole it and indorsed it to Z. o  37 – restrictive indorsement [GT: I don’t know why. • Mesina: o X left a cashier’s check (issued by ABC bank) payable to X’s order. Then Y found out that the check was issued for a fake ring. but only to P50K. o o o • Stelco: o The claimant received a check that was not indorsed to it by the payee. HELD: Z was not a HIDC because Z refused to explain how the check was indorsed to him. and X told Y to just pay him P80K right away because X could not wait for the maturity of the check. the payee already indorsed the check to another person. In one case. and particular facts (54) A transferee who receives notice of infirmity before he has paid the amount agreed for the instrument is a HDC only to the extent of the amount paid by him. because the law simply provides “holder. Y has only paid P40K so far. and in the other. JJ thinks it’s better to use forgery as the theory of this case. But in both cases. • o Consider the nature of the instrument. The circumstances show that the check was already due but Y asked DEF not to present it for payment yet. • (53) Negotiation of an instrument payable on demand after an unreasonable length of time  the holder is not a HDC. Sue in own name and receive payment 2.” A payee is a holder. Can he collect? HELD: Yes. The check was presented but it was dishonored. Y forged X’s indorsement. Z sued. Ex. ABC refused to pay. May enforce payment against all parties liable thereon Exception: when he cannot recover full payment – • Salas and State Investment House (2): o In both cases there was lack or failure of consideration between the maker/drawer and payee of the NI. And DEF allowed Y to withdraw even if the check has not been cleared yet. it was merely issued as security.

an indorser warrants an instrument is genuine in all respects it purports to be. or void against public policy Void contract Ex. undelivered complete instrument. a HDC may still enforce against the maker/drawee according to the original tenor of the instrument • General rule: the instrument is avoided as to those not party to the alteration or did not indorse it same rights as the HDC as to the prior parties to the indorser. (58b)  IMPT. even if he is not. an acceptor warrants the authority of the drawer to pay. minority (lack of capacity) Applicable to HDC D is a holder in due course as to the parties prior to the indorser (A and B) What if D indorses it to E. E does not have the rights of an HDC. D swindled C. then the holder has to prove that either the holder or the negotiator is a HDC Exception to the exception – the exception does not apply to a party that has become bound to the instrument prior to the acquisition of defective title • Personal defenses are available against a non-HDC. he is not required to prove that he is a HDC because A was What it simply says is that a holder who (1) derives title from a HDC (2) and is not a party to the illegality or fraud has the . There can be no “curing.” So D can’t indorse the instrument to F. • When E runs after A. B  C. material alteration (so the consent is not anymore to this instrument). who is not an HDC. an HDC. What is the effect?   o But not everyone can invoke real defenses against a HDC. For instance. negotiation in breach of faith. who was NOT aware of the fraud (HDC). Real defenses No contract because an element is missing. forgery (no consent). acquired by force/illegal means. Also. o Ex. This does not mean the non-HDC cannot collect. C  D who was aware of the fraud but not a party to it. mistake. It just means that personal defenses may be raised against him. illegal consideration. • PRESUMPTION: o o General rule – every holder is a HDC Exception – if it is shown that the title of the negotiator is defective. A – B – C – D – E. then indorsed to E. ultra vires act of corporation Not applicable to HDC Since E derives title from D. undelivered incomplete instrument (no consent). A was induced by B through fraud to issue a PN to B or order. and have it re-indorsed back to him to “cure” his title.  54 – notice before full amount is paid 124 – when materially altered. Shelter Principle (GT) o •  o Ex. who is not an HDC? • o Personal defenses There’s a contract with some inequitable or iniquitous fact behind it Voidable contract Ex: no consideration. He resumes his position as not a HDC.

In this case. Y negotiated to Z. What he did with the money is none of the court’s business. All prior parties had capacity to contract 4. X refused and raised personal defense of lack of consideration.bound to the instrument before the defective title occurred. What is the implication?  The burden of proof shifts upon Z to prove that either Z or Y is a HIDC. Upon due presentment he will accept/pay according to tenor 2. Or if DH. is defective. it will be accepted/paid according to its tenor and authority to draw 4. • Liability of drawer . Has no knowledge of any fact that would impair the instrument <IF BY DELIVERY – warranties only extend to immediate transferee> 1. 2. which was not a HIDC (it was aware of the failure of consideration between X and Y). Existence of payee and capacity to indorse 1. He made an unconditional promise to pay. Z loses the presumption of being HDC because Y’s title. he will pay the amount to the holder. Instrument is genuine and is what it purports to be 2. Genuineness of drawer’s signature 3. Existence of payee 2. or to a subsequent indorser compelled to pay it  Liabilities of parties Party Maker Obligations Pay according to tenor Warranties 1. o 1. as negotiating party. Existence of drawer. In this case. He will pay the amount to holder. it failed to do so. The instrument is valid and subsisting at the time of his indorsement Drawer Acceptor If dishonored. Instrument is genuine and is what it purports to be 2. He has good title 3. Or to a subsequent indorser who pays for it <But drawer may express stipulation limiting his liability> Pay according to tenor of acceptance • Liability of Maker o Araneta: X issued a PN to Y. and his daughter is a beneficiary of a trust administered by Y. On due presentment. by X failed to pay. Drawer’s capacity HELD: X must pay. a HIDC. Y has no benefit of the presumption because it is not a holder anymore. 2. Capacity of payee to indorse 1. Y collected. and process of dishonor completed: 1. All prior parties had capacity to contract 4. General indorser Either: 1. Z sued X to collect. He has good title 3. He lodged the defense that he used the money to pay for his sick daughter’s expenses. • Fossum: Qualified indorser or indorser by delivery o X issued a check to Y. Existence of payee 2. Capacity of payee to indorse 3.

(124) In fact. FEB should not have returned the money to Landbank and debited the account of the jewelry store. Acceptor does not admit signature of indorser. He did not consent to P40000. CA: • o Acceptor admits existence and capacity of payee to indorse.o Is merely secondary – liable only if the instrument is dishonored. Since the tenor is that it is for 300K pesos. the BOE cannot exist. He had a draft for 300+K from Land bank. FEB sued for the difference against Landbank. o o o Far East Bank: o Someone wanted to buy jewelry in the amount of 200k. Consent should imply knowledge. However. He warranted that P will be paid. and even paid the buyer change for the 100K difference. Landbank paid.  .  • Liability of acceptor o o X issued a check for P4000 to Y. If the acceptor was deceived. For how much can the check be enforced against the acceptor?  View 1: P40000 because that is the tenor of the acceptance.  D issued a check to P. and if not. o   o Acceptor admits existence of drawer because without the drawer. HELD: D must pay. because the instrument is meant to circulate. E accepted it. He admits authority of the drawer to draw. and negotiated to H. HELD: FEB cannot collect. the jewelry store guy delivered the jewelry to the buyer. drawn against BPI. H presented it for acceptance to E. which is just P4000. P presented for payment. Being cleared. [Huh? Read again. View 2 (better view): Acceptance is assent to the order of the drawer (132). There is nothing said that the acceptor warrants that the amount accepted is the same tenor of the bill. Landbank told FEB that the amount was altered from 30 pesos to 300K. P was unable to receive the money because BPI withheld payment [pending investigation of some anomalies]. he will make good the check.] JJ: the better view might be that a drawee who pays/accepts a draft must be bound to pay the higher amount –  Acceptance is always inseparably linked to the order. Z altered the amount to P40000. FEB returned the 300K to Landbank and debited the account of the jewelry store. since there must be knowledge. and BPI debited D’s account. Later. Sec 61. The provision on acceptance applies to payment. P sought to collect from D. he can enforce payment according to the original tenor. as drawn. even if there is alteration. Deposited the check with account in FEB. Y indorsed it to Z. for a HDC. even if his account has already been debited. Cebu International Finance v. Sec 139 – acceptance assents to the order of the drawer. it should not be bound to an amount not in the original tenor. He can put “without recourse” to limit his liability. The jewelry store accepted the draft but set aside the jewelry. Landbank bound itself to pay that amount.

a qualified indorser or one negotiating by delivery DOES NOT ANSWER FOR SOLVENCY. (If payable to the maker or drawer or bearer. or that there was failure of consideration • Sec 64 – irregular indorser o He signs in blank accommodation party  before delivery. He must be only liable to the person he dealt with o He is called such because you would normally expect the payee as the first signature there.” o o See the list of warranties in the law [see table] Person negotiating by delivery – only liable to the person to whom he delivered the instrument. • o Underlying this principle  same as Statute of Frauds. NOTE: SO IN GENERAL. even if the indorser was not aware. C. for the accommodation of B). But here. “The acceptor cannot recover the amount from the payee on the ground that the drawer’s signature is forged. RULE: liable to all subsequent parties. It only warrants the four listed warranties and is liable for breach of such. D. he is liable to all parties subsequent to the maker or drawer) What if X indorsed for the accommodation of B?     • • X is liable to C. Maniego: accused had his sister indorse a stolen check before the payee did. If for the accommodation of the PAYEE (example if here. An undertaking to answer for the debt of another must be in writing to be enforceable. Examples:  Breach of warranty 1: the instrument is forged Breach of W2: He stole the NI Breach of W3: Prior party is a minor Breach of W4: Knew that M/D was insolvent. he is liable to all parties subsequent to the payee. he is liable. and E. He is liable only if the maker or acceptor is insolvent and he is aware of that fact (since here. o • Sec 65 – warranty where negotiation by delivery . P v. D and E. Is actually an o Must be an additional party (not a regular party – signing again will not increase the credit value of the check) o o A – (X irregular indorser) – B – C – D – E:   X is liable to B. a qualified indorser does not warrant that the instrument will be paid. Not liable to subsequent parties Unlike a general indorser. the irregular indorser’s signature is found there first. The law says… Sec 66 – liability of general indorser o o o Same as first 3 warranties of qualified indorser Last – he warrants that the instrument is valid and subsisting If maker is insolvent. there is a breach of warranty).

