434445691-2019-Ateneo-Pre-Week-Commercial-Law.pdf - ATE NEO CENTRAL BAR OPERATIONS 2019 JORGE ALFONSO C MELO Bar Review Coordinator LEILA S LiM Bar

434445691-2019-Ateneo-Pre-Week-Commercial-Law.pdf - ATE NEO...

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Unformatted text preview: ATE NEO CENTRAL BAR OPERATIONS 2019 JORGE ALFONSO C. MELO Bar Review Coordinator LEILA S. LiM Bar Review Secretariat ATENEO CENTRAL BAR OPERATIONS PATRICK EDWARD BALISONG Chairman KATRINA Y. COSCOLLUELA g e n ic a t h e r e s e ENDALUZ ^ j|mjp|sjratjon Committee Heads^ JONATHAN VICTOR NOEL JOHN STEPHEN PANGILINAN Academics Committee Heads CZARINA CHER CUERPO BENIGNO ENCISO Hotel Operations CommitteeTieads DEAN JOSE MARIA HOFILENA ATTY. ROEL REFRAN ATTY. IVY PATDU ATTY, FELICISIMO AGAS III COMMERCIAL LAW Faculty Advisers ISABELLA NAGUIAT CHRISTINE LEONG CLAUDINE BERNAS PAOLO GABRIEL BAUTISTA COMMERCIAL LAW Subject Heads EUNICE A. MALAYO FRANCES CHRISTINE F. SAYSON Central Bar Operations Academics Understudies MOIRA SARMIENTO MAE SAMPANG GIA MORDENO JEBEL CLAUDIO REI LUIS DOMINGO REMEDIAL LAW Volunteers NICK! VINE CAPUCHiNG ELDEN ROCAMORA ATENEO CENTRAL COMMERCIAL LAW BAR OPERATIONS 2019 | I. LETTER S OF C R ED IT A N D TR U S lT R E C E IP TS | A. BASIC CONCEPTS Q: What is a letter of credit? A: It is a written instrument whereby the writer (i.e., a bank client) requests or authorizes the addressee (i.e., a bank) to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. (Transfield Philippines, Inc. v. Luzon Hydro Corporation, G.R. 146717, 2004) Q: What is the independence principle in letters of credit? A: It means that in determining if the beneficiary of the letter of credit complied with it, the bank is required to examine only the documents presented. It is precluded from determining whether or not the beneficiary actually complied with the underlying contract. (Bank o f America v. Court of Appeals, G.R. No. 105395, 1993) Q: What is the exception to the independence principle in letters of credit transactions? A: Fraud Exception Rule - Fraud (fraudulent abuse of the credit, in case of collusion between the correspondent/paying bank and the exporter/seller of the goods) is an exception to the independence principle. That is, the untruthfulness of a certificate accompanying a demand for payment under a letter of credit may qualify as fraud sufficient to support an injunction against payment. (Transfield Philippines v. Luzon Hydro Corp., G.R. No. 146717, 2004) Q: What is the doctrine of strict compliance? A: The documents tendered by the seller or beneficiary must strictly conform to the terms of the letters of credit, i.e. they must include all documents required by the letter of credit. Thus, a correspondent bank which departs from what has been stipulated in the letter of credit, as when it accepts a faulty tender, acts at its own risk and may not be able to recover from the buyer or the issuing bank, as the case may be, the money paid to the beneficiary. (Feati Bank v. CA, G.R. No. 94209, 1991) Q: What is a warehouseman's lien? A: It is a lien over the goods deposited with him is his security for the payment of the charges, money advanced, and other expenses owed to the warehouseman. Clearly, the lien exists for the benefit of the warehouseman. (Warehouse Receipts Law, Sec. 27) Q: What are the remedies of a warehouseman having a valid lien against a person demanding the goods? A: The following are the remedies available to a warehouseman having a valid lien against the person demanding the goods: (REO2) a. To Refuse to deliver the goods until the lien is satisfied (Warehouse Receipts Law, Sec. 31)\ b. To cause the Extrajudicial sale of the goods and apply the proceeds to the value of the lien (Id., Secs. 33 & 34); and c. By Other means allowed by law to a creditor against his debtor, for the collection from the depositor of all the charges which the depositor has bound himself to pay. (Id., Sec. 32); d. or Other remedies allowed by law for the enforcement of lien against personal property (Id., Sec. 35) B. RIGHTS AND OBLIGATIONS OF PARTIES Q: Can a bank refuse payment if the proper documents have been presented to it? A: No. The purpose of a commercial letter of credit is to insure payment of a definite amount upon presentation of documents. The bank only deals with documents; it has nothing to do with the quality of the merchandise. (Prudential Bank v. IAC, G.R. No. 74886, 1992) Q: What are the three distinct and independent contracts in a letter of credit? (SBL) A: a. Sale between the Seller and the buyer; b. Contract of Buyer with issuing bank; and c. The Letter of credit itself, wherein the bank promises to pay pursuant to the terms and conditions of the letters of credit. This