2007 pre-week mercantile

8/12/2019 2007 Pre-week Mercantile

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PRE-BAR REVIEW DIVISION

2007 PRE-WEEK REVIEWNOTES

DOMONDONs CUT AND PASTEThe BAR STAR NOTES

ERCANTILE LAWVER. 2007.08.13copyrighted 2007

Prepared by Prof. Abelardo T. Domodo

How o !se he Noes"The!e "ote! i the

form of te#t$al material! ad repre!etati%e re%ie&'$e!tio! &ere s#e$%&''( #)e#&)e* +( P)o, Do.o/*o/,o) he e$'!s%1e !se o, B&) C&/*%*&es who&e/*e* h%s 2007 'e$!)es %/ Me)$&/%'e &w(cod$cted by Prim$! )formatio( *eter( )c(( adother! he ha! per!oally a$thori+ed.

D$rig the Pre,-ee from /eptember 10 1( 2007(yo$ do ot aymore ha%e the l$#$ry of time to do a lei!$relyreadig of yo$r boo! ad ote!. Th$!( yo$ !ho$ld be %ery!electi%e i the $!e of re%ie& material!. Domodo! *$tad Pa!te( The 4ar /tar "ote!5 &ere !pecially prepared to

help yo$ foc$! o the area! that are probable !o$rce! of'$e!tio! to be gi%e d$rig the 2007 4ar E#amiatio i6ercatile a&. The area! &ere idetified by the a$thorthro$gh !tati!tical aaly!i! $!ig data from 4ar E#amiatio'$e!tio! i 6ercatile a& gi%e d$rig the period 113 $pto 2009. The e!!ece of !elected /$preme *o$rt deci!io!$p to :ebr$ary 2007 are al!o icl$ded.

) order to ha%e a mo!t effecti%e Pre,-ee Re%ie&(yo$ !ho$ld read Domodo! *$t ad Pa!te( The 4ar /tar"ote!5 i the follo&ig !e'$ece;

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"ote!5 by &ritig yo$r o& commet! ad ote!./ometime!( it i! ea!ier to $der!tad the cocept if it i! iyo$r o& had&ritig. There may be o eed to highlight thearea! mared ad ( beca$!e all the area! i thi! !ectioare e'$ally dagero$!.

2. After yo$ ha%e ma!tered the area! mared

ad ( yo$ !ho$ld e#t do a !electi%e readig of the area!mared ad tho!e that are ot !o mared. )t i! !tati!ticallyprobable that 10= to 20= of the '$e!tio! may be !o$rcedfrom the!e area!( e!pecially more !o( the !o,called cra+y'$e!tio!.5


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: What is meant by the theory of manifestation inthe perfection of contracts as adopted in the Code ofCommerce ?

/@E/TED A"/-ER; A theory i the perfectio ofcotract! &hich recogi+e! that the cotract i! perfected at thetime &he the acceptace i! made by the offeree.

2 What is the theory of cognition in the perfectionof contracts recognized under the Civil Code ?

/@E/TED A"/-ER; The cotract i! perfected atthe time the acceptace came to the o&ledge of the offeror.

= What is a joint account ?/@E/TED A"/-ER; A Coit acco$t i! a

tra!actio of merchat! &here other merchat! agree tocotrib$te the amo$t of capital agreed $po( ad participatigi the fa%orable or $fa%orable re!$lt! thereof i the proportio

they may determie.

> Distinguish joint account from partnership/@E/TED A"/-ER; The follo&ig are the

di!tictio!;a. A parter!hip ha! a firm ame -G)E a Coit acco$t

ha! oe ad i! cod$cted i the ame of the o!te!ibleparter.

b. A parter!hip ha! a C$ridical per!oality ad may !$ead be !$ed $der it! firm ame -G)E a Coit acco$t ha! o

C$ridical per!oality ad ca !$e ad be !$ed oly i the ame

of the o!te!ible parter.c. A parter!hip ha! a commo f$d -G)E a Coit

acco$t ha! oe.d. ) a parter!hip( all geeral parter! ha%e the right of

maagemet -G)E i a Coit acco$t the o!te!ible partermaage! it! b$!ie!! operatio!.

e. i'$idatio of a parter!hip may( by agreemet( beetr$!ted to a parter or parter! -G)E i a Coit acco$tli'$idatio thereof ca oly be doe by the o!te!ible parter.

9+; ee)s o, C)e*% !/*e) he Co*e o,

Co..e)$e 9A)%$'es ?Bank ofPhilippine Islands v. Commissioner of Internal Revenue, . R. "o.137002( I$ly 27( 2009?

"BTE/ A"D *B66E"T/;a. UCP )!'es o1e)/ 'ee)s o, $)e*% /ice letter! of

credit ha%e gaied geeral acceptability i iteratioal tradetra!actio!( the )teratioal *hamber of *ommerce >)**? ha!p$bli!hed from time to time $pdate! o the @iform *$!tom! adPractice >@*P? for Doc$metary *redit! to !tadardi+e practice! ithe lFc area( the late!t of the re%i!io! beig that i 13.