the check bounced. Bank required the employee to indorse the check as an irregular indorser. • Sec 68 – indorsers are presumed to be liable in the manner in which they indorsed o Parole evidence however may be accepted to prove otherwise For example A  B  C. The signature is to acknowledge payment. Why did it allow the first guy to withdraw when the bank was not cleared. But RCBC accommodates employees. C indorsed it to him o • Sec 69 – indorsement by agent . Sec 66 (general indorsement) is not applicable. But he did not have a dollar account. CA: Somebody had a manager’s check purportedly issued by American bank payable to cash. If for any reason (whatever reason) the drawee does not pay.” The drawee bank dishonored the check. Some employee placed below the indorsement: “valid up 75. • Sec 67 – indorsed when not required  incurs liabilities of an indorser o Whether general or qualified o RCBC: There is a 45-day holding period if the check deposited is drawn abroad. Eventually. But American bank dishonored it. allowing them to withdraw right away. Must payee reimburse drawee?  No.o Chartered Bank:  X deposited (through indorsement) a check with ABC bank. The check was dishonored because of the partial indorsement made by its employee. They agreed that after clearance. It was paid. o Far East Bank: (see the details above)  It is actually a case of restrictive indorsement (only for collection). HELD: X must pay. The friend gave the first guy a withdrawal slip duly signed. Then the forgery was discovered. BPI sued. C can prove that while B’s signature appears first. Payee signed at the back. ABC asked for return of money. When the first guy returned. since the indorsement was irregular. o Signature of indorser was forged. The employee. drawn against DEF bank. Asked a friend if he could accommodate him – have the check deposited in the friend’s dollar account.000 pesos only. Deposited the check there.  HELD: RCBC cannot collect. This is why the American bank dishonored. RCBC asked the employee to return the immediately withdrawn money.  JJ doesn’t think so. check for payment to the drawee. It did not indorse the check. The depositor even kept the passbook: did not give it to his friend. you are liable. a mother. received a check. She was then allowed to withdraw. although the check had not been cleared. X was able to withdraw money although not cleared. BPI (deposit bank) paid. Should we follow this?  HELD: The proximate cause of the loss is the bank itself. you warranted. and deposited. o The law mentions that warranties of general indorser apply only to HDC. Payee presented the  o BPI v. When you indorsed. the first friend would withdraw.

BOE payable elsewhere apart from residence or place of business of drawee OTHER OPTION – May choose to negotiate it within a reasonable time . he will be liable as an indorser • But he can still go after the person primarily liable So. the bottomline: the instrument must be presented for payment on date it is due to charge the secondarily liable persons – see Sec. BOE expressly acceptance requires presentment for o o But for those secondarily liable (indorsers and drawer) – there is need for presentment for payment  What if the holder does not make presentment to the person primarily liable? • Those secondarily liable are discharged o   3. 71 for special rules on when an instrument must be presented Quiz  up to section 69 Presentment for payment • Sec 70 – • o Presentment for payment not necessary to charge the primarily liable person o What is presentment?  Production of BOE to drawee for acceptance or payment. or of a PN to the maker for payment   Maker and acceptor If the instrument is payable in special place and he is able and willing to pay there at maturity = such willingness is equivalent to tender of payment • What does this imply? o If the person primarily liable is there on the place where it is payable on the stated time.o If he fails to disclose that he is just an agent. or acceptor for payment. Personal demand for payment 2. BOE is payable after sight. holder loses right to recover interest due subsequent to maturity + costs of collection BUT he does not lose the right to get paid o What constitutes presentment?   1. Readiness to present the note and surrender it if paid • [Step-by-step guide on presentment for payment] o Step 1: Presentment for acceptance required if –  1. or acceptance is needed to fix the maturity of the instrument 2. or fails to disclose his principal.

fictitious. Presentment cannot reasonable diligence be made even after   o 2. Although presentment is irregular. no need to give notice: if instrument was made/accepted for his accommodation and he has no reason to expect the instrument will be paid if presented AND will not prejudice rights of HIDC after omission to give notice of dishonor IF foreign bill. Drawee is fictitious person 2. you make it after a reasonable time after last negotiation • What does “negotiation” here cover? . acceptance was refused on some other ground o Step 2: Give notice of dishonor by non-acceptance to secondarily liable persons  EXCEPT. has absconded. Presentment cannot be made even after reasonable diligence 3. Waiver of presentment. or lacks capacity to contract 2.o o Consequence: will discharge drawer and all other indorsers EXCEPTIONS – no need to present if/or treated as dishonored if:  1. • • Sec 71 – o   Instrument not payable on demand  Make presentment on date due • • o Protest for non-acceptance or protest for non-payment needed Except – o 1. If instrument was made/accepted for his accommodation and he has no reason to expect the instrument will be paid if presented instrument payable on demand   Must be presented within reasonable time from issue If it’s a BOE. Drawee is dead. Delay is excused for fortuitous circumstances • Except: will not prejudice rights of HIDC after omission to protest o Step 3: Give notice of dishonor by non-payment to secondarily liable persons (if dishonored by non-payment) See notes above EXCEPT: When presentment for payment is excused – • • 1. express or implied   3.

but address of maker is stated. Sec 76-78 o Applies when principal debtors is: • Sec 74 . go there • Sec 75 o Presentment where instrument payable at bank – must be made during banking hours. Made by holder or agent 2. presentment not valid and indorsement is discharged. company sued maker and indorser. At proper place defined 4. no funds. it must be made there. as long as it falls on the date of maturity. to usual place of business/residence Wherever he may business/residence be found/last known place of • But if presentment is made beyond banking hours. Law assumes that the bank will be the source of the funds. Law requires that the instrument be shown to the maker. If none provided. Failure excused on two grounds:   1) Instrument was lost 2) payment refused on some other ground • Ex. When the instrument not paid. not negotiation for collection between banks o NI must be exhibited to the person from whom payment is demanded So he can check genuineness This is why telephone as demand is not allowed First Pacific (?) – Check negotiated by car dealer to financing company.o Negotiation for value. To person primarily liable • Is absent/inaccessible – to any person found in place where presentment is made o o There is a wife who presented a negotiable certificate of time deposit. • Sec 73 – proper place for presentment o If there is a stipulation where presentment must be made. o o o o If none provided. Indorser said he was discharged because there was no proper presentment for payment. HELD: Letter of demand is not sufficient. Reasonable hour on business day 3. it is valid if the funds will not come from the bank. Bank refused to pay her because they paid the husband. Bank should pay the wife. HELD: it was not presented by the husband. Therefore. but the wife. and not because it was not shown o • Sec 72 – when presentment is sufficient o REQUISITES: o o     1.

Because even if some offices hold business on Saturday. then go to next business day If on a Saturday  On next business day. If dead. Cannot be done even after reasonable diligence Contrast:  Ex. NO NEED to go to the primarily liable. it must be paid on that day If on a Sunday or holiday. there is immediately a right of recourse against those secondarily liable. Duly presented for payment and payment is refused or cannot be obtained 2. . o • If joint debtors. knows there are no funds or there is stoppage of payment o INDORSER – when instrument was made/accepted for indorser’s accommodation. and he can be found with reasonable diligence • What is the effect of dishonor by non-payment? o If partners. the moment it is dishonored. But it was declared a public holiday. Presentment is excused and it is overdue and unpaid If there is an address stipulated. So Monday. they are usually half day. to any of the partners  Even if dissolved already • o Under the law. So it becomes Saturday. pay there.   o o Dead Liable as partners Liable as Joint debtors o o 2. Drawee is fictitious person 3. and indorser has no reason to expect it will be paid if presented  o • • Fortuitous event – excuses delay in presentment Presentment for PAYMENT excused if: o 1. But the law says present it on next business day. give to executor/admin  o If there is one. if it is not a holiday When presentment is not required to charge those secondarily liable: o DRAWER – presentment not required to charge the drawer when there is no reasonable expectation that the drawee or acceptor will pay the instrument  Ex. to all of them Sec 85 o o o If payable in a fixed period. Waiver of presentment – express or implied • When is an instrument dishonored by non-payment? o 1. The law wants a whole business day Except instruments payable on demand  can present before 12 noon. Saturday. Payable on Friday.