assures seller of prompt payment, independent of any breach of the main sales contract. (Keng Hua Paper Products Co., Inc. v. Court of Appeals, G.R. No. 116863, 1998) Q: What are the rights of the Parties in a letter of credit? A: a. The person paying shall have the right to demand proof of identity of the person in whose favor the letter of credit was issued (Code of Commerce, Art. 569(3)) b. In case of non-payment, person to whom the letter of credit is addressed may institute an action involving execution (Code of Commerce, Art. 571(2)). Q: What are the obligations of the parties in a letter of credit? A: a. DRAWER of the letter of credit • Liable to the person on whom it was issued for the amount paid (Code of Commerce, Art. 569, par. 1) • In case of revocation, he must inform the bearer and the person to whom it is addressed (Code of Commerce, Art. 570) b. BEARER of letter of credit • Pay the amount received without delay (Code of Commerce, Art. 571, par. 1) c. NOTIFYING BANK • To notify and/or transmit the documentary of credit to the seller-beneficiary • Assumes no liability Page 1 of 85 ATENEO CENTRAL BAR OPERATIONS 2019 d. NEGOTIATING BANK • Buys/discounts a draft under the letter of credit • Liability depends upon the negotiation o Before negotiation, it has no liability with respect to the seller o After negotiation, there is a contractual relationship prevailing between the negotiating and the seller e. CONFIRMING BANK • Assumes a direct obligation to the seller Q: Distinguish the liabilities of a notifying bank, a negotiating bank and a confirming bank? A: A notifying bank undertakes to inform the sellerbeneficiary that a letter of credit exists. Its obligation is limited to this duty and assumes no liability to pay under the letter of credit. A negotiating bank purchases drafts at a discount from the seller-beneficiary and presents them to the issuing bank for payment. Prior to negotiation, a negotiating bank has no obligation. A contractual relationship between the negotiating bank and the seller-beneficiary arises only after the negotiating bank purchases or discounts the drafts. A confirming bank confirms that the letter of credit will be honored by the issuing bank. A confirming bank, by such confirmation, insures that the letter of credit will be paid in accordance with its terms. It therefore assumes a direct obligation to the seller-beneficiary. (HSBC v. National Steel Corporation, 2016) Q: What is a trust receipt transaction? A: It is a transaction by and between the entruster and the entrustee, where the entruster, who owns and hoids absolute title to or security Interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster and the trust receipt (Trust Receipts Law, P.D. No. 115, Sec. 4) The nature of a trust receipt transaction is inconsistent with that of an assignment of credit as the latter necessarily involves an absolute conveyance of title. (Bangko Sentral ng Pilipinas v. Libo-ob, G, R, No, 173864, November 23, 2015) Q: What are the rights of the entruster? A: COMMERCIAL LAW f. May purchase at the intended public sale (TRL, Sec. 7) g. Extent of security interest: o As against innocent purchaser for value: not preferred (TRL, Sec. 11) o As against creditors of the entrustee: preferred (TRL, Sec. 12) Q: What are the liabilities of the entruster in any sale or contract made by the entrustee? A: The entruster is not responsible as principal or as vendor under any sale or contract to sell made by the entrustee by virtue of such interest or having given the entrustee the liberty to sell or otherwise dispose of the goods, documents or instruments under the terms of the trust receipt transaction. Q: Does the repossession of the goods under the trust receipt suffice to satisfy the principal loan obligation. A: No. The entrustee remains liable for the deficiency after the proceeds of the sale have been applied to the payment of expenses and debt (Landl & Company, et. al v. MBTC, G.R. No. 159622, 2004). Q: What acts or omissions of the entrustee would constitute estafa? (MAD) A. a. Misappropriation of the proceeds of the goods involved (RPC, Art 315 [1b], Lee v. Rod//, G.R. No. 80544, 1989) b. Non-payment of the Amount involved c. Failure to Deliver proceeds of sale or to return the goods not sold (Ong v. CA, G.R. No. 119858, 2003) Q: Who bears the risk of ioss of the goods under a trust receipt transaction? A: The entrustee. (TRL, Sec. 10) Q: What is the liability of the president of a corporation who signs a guarantee clause under a trust receipt in his personal capacity? A: He is liable personally and solidarily for the obligations of the trust receipt by signing the guarantee clause in his personal capacity. (Ildefonso Crisologo v. People of the