Unformatted text preview: ATE NEO
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
Hotel Operations CommitteeTieads DEAN JOSE MARIA HOFILENA
ATTY. ROEL REFRAN
ATTY. IVY PATDU
ATTY, FELICISIMO AGAS III
COMMERCIAL LAW Faculty Advisers ISABELLA NAGUIAT
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
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
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
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.
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 &
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
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. 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
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
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
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,
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. 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
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
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).
Q: What are the remedies available?
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
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).
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. 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
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
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
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. 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)
e. What are material alterations? (DST-NCM)
They are alterations that change the
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
f. OR any change or addition which alters the instrument
in any Material respect. (NIL, Sec. 125)
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
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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