and should pay. Party to the instrument who may be compelled to pay the holder. Agent of holder 3. Remember. Maker had sufficient funds. although the holder may not claim interest subsequent to maturity and costs of collection. o o Give notice of dishonor Any party may be compelled to pay it to the holder with right of reimbursement ABCDE  D giving notice to B will benefit E • Sec 86 o Time – exclude first day. failure to make proper presentment only discharges those secondarily liable. By the debtor.B. so he is primarily liable. he would have been paid. HELD: No. The primarily liable person is still liable. To the holder 3. But holder did not show up at day of maturity. but only to those other parties he may seek reimbursement from 4. in GF and w/o notice that the holder’s title is defective o o Who is considered a stranger?  Party discharged from the instrument Person primarily liable who dishonored the instrument Notice of dishonor • Sec 89 – dishonor • Sec 91 –  . Ex. Had he shown up by then. Holder 2. Dillydallied – then the maker became insolvent. include last day o • Sec 87 – when instrument is payable at a bank o Implied: that it is an order to the bank to pay for account of the principal debtor First National bank: PN payable at FNB. • o Notice given by a holder benefits all subsequent holders and prior parties that have right of recourse against the one given notice against o o Notice may be given by holder himself or agent of the holder. Agent of such party What about strangers?  Cannot give notice. • o Sec 88 – Payment in due course o o o 1. Sec 90 – Who can give notice of dishonor o o o 1. BUT if it is payable on demand – then the maker/acceptor MUST pay provided it is presented on working hours of Saturday. The fact remains that he is the maker. except as agents o N. At or after maturity 2.

the next mail 2. on a instrument dishonored on Monday. If not by post office – within the time it would have been received in due course had it been sent by post office o o Personal or through mail If written. and others not covered by 68?  Give notice to all  B) notify parties who are secondarily liable • Sec 103 and 104 – time within which notice must given o Know the difference in rules where parties reside in the same place (103) or different places (104) SAME PLACE:  1. If given at residence – before usual hours of rest the next day 3. need not be signed  In sufficient written notice may be supplemented by verbal/oral communication  .o Notice may be given by a party or an agent Agent need not be authorized by the party  Because this is beneficial • Rule as to jointly liable parties: o If partners?  o Notice to one is notice to all o o If the agent wants to give notice. two options:  A) notify principal • • If joint payees or joint indorsees who indorse?  o On Tuesday Principal has until Wednesday to notify secondarily liable parties Sec 68 treats them as solidarily liable If joint drawers or joint accommodation indorsers. he must be authorized  Because this is prejudicial o • Form of notice: o In writing or oral  As long as it sufficiently describes the instrument and indicates that it has been dishonored Misdescription does not vitiate notice unless the party to whom it is given is in fact misled    o DIFF PLACES:  1. If given at place of business – before close of business hours the next day 2. if no mail at a convenient hour that day. If by post office – in time to go by mail the next day. If by mail – sufficient to reach him the next day o If agent receives notice of dishonor.

O. what happens?  It is still valid Drawee is fictitious person • When is notice of DH not needed to be given to drawer? o o o 1. Before actual time for giving it comes 2. This same time is counted again.O. Drawee is fictitious person or has no capacity to contract 3. She failed to sell the jewelry. Deposited in any P. who was the office manager. • When can there be waiver of notice of dishonor? o o o 1. after a party receives notice of dishonor. Drawer and drawee are the same person 2. X withdrew her money from her bank account and issued a check to cover for expected proceeds of jewelry she had to sell. the drawer.o N. C went to the office of X. manager’s check • Sec 108: WHERE notice must be sent – o o o o 1. box • • Waiver of protest o Includes presentment and notice of dishonor (steps to hold a person secondarily liable) o Sec 114 – when notice need not be given o When the drawer and drawee is the same person  o Ex. Drawer is the person to whom instrument was presented for payment  Ex. The check was in the hands of Y who had ABC . But R. Place where he is sojourning If notice is actually received. to give that party a chance to give notice to antecedent parties • Who is affected by a waiver in an instrument? o o If written on the instrument – all the parties If written over a signature – just that person • What is the effect of miscarriage in mails? o Sec 105 – if notice was duly addressed and deposited in the post-office. Or after failure to give it Can waiver be implied?  Yes. To place of business or residence 3. due notice is deemed given What is “deposit in the post office”?   Deposited in any branch of the P. was there. o 4. Post office nearest to residence or where he is accustomed to receiving letters 2.B. the drawee. but he was not there. Drawer has no right to expect that drawee or acceptor will honor  Ex. And the drawer dishonored. although not according to these provisions.

X dishonored the instrument. o o . Failure to give notice of dishonor by non-acceptance does not prejudice rights of a HIDC subsequent to the omission. C presented the BOE for acceptance to X. the drawer KNEW that there was or would be dishonor. Any other act that discharges simple contract for money 5. o • o N. Drawer countermanded payment  Meaning.investment house rediscount it. D will not be precluded by C’s failure to give notice of DH to A and B. drawer stopped payment. Instrument was made or accepted for his accommodation Indorser Drawee is fictitious or no capacity. Drawee is fictitious person or has no capacity to contract and the indorser is aware of this fact upon indorsement Discharge • How a negotiable instrument is discharged: o o o 1. Principal debtor becomes holder of instrument in his own right 2. Payment in due course by accommodated party 3. A drew a BOE payable to B. The check bounced. and indorser knows Indorser is to whom instrument was presented for payment Made or accepted for indorser’s accommodation (same principle: no right to expect it will be paid) o Drawer Drawer and drawee same person Drawee fictitious or no capacity Drawer is to whom instrument was presented for payment Drawer has no right to expect it will be paid by drawee Drawer countermanded o o • When person secondarily liable is discharged: o o 1. C indorsed the instrument to D. B indorsed to C. When is notice of DH not needed to be given to indorser? Ex. Discharge of instrument 2. Discharge of a prior party 4. o o 1. o 5. Valid tender of payment by prior party • If an instrument was not accepted. In all these cases.B. is there need to give notice of dishonor by non-payment? o No. Intentional cancellation of his signature by the holder 3. Intentional cancellation by holder 4. • o What is the exception?  If it was accepted in the meantime. C did not give notice of dishonor to A or B. Indorser is the person to whom presentment for payment was made 3. a HIDC. Payment in due course by holder 2. HELD: X had no right to expect the bank will pay because she withdrew all her funds. and notice of dishonor by nonacceptance is given.

B indorsed to C. Date  goes into the obligation 2. those who assented. What is E’s right?   Enforce the instrument for 4K against A or B Enforce the instrument for 40K against C (made the alteration) or D (indorsed and warranted) • What is the form of renunciation? o It must be absolute and unconditional If it is merely oral and the instrument is not surrendered. 186. o o o o • Sections 48. E is a HIDC. unless holder’s right of recourse against secondarily liable party is expressly reserved 6. Number or relations of parties  into obligation 5. then negotiates it to D. 142. principal or interest  into amount 3. D indorsed to E. A issued a PN to B for 4K. 122.  OTHER methods of discharge o 48 – striking out indorsements (relieves that person and all those subsequent to him) 89 – those secondarily liable to whom notice was not given 122 – renunciation by holder 142 – qualified acceptance by drawee  discharges those secondarily liable • What is the effect of a material alteration? o o Discharges all parties not party to the alteration Binds the one who made the alteration. D is not prejudiced by the prior renunciation. who is a HIDC. etc. So if C renounces all claims against A and B. Release of principal debtor. 89. Time or place of payment  into enforcement 4. the renunciation is not effective. It is not effective if not unintentionally. C changed the amount to 40K and indorsed to D.o o 5. By extension of time of payment or right to enforce instrument   Except if secondarily liable party assents Or right to recourse is expressly reserved o  If he is not party to the alteration. 188. and subsequent indorsers What is the right of a HIDC? o o . he may enforce it according to the instrument’s original tenor What is a material alteration?      o 1. Medium or currency of payment  into amount • What is the effect of an absolute and unconditional renunciation? o o o A holder renouncing against prior parties  terminates recourse to that party If against primarily liable person  discharges the instrument But it does not affect subsequent HIDC. by mistake. Sum payable.

except to someone to whom it is shown and receives the bill for value upon faith thereof NB: this applies when the bill exists as of time of acceptance Destroys the bill • NB: destruction must be on purpose o What are the special situations when can the drawee accept pa rin?  1. Unless they assent to it. The holder can ask for it back. o o Acceptance • 186 – stale check 188 – holder of a check procures it to be accepted or certified o Acceptance – assent to order of drawer o Must be in writing and signed by drawee  What if the drawee refuses to sign? • If drawee refused to write and sign. but it was accepted thereafter? •     What if there is a promise to accept in writing? • Deemed an actual acceptance in favor of those who receive the bill for value upon faith thereof NB: this applies for bills that do not exist yet when the promise is made (Ex. When it is overdue 4. Failure to dissent within reasonable time is an assent o • Cannot be other than payment of money Must accept within 24 hours from presentment o Acceptance deemed done on date of presentment When is a bill deemed accepted?  Failed to act on it within 24 hours • Does the drawee have a right to retain the bill for the whole 24 hours? o No. Dishonored by prior non-acceptance or nonpayment What is the special rule if the bill was dishonored by prior non-acceptance. BOE pursuant to a LOC)  • . Before it is signed by the drawer 2. Even when it is incomplete 3. But the drawee will still have the rest of the 24 hours to decide. holder may treat it as dishonored   What if the acceptance is written on a different sheet of paper? • It does not bind the drawee.