Philippines, G.R. No. 199481, 2012) Q: Can a "trust receipt" transaction involve goods which the parties know are not returnable to the trustor? A: No. When both parties enter into an agreement knowing that the return of the goods subject to the "trust receipt" is not possible, it is NOT a trust receipt transaction. The transaction becomes a mere loan where the supposed "trustee's" only obligation is to return the proceeds of the sale of the goods subject to the "trust receipts". (Sps. Dela Cruz vs. Planters Producers, Inc., G.R. No. 158649, 2013) a. Entitled to the proceeds from the sale of goods, documents or instruments b. Entitled to the return of the goods, etc. In case of non­ sale c. To enforce all other rights conferred to him under TRL. d. To cancel the trust, take possession of the goods or Q: G applied for and was granted by PPI a regular instruments or of proceeds realized therefrom upon the credit line with trust receipts as collaterals. G default of the entrustee. submitted a list of their assets in support of her credit e. To sell the goods in a public or private sale upon notice application for participation in the Special Credit to the entrustee in case of default. Page 2 of 85 ATENEO CENTRAL COMMERCIAL LAW BAR OPERATIONS 2019 Scheme (SCS) of PPL G signed a Trust Receipt/SCS, indicating the invoice number, quantity, value and names of the agricultural inputs she received “upon the trust” of PPL fraud (Prudential Bank v. IAC, G.R. No. 74886, December 8, 1992; See also Sarmiento and Limpin v. CA, G.R. No. 122502, 2002). When G failed to pay the obligation, PPI brought against G a complaint for the recovery of a sum of money. Did the two transaction documents signed by G express the intent of the parties to establish a creditor-debtor relationship between G and PPI? A: Yes. The contract established a debtor-creditor relationship; the trust receipt was just collateral for the credit line. G signed the application for credit facilities indicating that a trust receipt would serve as collateral for the credit line. G, as the dealer signed the list of their assets that they tendered to PPI “to support our credit application in connection with our participation to your Special Credit Scheme.” G further signed the Trust Receipt/SCS documents defining her obligations under the agreement, and also the invoice pursuant to the agreement with PPI, indicating her having received PPI products on various dates. The contract, its label notwithstanding, thus was not a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law. (Sps. Dela Cruz v. Planters Products, Inc., G.R. No. 158649, 2013). C.REMEDIES AVAILABLE Q: What are the remedies available? A: 1. Criminal The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing of the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa (TRL, Sec. 13) In order to be validly prosecuted for estafa in relation to Sec. 13, they: a. Have the obligation to sell and remit the proceeds thereof to the entruster, or return the goods if not sold; b. Misappropriated the goods and/or the proceeds of the sale; c. Performed such acts with abuse of confidence to the prejudice of the entruster; and, d. Demand was made on the entrustee (Metropolitan Bank and Trust Company v. Jimmy Go and Benjamin Go, G.R. No. 155647, 2007). 2. Civil After commencing criminal action for violation of the Trust Receipts Law, the entruster may enforce civil liability arising out of the trust receipt in a separate civil action. Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls under Page 3 of 85 ATENEO CENTRAL COMMERCIAL LAW BAR OPERATIONS 2019 r II. NEGOTIABLE IN S TR U M E N T s T avT 1 A. REQUISITES OF NEGOTIABILITY Q: What are the essential formal requisites of a negotiable instrument? (WS-UDON) A: a. in Writing; b. Signed by the maker or drawer; c. Contains an Unconditional promise or order to pay a sum certain in money; d. Payable on Demand, or at a fixed or determinable tuture timo.................... - ~~~~~ .... .. .. ..... e. Payable to Order or to bearer; and, f. Where it is a bill of exchange, the drawee must be Named or otherwise indicated iherein wiih reasonable certainty. (NIL, Sec.1) NOTE: Electronic messages, (e.g. instructions given through electronic messages giving authority to debit a certain account), are not negotiable instruments as they do not comply with the requisites of negotiability under Sec. 1 of the NIL. (HSBC vs. CIR, G.R. No. 166018, 2014) Q: What happens when any of the formal requisites are lacking? A: It is not negotiable and the provisions of the Negotiable Instruments Law do not apply. The requirement that is lacking cannot be supplied by using a separate instrument in which that requirement appears. (El Blanco EspanolFilipino v. McKay, G.R. No. L-7790, 