There beig o !pecific pro%i!io! &hich go%er the legalcomple#itie! ari!ig from tra!actio! i%ol%ig letter! of credit( otoly bet&ee or amog ba! them!el%e! b$t al!o bet&ee ba!

ad the !eller or the b$yer( a! the ca!e may be( the applicability of@*P i! $deiable. >Ibid., Bank of America, NT & A v. Court of

Appeals, et al., . R. "o. 103( 10 December 13( 228 /*RA37?

Th$!( the ob!er%ace of the @*P i! C$!tified by Article 2 ofthe *ode of *ommerce &hich pro%ide! that i the ab!ece of aypartic$lar pro%i!io i the *ode( commercial tra!actio! !hall bego%ered by $!age! ad c$!tom! geerally ob!er%ed. >Ibid., citigBank of Philippine Islands v, !e Ren" #abric Industries, Inc., 1J9 Phil.29K 3 /*RA 29 >170?

b. D)&,@ *e,%/e*A draft i! a form of bill of e#chage$!ed maily i tra!actio! bet&ee per!o! phy!ically remote from

each other. it i! a order made by oe per!o( !ay the b$yer ofgood!( addre!!ed to a per!o ha%ig i hi! po!!e!!io f$d! of !$chb$yer orderig the addre!!ee to pay the p$rcha!e price to the !eller ofthe good!. -here the order i! made by oe ba to aother( it i!referred to a! a ba draft. >Bank of Philippine Islands v.Commissioner of Internal Revenue, . R. "o. 137002( I$ly 27( 2009?

c. 5o)e%/ +%'' o, e$h&/e@ *e,%/e* A iladbill of e#chage i! a bill &hich i!( or o it! face p$rport! to be( bothdra& ad payable &ithi the Philippie!. Ay other bill i! a foreigbill. >/ec. 12( ".)..?

2What are the three distinct and independentcontracts in a letter of credit?

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/@E/TED A"/-ER; The three di!tict adidepedet cotract! are;

a. The cotract of !ale bet&ee the b$yer ad the!ellerK

b. The cotract of the b$yer &ith the i!!$ig ba( adc. The letter of credit proper i &hich the ba promi!e!

to pay the !eller p$r!$at to the term! ad coditio! !tated

therei. >$en% ua Paper Products Co., Inc. v. Court of Appeals, etal.,289 /*RA 27?

= !n letters of credit in ban"ing transactions#distinguish the liability of a confirming ban" from anotifying ban"

/@E/TED A"/-ER; A cofirmig ba add! it!credit to the letter of credit ad therefore i! liable if the opeigimporter fail! to pay the e#porter &hile a otifyig ba beigmerely oe &ho gi%e! ad%ice a! to the e#i!tece doe! otic$r ay !$ch liability.

> $% agreed to sell to AC# a &hip andMerchandise $ro"er# '#()) cubic meters of logs at *'+ percubic meter ,-$ After inspecting the logs# CD issued a

purchase order-n the arrangements made upon instruction of the

consignee# . / 0 Corporation of 1os Angeles# California#the &2 $an" of 1os Angeles issued an irrevocable letter ofcredit available at sight in favor of $% for the total

purchase price of the logs# 0he letter of credit 3as mailedto ,4 $an" 3ith the instruction 5to for3ard it to the

beneficiary6 0he letter of credit provided that the draft tobe dra3n is on &2 $an" and that it be accompanied by#among other things# a certification from AC# stating thatthe logs have been approved prior to shipment inaccordance 3ith the terms and conditions of the purchaseorder

$efore loading on the vessel chartered by AC# thelogs 3ere inspected by customs inspectors andrepresentatives of the $ureau of ,orestry# 3ho certified tothe good condition and e7portability of the logs After theloading 3as completed# the Chief Mate of the vessel

issued a mate8s receipt of the cargo 3hich stated that the

logs are in good condition .o3ever# AC refused to issuethe re9uired certification in the letter of credit $ecause ofthe absence of the certification# ,4 $an" refused toadvance payment on the letter of credit

a May ,4 $an" be held liable under the letter ofcredit? 47plain

b :nder the facts stated above# the seller# $%#

argued that ,4 $an"# by accepting the obligation to notifyhim that the irrevocable letter of credit has beentransmitted to it on his behalf# has confirmed the letter ofcredit Conse9uently# ,4 $an" is liable under the letter ofcredit is the argument tenable ? 47plain

/@E/TED A"/-ER;a. "o. -itho$t the certificatio from A*( &hich i! a

coditio i the letter of credit( :E ha! o obligatio to ad%acepaymet of the letter of credit. >#eati Bank v. Court of Appeals, etal.,19 /*RA 79?

b. "o. :E 4a i! merely a otifyig ba beca$!e

there i! o !ho&ig that it ha! added it! credit to the letter ofcredit.