but not all What is the option of the holder? o o Must present the bill for acceptance within reasonable time Or negotiate the bill within reasonable time • What is the consequence of failure to present for acceptance? o Discharges those secondarily liable • • Time for presentment – same as presentment for payment Special rule when there is little time to present for acceptance before presenting for payment. Although presentment is irregular. Cannot make presentment even after reasonable diligence 3. has absconded. Bill payable after sight or acceptance needed to fix maturity of instrument • What if a bill is DH by non-acceptance? . Bill expressly requires acceptance 3. Qualified      Conditional Partial Local (ONLY at a particular place) As to time Only some of drawees. Bill is payable elsewhere than residence or place of business of drawee What about other cases? • Kinds of acceptance: o 1. Drawee is dead. where presentment for acceptance is needed? o Delay caused by prior presentment for acceptance is excused and does not discharge those secondarily liable • What is the right of parties as to qualified acceptance? o o Holder can deem it DH by non-acceptance If holder allows qualified acceptance. General  Includes local but not confined only at a particular place • o  No need for presentment for acceptance to render any party to the bill liable o 2.• The holder can consider the date of first presentment as date of acceptance o o 2. lacks capacity 2. fictitious. indorser and drawer discharged   Unless they assent Failure to dissent is assent • When is presentment for acceptance excused? o o o 1. acceptance refused on some other ground Presentment for acceptance • When is presentment for acceptance needed? o 1.

destroyed. numbered and referring to the other parts. If joint drawees. it is done to ensure that bills can be collected from even if one part is lost in the mail or so] • Where? o Place of DH . If alternative or successive. • What is the purpose?  To inform the drawer/indorsers that the drawee is insolvent and therefore they should prepare to pay When is protest excused or dispensed with? o Dispensed with – for same grounds notice of DH is dispensed with Excused – for fortuitous event Protest • Protest necessary for DH of a bill that on its face appears to be a foreign bill Made by Notary Public or respectable resident + two or more credible witnesses When must it be done? o o Day of DH If bill is noted in the notarial register. What is protest for better security? o If the drawee was adjudged bankrupt or insolvent. wrongly detained – protest made on copy/written particulars of the bill • Bills in set • Main Principle: each part of the bill. or made assignment for benefit of creditors – even before the bill matures Is this mandatory?  o Nope o When can a BOE be considered a PN? o o o 1. protest may be made anytime • o • When is protest also done? o When bill is lost.o Immediate recourse to secondarily liable parties avail. Drawee is fictitious person or has no capacity to contract But can the holder treat it as a BOE still?  Yes. yes. no need for presentment for payment • o Except when expressly payable at the residence/business of another person apart from the drawee BOE • Can a BOE be addressed to more than one drawee? o o • Depends. the whole of the parts constitute one bill o [usually. Drawer and drawee are the same person 2. no.

the holder must inquire as to what purpose the check was issued for STILL negotiable though If you attempt to encash it. Case: Customer bought manager’s check and asked that his account be debited to purchase it. HELD: It was a manager’s check so the store owner was a HIDC. Can be negotiated only once 2. such as the 24 hour acceptance rule. 185 – provisions applicable to BOE are applicable to checks Case: Payee of a check presented a check in the morning. He usually redeems it for cash • .o [So usually bills in a set are several copies of the same thing. Bank found out after and chased after the payee to recover. and on one part ONLY. must be deposited  General – can be deposited in any bank Special – must be deposited only in that bank • What if different parts are negotiated to different HIDCs? o o The one whose title accrues first is the true owner But the one who gets acceptance or payment first is the one who will be able to collect • • Indorser of two different parts is liable on every such part  How should the drawee accept? o o Accept on any part. sent separately] • • Traveler’s check  you sign it twice (first as a specimen signature. you cannot run after the drawer because there is no proper presentment for payment Sec. Certified checks: o Banks usually do not do this anymore • Discharge of one part is discharge of all • Promissory notes and checks • Check – special kind of BOE o No need to present for acceptance – you can present them for payment immediately Rules on BOE apply to checks too. The customer already used the check to buy goods. and second when paying. To be a HIDC. the bank admitted authority of drawer to draw. • o If he pays and did not get back the part with the acceptance. it is deemed accepted • o • • • Cashier’s and manager’s checks  drawer and drawee is the same Memorandum checks  just usually used as evidence of credit. so the bank accepted it. the bank said the drawer had insufficient funds. Presented again in the afternoon. he is liable on all parts. Cannot be encashed. he can still be liable • 3. HELD: Sec 62 – by accepting. You present your passport too) Crossing a check has three consequences: o o 1. and it is obviously denied. If you don’t return it in 24 hours. The bank realized that it made a mistake because the account was actually closed. but the computers are offline. If he accepts on multiple parts and these are severed. and it once again falls in the hands of an HIDC. by the drawer who got goods.

• Ex. View two: the obligation remains because the drawer’s bank account was not prejudiced. the indorsers are discharged. because they have an interest to discharge their potential secondary liability. o • Sito: When the payee delays in presenting a check for payment. PBC then corresponds with a bank in the US (ex. Since the bank is more trustworthy. And there was no loss caused by the delay. Unreasonable delay will discharge them. Dupont is now willing to sell the materials. So when the bill of lading arrives. it will be paid. the indorsers will bes discharged Commercial LOC – issued as payment pursuant to contract of sale  The seller will be paid if the seller gives proof that he complied with obligation to deliver Letters of credit • Letter of credit – instrument issued by banks on behalf of a customer authorizing a beneficiary to draw a draft/drafts which will be honored upon presentation to the bank o Must be drawn in accordance with the terms and conditions specified in the letter of credit o Stand-by LOC • • Governed now by UCP 600 (Uniform Customs and Practice for Documentary Credits). etc. Dupont will issue a BOE addressed to PBC. through SWIFT. Dupont then finds out that when it delivers the chemicals. • Transphil: Two types of LOC o o So contrast the rules: the drawer will not be discharged. But Dupont has no assurance that when it ships chemicals. that if the payee didn’t dilly-dally. ABC Company wants to buy chemicals from Dupont. Dupont will not collect directly from PBC. So ABC gets a letter of credit (LOC) with PBC. PBC tells ABC Company that it will release the goods if there is a trust receipt arrangement between them. o  Dupont ships the chemicals to PBC. This is revised every 10 years or so. There are 3 underlying contracts in a LOC: o COMMERCIAL • Purpose: to ensure certainty of payment . to PBC as proof of delivery so that Dupont will be paid. So the proceeds of the goods can be used to pay PBC if ABC does not pay. or else stale What happens when the check goes stale?  View one (2 cases): the obligation is discharged. the bank will pay him. Dupont then submits the bill of lading. This will only happen if the bank becomes insolvent. Payment of an obligation with an NI – the obligation is discharged when there is encashment or the value is impaired due to the fault of the holder. he would have received money. PBC will tell ABC Company that the goods arrived. Citibank) – PBC will transmit to Citibank the text of the LOC. delivery receipt. to pay it.• Check must be presented for payment within reasonable amount of time o o Banking practice: 6 months.

so the bank must pay. • When the bank discovers a discrepancy. meet o There was a case (Feati Bank) where somebody shipped timber to someone abroad. Application of customer for LOC – where customer undertakes that he will reimburse the bank when it pays the draft.)   • Independence principle (always asked in Bar) o A bank which issued a LOC is obliged to pay the draft so long as the beneficiary submits the documents required by the LOC. without verifying if he actually complied with the obligation in the underlying contract “Banks deal with documents only!” They do not deal with goods nor are they required to examine them.” the bank may refuse to pay 2. o 1. LOC – bank tells beneficiary that if it draws the draft.” the bank may refuse to pay 3. then the bank pays. The court allowed the buyer to have a preliminary injunction to stop payment be issued because this involves out-and-out fraud. if there is mere failure to specifications. and pays for bank charged 2. But the seller may always give a fake one if he really wanted to defraud the buyer. the buyer may require a surveyor’s certificate to examine the goods. the bank does not pay. All that is o o Distinguish between out and out fraud vis-à-vis failure to meet specifications: o  In a landmark case by the CA of New York. This. o • Interpretation of Letters of Credit – MUST BE STRICT  Something Fabric case: The beneficiary submitted the documents required. instead of the seller delivering goods. Particular genus – If the LOC requires that the seller submit an invoice for pine lumber. you cannot enjoin payment. so the bank need not pay. Chua Tiep Seng: The bank does not guarantee the genuineness of the documents submitted to it. but the invoice states “pine timber. The buyer collected the goods but refused to send the certification! HELD: The LOC requires buyer’s certification. . Underlying contract  However. Among the documents is a certification of the buyer that the goods delivered were the proper goods. what does it do? o It forwards the documents to the buyer and notifies the latter of discrepancies it discovered. (This is a stupid move by the seller. o PBC v. because he is at the mercy of the buyer. o A seller can commit fraud by submitted forged or false documents. it will pay him after submitting documents 3. There was an agreement that payment is by LOC. If the buyer does not waive. If the buyer agrees to waive the discrepancy. he delivered rubbish. required is the bank act in good faith. Quality specifications – If the LOC requires Italian marble and the document just says “marble. Misspellings – If the LOC requires noodles but the document says “woodles” the Bank may refuse to pay – who knows what a woodle is or could be. To combat this. even if the goods delivered turned out to be fake. 1.