1914) Q: What is the effect if no date of maturity is specified in the instrument? A: It shall be payable upon demand. (NIL, Sec. 7) Q. What is the effect o f a conditional prom ise or order to pay? A: It is not a negotiable instrument as it depends on a contingent event. (NIL, Sec. 3) Q: What is the fictitious-payee rule and who should be liable under it? A: As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the negotiable instrument is considered as a bearer instrument. In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the drawer knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. However, the drawee bank shall also become liable when it acts dishonestly and when it is a party to the fraud. (PNB v. Rodriguez, G.R. No. 170325, 2008) Q: What are the effects of a crossed check? A: (END) a. The check cannot be Encashed but can only be deposited in the bank; b. It may be Negotiated only once - to one who has a bank account; c. It serves as a warning that the check was issued for a Definite purpose, and the holder is not a holder in due course unless he Inquired If he received It pursuant to that purpose. (Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, 1994) B. FORGERY AND MATERIAL ALTERATION Q: What are the effects of forgery? A: General Rule: It is inoperative. Hence, no right to retain the instrument, or give a discharge therefor, or enforce payment thereof against any party thereto can be acquired through or under such signature. (NIL, Sec. 23) Q: Who are the persons precluded from setting up the defense of forgery? A: a. Those who by their acts, silence, or negligence, are estopped from setting up the defense of forgery b. Those who warrant or admit the genuineness of the signatures in question (NIL, Sec. 23), namely: i. Indorsers (NIL, Sec. 68) ii. Acceptors (NIL, Sec. 62) ns. Persons negotiating by delivery (NIL, Sec. 64) Q: What are the legal consequences when a drawee bank honors a forged check? A: In the case of a forged check, the drawee bank Is considered as paying out of its own funds and cannot charge the amount so paid to the depositor. The drawee bank, however, can go against the collecting bank If the collecting bank indorses a check bearing a forged indorsement and presents it to the drawee bank. In this case, it is the collecting bank that guarantees all prior indorsements including the forged indorsement itseif. Therefore, the collecting bank is the one held ultimately liable. (Traders Royal Bank vs. Radio Philippine Network, Inc., G.R. No. 138510, 2002) Q: What Is the rule on the liability of signatories? A: General Rule: Only persons whose signatures appear on an instrument are liable thereon. A person whose signature does not appear on the instrument is not liable. (NIL, Sec. 18) Exceptions: (AFP-AU) a. Where a duly authorized Agent signs for a person, the latter is liable. (NIL, Sec. 10) b. A Forger is liable even if his signature does not appear thereon. (NIL, Sec. 23) c. A person who is Precluded from setting up forgery as a defense. (NIL, Sec. 23) d. Acceptance of a bill of exchange is written on a piece of paper, other than the bill itself. (NIL, Sec. 134) Page 4 of 85 ATENEO CENTRAL COMMERCIAL LAW BAR OPERATIONS 2019 Unconditional promise in advance to accept a bill of exchange before it is drawn; which acceptance must be in writing. (NIL, Sec. 135) Q: A: a. b. c. d. e. What are material alterations? (DST-NCM) They are alterations that change the Date, Sum payable Time or place of payment, Number of relations of parties, Currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, f. OR any change or addition which alters the instrument in any Material respect. (NIL, Sec. 125) C. NEGOTIATION Q: What constitutes negotiation? A: An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery. (NIL, Sec. 30) Q: What are the modes of negotiation of a negotiable instrument? A: (Dl) a. Negotiation by Delivery If the instrument is payable to bearer (NIL, Sec. 9), then the instrument is negotiated by mere delivery. Any person in possession of an instrument payable to bearer is always the bearer thereof, even if he has no legal right to it. b. Negotiation by Indorsement If the instrument is payable to order (NIL, Sec. 8), two steps are needed to effect negotiation: (ID) a) Indorsement by the payee of the present holder; and b) The Delivery to the next holder. Q: What constitutes an indorsement in instruments payable to order? A: It must be an indorsement of the entire instrument. A partial indorsement or one which transfers the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. However, where the instrument has been paid in part, it may be indorsed as to the residue. (NIL, Sec...
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