etc. refused to pay the whole amount stating that X informed it that X had already made some payments. HELD: Cannot do this! The LOC is a primary. ABC gave this document. The court requires a bond. so it ordered 3M worth of bags from Cojac company. where the beneficiary/seller may get payment in advance. or cumulative. with a stipulation in favor of a third person An LOC is a primary. It is not an accessory obligation. • • May the seller in the Feati bank case (where the buyer refused to issue a certification so the seller was not paid) sue the correspondent bank when it failed or advance funds? Bank lien over applicant’s property o Usual stipulation in a LOC if the applicant has a deposit there. too bad. In a case. can be done anytime Usually it’s irrevocable.). payable when ABC shows documents proving that X defaulted on the loan. If there really was overpayment. o No. but he also assigned the certificate of time deposit . This LOC will most likely contain an evergreen clause. A foreign company not doing business here sues and asks for a provisional remedy. of course. so these have to be deducted. • “Evergreen clause” o A provision that allows an expiring LOC to be automatically extended for indefinite number of periods until the issuing bank informs the beneficiary of its termination. and unconditional obligation. Later. The correspondent bank cannot be sued unless it confirmed the letter of credit. where the depositor/applicant owed the bank for a LOC. It becomes solidarily liable. and the condition is that an invoice from “Cojack” be submitted. too. • Revocable. This is usually because the beneficiary will purchase goods from a thirty party producer that does not accept anything but cash (hunters. lumberjacks. o o Ex. The bank did not pay. If the beneficiary does not deliver the goods. ABC required X to open a standby LOC from Z bank. Z bank issued the LOC. usually written in red ink. etc. whether per month. Z bank. so the defect in the underlying contract cannot affect it. • o Revolving letter of credit o Automatically replenishes. when the amount is finished. • • Nature of LOC – a contract between the customer who applied for it and the bank. and unconditional obligation o It cannot be affected by defects in the underlying obligation Philamlife: X took a loan from ABC. meaning. without the misspelled K. to keep renewing it until the case is over. so the company obtains one from a surety firm. the buyer refused. The surety firm requires that the company open a stand-by LOC with a bank. even if the beneficiary/seller has not yet delivered the goods to the buyer. which will pay the surety firm if the company is held liable. X just has to run after ABC. The buyer still bears the risk. It opened a letter of credit. however. the buyer just paid 1M to Cojac. for certainty of payment • “Red clause” o A clause. irrevocable – o Revocable: no need to notify the beneficiary. The bank asked the buyer if he waives the discrepancy.o Cojack: Buyer is a con artist. absolute. Cojac submitted an invoice. absolute.

X tried returning the goods to a third party. Or turn over the goods to the bank. HELD: X did not commit estafa. where: (buyer)    1. ABC sued X for estafa. ABC sued X for violation of PD 115. X installed the goods in his factory. He does not have free disposition of the property. He holds the goods in trust for the entruster • o Can the trustee execute a Chattel Mortgage over the goods covered by the TR? o No.” “Otherwise dispose” covers the installed goods. • Can there be enjoinment of payment in a stand-by LOC? to pay. • For estafa. 3) irreparable injury Metro v. X failed • • • . who has the better right? HELD: The bank. 2. he does not incur any further liability. o “Otherwise dispose” can cover giving goods to a sister company o • 1) Proof of fraud is strong. It had a lien on the deposit. who has absolute title over the goods. X took the goods from ABC and issued a trust receipt in ABC’s favor. which X received and gave a trust receipt to ABC bank for. Meralco/steel towers case: X fabricated steel towers (hired by Meralco). so X couldn’t pay ABC bank. The bank did not have any lien or title to the goods. HELD: The goods were covered. 2) fraud must involve abuse of independence principle. Sell or otherwise dispose of the goods 3. X claimed the goods were not covered because he did not sell nor manufacture/process them. Turn over to the bank/entruster the proceeds of the sale to the extent he is indebted 4. in case unsold •  • X purchased goods. X applied for a credit facility with ABC bank. It is a solidary obligation. Another case: X could not sell the goods covered by the TR. ABC bank required X to sign a trust receipt for the goods he just purchased. they were purchased separately from the credit application. there is no need to exhaust the resources of the applicant corporation that applied for the stand-by LOC. Daway: Case for corporate rehabilitation does not suspend payment from a stand-by LOC. X imported materials. But Meralco hasn’t paid X yet. no misappropriation. The entruster/bank then sells the goods Allied Banking: X imported goods. but it refused. o o The entruster. and opened a LOC with ABC bank. releases these to the entrustee (bank) The entrustee executes and delivers a trust receipt. TR can apply even in domestic transactions Nature of ownership/security interest – Vintola: Note: if the entrustee returns the goods. It says “sell or otherwise dispose. When the equipment arrived. HELD: No estafa. X used the materials to build the steel towers. Independent of this purchase. there has to be misappropriation o Trust receipts • Trust receipt transaction (TRT) – transaction where. HELD: This is invalid.

it is pactum comissorium. It just has a lien. Readiness and willingness to sign an acknowledgment of receipt of the goods terminate the obligation. or it can sell the goods. that it is non-negotiable What is the consequence of not doing so?  If someone relied in GF that it is negotiable and acted upon it. usually in red. A TRT is a security transaction. X decided to return the shells and claim he is not liable anymore because X claimed ABC was the real ownership of the shells and X just held it in trust. the bank must foreclose – otherwise. Person lawfully entitled to the goods or his agent 2. Warehouse Receipts Law o • When is a WHR negotiable? o o If payable to order or bearer If payable to order or bearer. and to realize it. Safeguard the goods 2. he could sue the WHM for damages • What are the obligations of the WHM? o o 1. The bank then returns the excess or runs after the deficiency. For negotiable WHR. it will be treated as negotiable. it just relies on a legal fiction to create a lien. covered by a trust receipt with ABC bank. to surrender the receipt 3. Person entitled to delivery under non-negotiable WHR or who has authority from the person entitled to delivery (SPA) 3. ABC still has the right to recover the money. • Rules on refusal to deliver: o 1. WHM cannot refuse to deliver the goods just because of a third party claim  But he may submit the situation for interpleader o . Holder pays the WHM’s liens 2. If the WHR is negotiable. HELD: X is wrong. the person in possession When is it non-negotiable? o o Not payable to order or bearer AND there is a large print. X failed to sell the puka shells. can one insert a stipulation that it is non-negotiable?  • No. PNB Case: The bank getting back the goods does not • What is the rule on duplicate WHR? o Same as non-negotiable – if the holder though in GF that it was the original. • To whom must the WHM deliver the goods to discharge his liability? o o 1. The stipulation is void. ABC can still recover the money.o X imported puka shells. and the buyer is still really the owner of the goods. Deliver the goods o To deliver • What are the conditions before the WHM delivers the goods? o o 1.

or indicate partial delivery on the receipt. o • o What is the effect of alteration? o Unlike in NIL. What if the WHM makes partial delivery of the goods?  He must cancel the WHR and issue a new one reflecting the balance of the goods. What are the exceptions? o o 1. it does not discharge the WHM. so takes the goods in his own right 2. WHM is excused for selling perishable or hazardous goods o He is liable for damages to any person who takes the WHR in GF and for value. The WHM is liable under the original tenor of the WHR.o 2. He also has to post a bond. cannot claim ownership over the goods. so he foreclosed it and bought the goods during auction • What are the rules on commingled goods? o Each depositor gets a pro rata portion of the common mass upon claim What happens if there is partial loss?  o • What if the WHM delivers the goods without asking for surrender of the WHR? . in case the WHR falls in the hands of a person who took it in GF and for value. after proof of loss. Until this is done. To safeguard • • • If the goods are lost. he is presumed to be at fault But not for fortuitous events What is the duty in keeping goods? o o He must segregate the goods belonging to different depositors But he is allowed to commingle if:   It is stipulated It is customary to do so • How does a creditor go about attaching/levying the goods covered by a negotiable WHR? o Ask for enjoinment of indorsement or renegotiation of the receipt – have the WHR frozen or surrendered. WHM is excused for failure to deliver if he sold the goods to satisfy an unpaid lien 3. Again. so it doesn’t end up in the hands of someone who takes it for value and in GF. Has unpaid lien. the WHM cannot be compelled to deliver. as a bailee. failure to do so makes him liable to one who takes the WHR in GF and for value. The latter goes against the bond. • The WHM in general. •  What is the effect of loss of the receipt? o The claimant has to file a case in court and get a court order telling the WHM to deliver the goods. WHR negotiated to him.

o It does not adhere to the property insured because the personality of both parties is crucial and is the primary consideration for the contract. you can avail of medical checkup. As consideration. o Held: Was conducting insurance business without license. You give membership fees and if a driver gets into an accident. and the Philippines was under US at that time. special types of contract (marine. the insured pays premium • • The buyer of a car. It is conditional What is the structure of the insurance code? o Parties. This is wagering. will only be insured if the insurance company allows for an endorsement of the seller’s insurance contract. But here. there is no indemnity. In Maxicare there is no insurance contract because physicians pay for the first six sessions of therapy after injury or loss. form of the contract. but the main purpose is to give medical services. • It is a personal contract. Contra Maxicare: Even if all elements are present. the association pays indemnity. The . elements of contract. fire. Al requisites concurred. o Wenfeld: Company. regulation of insurance companies o • You cannot insure the winning of the lottery. o If you don’t lose what was insured. German company filed claim with Insurance • It is an aleatory contract. Sued by Insurance Commission for not having license to do Insurance Business.• INSURANCE  Ex. Parties • Who can be the insurer? o • One authorized by the Insurance Commission Who can be insured? o Anyone except a public enemy  Citizen of a country with which the Philippines is at war with. teenagers will be charged higher insurance over cars. performance of the contract (for what losses). In general • o Elements o 1. etc. for instance. • It is unilateral o It is only the insurer that has an obligation to perform (the insured already paid). but if primary purpose of contract is to provide services. o o • Someone organized a jeepney association.). Insured possesses interest susceptible of pecuniary estimation 2. then it is not an insurance contract. Insured is subject to risk of loss 3. even if you did not get injured or sick.

a concert impresario in an opera you organized You can insure anyone’s life. spouse and children 2. 8 – The mortgagor can sue the insurance company if it does not pay. The mortgagor can have the mortgagee perform acts that benefit the contract o  o The interest must exist when the policy takes effect AND when loss occurs. or respecting property or services – whose death might delay or prevent performance 4. Over own life.Germany and USA were at war (WWII) so the company cannot collect. but you have to get his consent + you must have insurable interest o 3. But they were planning to kill him. o Ex. The second boy’s fingerprints did not match the first boy’s prints. The mortgagee cannot collect. Any person with legal obligation to pay money to him. need only exist when the policy takes effect Insurable interest • Insurable interest over life o In life insurance. so the insurance company did not pay. If the mortgagor performs an act that prejudices. you cannot put value over life of a person EXCEPT: if there is a way to place pecuniary value in the life of the person. co-guilty party of adultery/concubinage o o 1.  Only exception: you cannot name one to whom you are prohibited to make donations to •  Ex. Then they insured his life. can it still be changed? • Over property . o If the beneficiary is irrevocable. • Insured can change the beneficiary UNLESS it was made irrevocable in the policy. with themselves as beneficiary. promised to raise him well. or in whom he has pecuniary interest  Ex. the mortgagee cannot collect. Then they were found out. They did the same for a second boy and killed him. Any person upon whose life any estate or interest vested in him depends  Ex. o o MAIN DIFFERENCE: there must be a valid legal interest The insurance cannot go beyond the value of the property  Whereas in life. one can name anyone to be the beneficiary. You are a married couple allowed to stay in the family home as usufruct. The Mortgagor brought fireworks to the building and it exploded.  In life. Picked up a boy from the straits and adopted him. They have interest to continue the life of their parents o o Case: There was a couple that hatched a diabolical scheme with an insurance company (in cahoots). • Sec. a key basketball player you signed for your team. Over any person on whom he depends solely or in part for education or support. The first boy disappeared.

over the property of a partnership Carrier. The father wanted to revoke. HELD: father is wrong. But if irrevocable. In the contract. He must go through guardianship proceedings to have another one make the decision for the child. repurchased. HELD: There was insurable interest. which is based on subscription contract o o o • Partners. EXCEPTIONS?  When the killing is lawful (ex. as a school. it said that the lessor may shares of stock of a lessee… [See “chuck” case in transcript] goods he is buying even if undelivered. But how does he prove that revoking is for the best interest of the child? Harvardian Colleges was allowed to use a building by the owner. The father said he is the legal guardian anyway. The company said the child must consent. It insured the building. over goods for safekeeping since he will be liable • When does the beneficiary forfeit? o o If he causes the insured’s death. Owned a car. The seller also has insurable interest because he has legal title. o Inchoate interest founded upon existing interest  Ex. under the law. o Yes. o o o Contractor: has insurable interest over the building Smuggled property – against public policy When must interest exist? o Mortgagee has insurable interest o Also. insured. self-defense. and then loss in fire. then sold it.NOT insurable o o o Creditor with no collateral over properties of buyer Expectant heir Fictitious contract of sale (completely simulated) o If killing is unlawful the benefits go to the estate of the insured (the beneficiary cannot benefit) • Insurable interest over property:  o Filipino Merchant: The importer has insurable interest in o • A person leases property. Then . over goods it is transporting since he will be liable WH man. the beneficiary is the executioner in death penalty) A mere contingent interest over something: . he bears the risk of loss prior to completion Lessor and lessee both have insurable interest When the policy takes effect and when loss occurs Need not exist in the meantime  o Ex. can only change beneficiary with the latter’s consent. stocks.  Case: The father made the child an irrevocable beneficiary of an insurance contract. o Mere possessor. because he can compel delivery. It caught fire.

Insurance company must pay because X was part of the original insured. What if the children bought the house from the father when he was still alive?  o   o Insurance does not transfer. if the buyer wants insurance. insurance over 16 is still valid. HELD: Lost insurable interest. already an accrued liability at this time. X Y and Z co-owned a house. Then it was lost by fire. The house burned. Must be material to the policy  Test: the other party would not have entered into the contract had he known of the fact concealed Or the conditions in the K would have been different Life insurance: usually involves failure to disclose serious ailments Case: Couple got an insurance policy for their mongoloid baby. as long as he discloses that he has AIDS Need not disclose very minor sickness/injury   • Change of interest in will or succession does not avoid insurance. The property had been sold in foreclosure. X bought Y and Z’s shares and became sole owner. o • X insured his wife’s life. Change in interest after the loss does not change indemnity. X died and children inherited. you have to endorse the policy. He had no more right to redemption. X can collect.o A person mortgaged his building. Title IV – concealment o •  • He still has insurable interest • For life: interest need only exist upon taking effect. Party must have known the fact concealed  Ex. What if he still possessed the right of redemption? • Stipulation that there need not be an insurance interest for an insurance contract – NULL AND VOID. The children can collect. but they did not say he was a mongoloid. It is a chose in action. he did not know he had cancer Consequence: injured party can rescind Failure to communicate what a party knows and ought to communicate • If you sold your car. They annulled their marriage. But the wife failed to revoke the insurance. • Need not be intentional Requisites: o 1. HELD: concealment There is a law prohibiting insurance companies from refusing to issue insurance to someone with AIDS. o X insured Family Home against fire. The It is • • o 2. Sold 4 of them. Change in interest in one or more listed things: o Taxi company insured 20 units. Party must make no warranty of the fact concealed .  o 3. The house burned.

Either express (in the terms of insurance) or implied (as when there is failure to make follow up inquiries as to facts already communicated0. the company is still not liable because it wouldn’t have issued a policy. 4. • Misrepresentation as to the future is deemed a promise Can be written or oral • • . or stated as true without knowing it to be true and which tends to mislead 3. saying that she did not disclose there was a problem with peace and order in Pampanga. o Ex. the violation is not a concealment but a breach of contract • Can there be waiver? o Yes. Fact is material o o o • Consequence – voidable at option of insurer o But waived for acceptance of premium payments despite knowledge of ground for rescission • Even if you die from another reason apart from the fact concealed. if there was a warranty. need not disclose that members of NPA are burning houses in their neighborhood if the fire insurance policy exempts rebellion/coup/etc. Not required to disclose information of one’s own judgment. Insurance refused. The insurance company cannot use the defense that it was near a squatter’s area. because it sent inspectors. A fire broke out. But the company issued a fire insurance policy anyway. “why did you not disclose that there was a war in Afghanistan. the insured made the agent his own agent for the purpose of filling up the application form There are matters the party need not indicate: o The inspectors went to the place and found that it was near a squatter’s area. Cannot use the defense.” They should have known. Nurse with a personal accident policy. Insured an oil tanker. the insurer’s failure to look into his records – there were means to ascertain the fact • Is there need to disclose nature or amount of one’s interest? o No. With knowledge and intent to deceive. o In this case. If a party discloses that he has been hospitalized and gave the contact # of the hospital.-related destruction • Misrepresentation • Statements made to induce the other party to enter into the contract o o 1. • Need not disclose matters which pertain to excluded or excepted risks. Untrue statement 2. HELD: Insurance company should have known it was the center of the HUK movement before. EXCEPT if one is not the absolute owner of the insured property. Other party has no means to ascertain the fact concealed  Case. • If the agent commits a concealment. the applicant will be bound by that.

There was no misrepresentation. parole evidence is not allowed to vary the terms and conditions of the contract. He was more than 60 years old. the Insurance company said that they will only accept if the applicant is not more than 60 years old. but never did. or under different conditions • • If the insured has no personal knowledge of a fact. o If the other party would not have entered into the contract. Insurance company found out. o But it may qualify as an implied warranty It is a collateral o There is no misrepresentation because he relied on what the physician told him. but the company still issued a policy. there is no misrepresentation. Applicant claimed that the question asked whether there was criminal conviction. The bank threatened to sue. • • Insured filled up the application form. and he says the former. A representation is presumed to refer to the date on which the policy goes into effect. If one thinks his father died as a soldier. Application did not disclose incidents of defalcation by clients. “Have you ever applied for a life insurance policy and the application was rejected?” He said no. but then accepted on reconsideration. [JJ’s stories] Test of materiality – SAME AS CONCEALMENT. But he has been drinking since he was 16. Ex. “Where is the vessel?” “It is anchored in Manila Yacht Club. But before. he had an application denied. insurer must rescind prior to commencement of action on the contract Tender of premiums and notice that the policy is cancelled before suit is deemed a rescission • • Ng Gan Zee: . It is imposed by law. Held: he wrote on the application form his date of birth. inducement. There is no misrep. o • As a rule. when the policy takes effect and the vessel is in Manila already. it is not material. However. when he actually died of AIDS. he is liable for the truth of the statement • o • • Representation is false if facts do not coincide with what was asserted o o Sec48(a) – action to rescind Test for defense: “substantially true” in every particular material to the risk EXCEPT: Marine insurance – where what is required is the exact and whole truth • If insurer has right to rescind. But if he only drank small amounts on cocktail parties. Insurer said that the application did not require that.” But it is actually in Curimao. “Do you take alcoholic beverages?” Applicant said no. He died of liver failure – Misrep. It may qualify an implied warranty. he may repeat the information he has on the subject which he believes to be true o There is a question in life insurance about medical history of the family. HELD: No misrepresentation.• Misrepresentation is not part of the contract. voyage from Manila to Cebu. in action. There was another such case. o If somebody applied to insure his vessel. and exercise of due diligence was possible. But if the info came from the insured’s agent.

SC said that when the person died. insured engaged in car racing) 3. Policy was entered into pursuant to scheme to kill insured (“vicious fraud”) o 5. there was no such clause. but not the interpretation JJ: If the insured did not disclose that he had tuberculosis and he died after. Uncovered risks (ex. If the policy lapsed and was reinstated. 8-seater plane) 7. o JJ agrees with the result. Policy lapsed and insured did not pay 4. Claimant has no insurable interest 2. but not anything else • Requisites o o o 1. looking for third-party liability in car o o . This is the proper meaning. If insured is riding in a plane and it is not a commercial flight (ex. liability has accrued.Sec 48(b) – incontestability clause o • 6. Beneficiary delayed claim after two years have lapsed. So count from death. This was invoked by the insurance company. there is no more policy. what you are barring are defenses against fraudulent misrepresentation or concealment. the beneficiary CANNOT delay claim to beyond two years and invoke the incontestability clause. In one case. THE LAPSE OF THE TWO YEAR PERIOD MUST HAVE LAPSED WHILE THE INSURED IS ALIVE. or deceit/fraud o o o • o N. • • • • In old days. Insurance company cannot collect separate premium on preliminary policy and actual policy. Someone substituted for the insured during medical test  This fraud is not barred by the clause – there is NO perfected contract with the insured because it was another person o The Policy • Preliminary policy/cover note o Has terms and conditions of policy that would have been issued. BUT there are still defenses that can be invoked even in this period: o o o 1. the insured died within two year clause. Failure to furnish proof of death 9. Life insurance 2. Common in car insurance and marine insurance  But there is still some delay or information to be determined (ex.B. In force for 2 years since issuance or reinstatement If there is concealment or misrepresentation. Action not filed on time If a life insurance policy has been in force for at least 2 years since first effect or last reinstatement – insurer is BARRED from questioning it or alleging misrepresentation or concealment. Entered into military without consent 8. Really. the 2 year period will run again. Payable proceeds upon death 3. insurance company is still liable even if the cause was not due to the cause concealed or misrepresented.

They stole money. Cannot claim Cebu Shipyard is also insured. maximum liability of the insurer. the policy must be issued. Burned. . Insurer refused. When the new mill was finished it was insured.  NOW: there is a circular that allows cover notes to extend beyond 60 days. HELD: Clearly they intended the new mill to be insured. only he who can show it was intended to include him can claim the benefit. Old mill was insured. What is the rule on riders and additional attached clauses? o Does not bind insured UNLESS the descriptive name/title of the rider or clause is mentioned and written on the blank spaces in the policy • When does insurance taken by one partner or part-owner apply to the interest of his co-partners or co-owners? o The terms of the policy must be applicable to the joint or common interest • • Rules on interpretation: o o If the provision is clear. It is a • Insurance proceeds applied exclusively to person in whose name or for whose benefit the policy is made o Aboitiz: One vessel got burned in shipyard. The law says if the cover note extends beyond 60 days. Asked Cebu Shipyard to pay. the terms and conditions have to be approved by insurance commission. The policy however mentioned the old mill. this is a problem because 60 days have lapsed but no vessel has been found by the exporter. but you still have to quantify the value within this first [give to LTO the cover note] or looking for adequate carrier for goods for marine goods – since the policy depends on the state of the boat] o If description is so general that it may comprehend any class or persons. HELD: The insurance company lost.B. Before you issue a new policy. • Law requires that policies are in printed form. written agreement of insured must be obtained. [?] o So there can be an amount mentioned. o o • Open policy – o There must be a maximum amount mentioned. • What is the rule on additional riders or clauses issued after the original? o o Must be countersigned by the insured or owner N. Fortune: HELD: Security guard and driver of armored van had possession of the money. which in this case are the two. Held. not the old one even if the policy says otherwise. policy clearly mentions Aboitiz as sole insured. It can’t be handwriting anymore. The very purpose of the insurance is to insure against acts of those holding the money. but the agency. o In marine insurance. there is no room to interpret [SPACED OUT] Tantoco Terminal: had two mills. No need for signature of insured otherwise o • If a cover note was issued within 60 days. Insurance company refused to pay because it claimed they were not employees of the company.

B. It . Goodyear. Non-payment of premium 2. Discovery of willful or reckless acts increasing hazard insured against  Ex. Asking for reconsideration from the company does not suspend running of the period. instead of getting insurance whenever it ships tires to distributors. Determination by Commissioner that continuation of policy will place the insurer in violation of the code o When does cause of action accrue?  From rejection of the claim by the insurer.• Valued policy – o One expressing a policy that the thing be valued at a specified sum Marine policies are usually this  What if the clause says that action must be brought one year from loss? • It’s void. a bus company that always gets into accidents every week o o o o o 5. so they can issue up to 20M). The insurer might decide beyond one year sometimes. the action given to the insured will be less than 1 year from the time cause of action accrues. One year period to file a case is not like period for appeal. a clause in an insurance policy that action upon the policy must be brought upon by the insured within a certain period is valid But if the period fixed is less than one year from the time cause of action accrues. Conviction of crime from acts increasing hazard insured against 3. the stipulation is void (the period becomes the default 10 years. for it to be covered o o N. Maximum risk it can insure is 20% of its net worth (Ex. from a written contract)  In industrial life insurance – period cannot be less than 6 months from accrual of cause of action o o 1. o • Running policy – o Successive insurances Ex. In this case. • (64) Non-life policies cannot be cancelled without prior notice and only for the grounds stated in law here • What is the rule on validity of agreements limiting times for commencing action? o In general. it gets a running policy that covers all of these o In any case. Physical changes in property that makes it uninsurable 6. because prior to this. it would have to notify the insurance company which would issue an indorsement. Discovery of fraud/material misrepresentation 4. 100M net worth. because you have to submit your claim to the insurer first. there is no necessity to bring suit yet  Ex. and this takes time.

Insurer said that it will insure. It will be treated as if it is expiring at every anniversary of the policy. issued with the policy. insured can renew as a matter of right Policy written for term longer than 1 year. Loss occurs 2. Same if there is no cement available Or if it becomes unlawful Warranties • Express or implied o o • Express – found in terms and conditions Implied – imposed by law • o o Usually embodied in a rider Violation of warranty allows the other party to rescind. There were 2 fires. . Performance becomes unlawful 3. A fire razed his house in 10 days. it will be treated as written for successive terms of 1 year o Ex. HELD: the insurer is liable.can issue policies beyond that but it must be reinsured. and 3 years. construction contract requires policy covering the building as it is completed. need not be signed What is the difference of warranties from representations? o Warranties are express and placed in the contract Representations are not written and are but collateral inducements o o o Must be in writing o State ground for cancellation State that if the insured asks for the facts as basis. • Notice of cancellation: o • These riders. but insured must put up a firewall within 30 days. warranty that insured is in good health Future – ex. the insurer informs him that it will not renew o • When does non-compliance with a future warranty not avoid the policy? o o o 1. Performance becomes impossible  • If insurer does not do this. Inspectors said his neighborhood is not nice. the insurer will disclose * Prudent thing: to send by registered mail o Present – ex. • Give an example o Somebody tried to insure his house for fire. warranty in fire insurance that owner of property will not store flammable materials • May relate to: o Past – ex. warranty that insured was never confined o • (66) Insured in a non-life policy can automatically renew the policy as long as he is willing to pay the premium o Unless 45 days before expiration of policy.

placing alcohol to retouch the varnish of one’s insured furniture store does not breach the warranty against placing inflammable materials. There was breach of future double insurance warranty for contract A and breach of past double insurance for contract B. He drove a 10 wheeler. cannot bring explosive materials into his house. When is there a waiver by the insurer? o When despite knowledge of the breach. Because the risk increased regardless. Geagonia case: X insured his stocks in trade. where there is loss proceeds go to mortgagee. Insurance contains provision that the driver must be owner or the third party authorized with valid driver license. and insured them again.  o Palermo case: ASKED IN BAR. Fire destroyed the things. For instance. where there was gasoline in the warehouse for consumption of the owner’s car within 2 days. Then he obtained fire insurance over his house with Insurer B.o Can the insured argue that it is not material?  No. The fact that it is in the policy entitles the insurer to rescind. the insurer is not liable. Qua Chee Gan. The house burns down. Is Insurer A liable? Is insurer B liable? • • o Stokes [?] case: European driving with his own license (which is valid for a period. The basis is not materiality but breach of contract. He warranted against past and future double insurance. It is not double insurance. Employees drove it for a road test. and loss occurs EVEN IF not related to the breach of warranty. HELD: No need to disclose. Brought car to repair shop. The same clause is included. as long as he is under the influence Violation of material warrant entitles the other to rescind. it accepts the renewal premium • o o • Case on motor vehicle policies. Another example. but not after). o Ex. Vehicle involved in accident. Insurer not liable. and it was driven for a road test. • • If there is a breach of warranty. Insurer said X did not disclose second insurance. Mortgaged them. Even if not rescinded.  Both are not liable. X was issued an ordinary driver’s license. Can only drive 4 wheeled vehicles. If it’s a third party driving [check?]  • Double insurance  not just to those he acquired before but also the future. Different interests involved. What is the exception?  When it is merely incidental to the business. …[spaced out] “Under influence of liquor” clause – no need to actually be drunk. Failure to give information is a breach of warranty. Second goes to the mortgagee. o X obtained fire insurance over his house with Insurer A. He brought fireworks inside. His kitchen caught fire without relation to the fireworks. Insurer not liable because X is not authorized to drive the 10 wheeled vehicle. it can be launched as defense by the insurer. Or mothballs in a drug store. First goes to the mortgagor. • .

fire insurance policy covers store and stocks in trade. it is presumed to be material. the burden is on the insured to prove that it is not under an exempted risk Ratio: because the thing is in possession of the insured. Towed by a tug boat.e. o What if there was fraud. • Loss where the insured is guilty of gross negligence o SMC hired a shipping company to transport thousand cases of beer. Beyond that. what is the rule? • o o It only exempts the insurer from the time the breach occurred. and claim insurance o • Fire insurance – notice must be given without unnecessary delay o If reported an unreasonable time later – ex. then a fire broke out. o Give an example. There insurer is not liable. The insurer is not liable for the Dec 31 fire.• • When there is breach of warranty. etc. Loss. but is liable for the Sept fire. a fire broke out. When the tug boat arrived. . told someone to steal his car. Everyone congregated. While distracted. barred. During the typhoon the rope broke. 6 months – opportunity is gone Usually fire policies have a provision that claims must be filed within a certain time. i. The captain ignored it and tied the barge to the wharf. sell parts. Not listening today. committed arson o • Loss in which peril insured against is only a remote cause o Ex. the SMC rep met the captain and told the latter that the boat should be moved to a safer place since there is a typhoon brewing. When there is breach of warranty without fraud. riots. The house across the street caught fire. On Sept 31. the barge was cut loose. there were inflammable materials inside the house?  The policy doesn’t attach in the first place. Page 17-18 transcript] [The next day…] Just read transcript on breach of o The insurer is not liable for loss caused by connivance of insured o Ex. the proximate cause of which is an excepted risk Fire insurance policies say that they do not cover loss due to coup d’etat. On December 31 he stored inflammable materials (fireworks). robbers broke into the store and stole the stocks in trade. Warranted against storage of inflammable materials. Fire is just a remote cause.  X obtained fire insurance over his house. rebellion. Loaded on a barge. • • • • Burden is on the insurer to prove that it is an excepted risk o But for fire insurance. warranty. Claim against insurance – the captain was grossly negligent. so he can best give an explanation for the loss Radio Mindanao Case: [wrong interpretation of this rule] [I give up. • Loss from unlawful act – not liable o Ex.

Same interest 5. insured is not required to give proof that stands in court Learn the rules on reimbursement o • Noda: police report should be sufficient Reinsurance • Two types: o o • Treaty Facultative – case by case Defects in the notice or substantiation thereof which the insurer didn’t specify  waived o Because the insured is usually a layman • Delay in presentation of a claim/proof of loss is waived if the insurance company did not invoke that as a reason to deny the claim If the policy requires a certificate. Same subject matter  Ex.o • Look at purpose  to give the insurer a chance to investigate the claim • o o 4. invalid in England • • • • • Double insurance • Requisites: o 1. Insured must be the same  o o Ex. it is enough to say that he cannot produce it not because … [eh]  check section 92 o “I cannot submit the report not because the contents of the report are prejudicial. Risk is the same When proof is required. but because the investigator is abroad and cannot be found” A reinsurer cannot intervene in the case of insurer and insured because the reinsurer has his own interest anyway After first layer. Unusual movement of the sea/winds 2. the subsequent layers are called reprocession … Insurance is covered by the rule of blah blah blah fides Take note of the cut-through clause o o Insured can go straight to the reinsurer Ok in California. Several insurers 3. mortgagor mortgagee – not the same Marine insurance • Perils of the sea: o o 1. Connected with navigation 2. factory and stocks in trade – not the same . and the insured cannot produce it.

etc.] If the loss was not due to these. Loss is either total or partial • • o Actual total loss  actual loss of the thing  Renders it valueless • [On flag of the ship.  spaced out o o Use of simulated papers.  WRONG! Because nothing was unusual • IMPLIED WARRANTIES o o 1. and does not cover arrest order of court DOESN’T ANSWER for perils of the ship o Ship is unseaworthy • • Rule on concealment is stricter. even if it returns to the original route. will not deviate 3. and the complement of the vessel (master. surveyor saying that the ship is not seaworthy MUST BE DISCLOSED – it is material Once the vessel deviates. fruits became rotten due to nature of the fruits • • • Warranty of seaworthiness extends from the hull  also that it is properly laden. He relinquishes his share to the insurer . the insurer is exonerated. It will carry necessary papers if nationality was stipulated • Barratry o Willful misconduct.o Cathay: pipes arrived in rusty condition because it was stored in the hull of sea.) is If there are different portions of the voyage. Marine insurance – belief of a third person as regards what is material o Ex. even if these were committed. because the ship is usually in the high seas so the insurer is at a disadvantage – harder to inspect. not mere wrong judgment o o • Answers for general average o o o Those who were saved will contribute to the general average Insurance policy will cover share in general average DOES NOT cover particular average  Ex. Will not engage in illegal ventures 4. etc. etc. The insurer was liable because it was perils of the sea. the insurer is STILLLL liable o Constructive total loss is unique in marine insurance  Abandonment is act of insured after constructive total loss. it must be seaworthy in all such portions Deviation o o Check the three types of deviations Check when it is proper to make deviations  Any other deviation is not proper • • “Arrest of the vessel”  covers order by administrative officials. Sea worthy 2.

repairs in GF • • • If abandonment is proper but insurer refuses unjustly. Silence for unreasonable period of time = acceptance Marine insurer liable for all expenses (repairs. labor for recovery of property. Relative by affinity/consanguinity within 2nd degree Employee [see qualification] o o . etc. salvor’s fee. If damage is more than ¾ of value of property insured. etc.) <READ TRANSCRIPT ON MARINE AND FIRE … no changes in the law> • Motor vehicle liability insurance • “Third party” excludes o Driver. insured can declare constructive total loss • Insurer is liable for those acts of insured in good faith o Ex.

o Intellectual Property • Rights of intellectual creator exists from moment of creation • Or adaptations (ex. mortgage. Torrens system. or • For DVDs? o The producer. Any form of text is covered. But if the writer can still be identified (ex. This is the main principle. you must register it with the National Library to bind third parties. computer etc. But the law is clear – no need to register to have rights over intellectual creation. o If you sell. of course. o • To be protected it must be original. music composer. • o • • • If the work is done for hire or is part of his duties. • • • • Even choreography. for instance. But for collecting. convey your copyright. • Are email and letters also covered? o Yes. Pilita Corales adopted A Million Thanks To You as her final song in concerts. the producer has the right. Examples of translations. Miss Saigon. sculptures. He argued that you cannot have a monopoly on words. musical compositions. he cannot use the same set of stories since these were chosen by the first compiler. Paglinawan: A dictionary can be copyrighted. He came up with a Spanish-English dictionary where he borrowed 87% of the entries. then the employer will own the copyright. paintings. Unilever said that PNG’s commercial is not yet registered with the National Library. from Madame Buttefly) What about compilations? o This involves judgment of. If the writer is anonymous. . unless. Court held that the original writer used his judgment in selecting which words will be used. Nick Joaquin as Quijano de Manila). then the writer still gives consent. And if someone else wants to make another compilation. someone printed the word “thanks” a million times and it was not allowed to be registered because it is not an intellectual creation. architecture. screenwriter. they only have copyright over the parts they prepare. Are derivative works also created? o o Yes. Plagiarism is different from infringement. drawings. In response. So he has to get the consent of those whose stories he included in the compilation. etc. these are dramatizations of novels. o o Even if you haven’t registered yet with the National Library Unilever: Came out with an advertisement that is similar to PNG’s prior commercial. then it is the publisher that represents. director of photography. author of the work on which the movie is based. the best Filipino short stories. o If there are several writers and the parts are distinct. he gets permission. but you have to get the consent of the original creator.

Some artist connoisseurs bought X’s paintings for a cheap price. The character Charlie Brown is copyrighted. Or a bakery cannot use Cookie Monster. • The economic rights of author – need permission: o Reproduction or substantial reproduction (ex. • • • . photocopying an entire book) Derivative works Public distribution or exhibition o o • Businesses started playing certain songs to drum up business. Transfer of the work to new media will not violate… [?] How long do these rights last? o o Modern rights last up to 50 years after the death of the author. Technically. this is economic exploitation of the work. They are not assignable. So sporting goods cannot use Charlie Brown on their goods. Then they sold the paintings for a fortune when he became famous.• • • Owner can object to the distortion of his work. What is X’s right? o He must get 5% of the selling price.