? -n '; March 1.C entered into a 0urn"ey Contract 3hereby 0ransfield#as 0urn"ey Contractor# undertoo" to construct# on aturn"ey basis# a +) Mega3att po3er station >2R-@4C00o ensure 0ransfield8s compliance 3ith the contractedtarget completion date it opened# 3ith AB $an"# in favorof 1.C t3o standby letters of credit >&4C:R!0!4& on ')March '))) As a result of some problems that beset the

2R-@4C0 completion arbitration 3as resorted to,oreseeing that 1.C 3ould call on the &4C:R!0!4&0ransfield advised AB $an" of the arbitration

proceedings 3ith the 3arning that until resolution of thearbitration no payment on the &4C:R!0!4& should bemade to 1.C or its representatives other3ise it 3ould besubject to damages 1.C then demanded from AB $an"

payment of the &4C:R!0!4& by surrendering the re9uireddrafts and documents re9uired under the 1C and 3as infact paid

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Did AB act correctly under the premises ? !s itliable for damages to 0ransfield ? Reason out yourans3er

/@E/TED A"/-ER; b hereof ?

/@E/TED A"/-ER;

a. 10? day! before the !ale or the proCected!ale i b$lK ad

3? "o!. 1? L 2? are regi!tered &ith the 4$rea$of Dome!tic Trade.c. )f H! compadre doe! ot ha%e o&ledge of the

fal!ity of the !ched$le( the !ale i! %alid. Go&e%er( if the%edee ha! o&ledge of !$ch fal!ity( the !ale i! %oid beca$!ehe i! i bad faith.

d. The reco$r!e of the creditor! i! to '$e!tio the%alidity of the !ale from H5 to hi! compadre( !o a! to reco%er&hat &ere !old to hi! compadre.

"BTE/ A"D *B66E"T/;a. P!)#ose o, B!' S&'es &w To pre%et !ecret or

fra$d$let !ale of the b$!ie!!( &hich co$ld lead to it! clo!$re( to thedetrimet of the creditor!.

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2 What are the effects of failure to observe there9uirements under the $ul" &ales Act ?

/@E/TED A"/-ER;a. The !ale i! $ll ad %oidKb. The p$rcha!er hold! the property he bo$ght i tr$!tfor the !ellerKc. The p$rcha!er i! liable to the !eller! creditor! for

propertie! he bo$ght ad already di!po!ed of by himK add. The p$rcha!er ha! the right to demad from the

!eller the ret$r of the p$rcha!e price pl$! damage!.

= What are the instances 3hen the sale#transfer# mortgage or assignment of stoc" of goods# 3ares#merchandise# provision# or materials other3ise than in theordinary course of trade and the regular prosecution of thebusiness of the vendor are not deemed to be a sale ortransfer in bul" ?

/@E/TED A"/-ER;

a. -he the !ale( tra!fer or di!po!itio i! i theordiary co$r!e of b$!ie!!K

b. -he there i! a &ai%er of the pro%i!io! of the 4$l/ale! a& of all the creditor!K

c. -he the !ale( tra!fer or di!po!itio i! by %irt$e of aC$dicial order.

BAR" > 47cel Corporation sold its assets toMicrosoft# !nc# after complying 3ith the re9uirements ofthe $ul" &ales 1a3 &ubse9uently# one of the creditors of47cel Corporation tried to collect the amount due it# but

found out that 47cel Corporation had no more assets left0he creditor then sued Microsoft# !nc# on the theory thatMicrosoft# !nc# is a mere alter ego of 47cel Corporation

Will the suit prosper ? 47plain/@E/TED A"/-ER; The !$it &ill ot pro!per. The

!ale by E#cel *orporatio of it! a!!et! to 6icro!oft( )c. did otre!$lt i the tra!fer of it! liabilitie! to 6icro!oft( )c.( or i thea!!$mptio of !$ch liabilitie! by 6icro!oft( )c. :$rthermore(there i! othig i the problem &hich !ho&! that there &a! amerger of co!olidatio( or a agreemet o the part of6icro!oft( )c.( to a!!$me E#cel *orporatio! liabilitie!.

? 0he shares of stoc" ofAldrin# !nc# engaged inthe 3holesale of paper products# is o3ned ( 9uedans bounced After FB8s claim ofo3nership 3as dismissed# it no3 refuses to release thesugar until @oy $an" pays storage fees !s FB justified inrefusing to release the sugar until the storage fees are

paid ?/@E/TED A"/-ER; /ec. 27( -areho$!eReceipt! a&?.

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A &areho$!ema eed ot deli%er $til the lie i!!ati!fied >/ec. 31( -areho$!e Receipt! a&?ad i accordace&ith /ec. 2 of the -areho$!e Receipt! a&( the&areho$!ema lo!e! hi! lie $po good! by !$rrederigpo!!e!!io thereof.

) thi! ca!e( HPhilippine National Bank, v.)ud%e e, )r., et al.,.R. "o. 11231( April 18( 19?

"BTE/ A"D *B66E"T/; a. W&)eho!se )e$e%#@ *e,%/e* A &areho$!e receipt

i! a &ritte aco&ledgmet by the &areho$!ema that he ha!recei%ed good! from the depo!itor ad hold! the !ame i tr$!t forhim.

b. No/-/eo%&+'e w&)eho!se )e$e%# *e,%/e* Areceipt i &hich it i! !tated that the good! recei%ed &ill be deli%ered tothe depo!itor or to ay other !pecified per!o. >/ec. J( The-areho$!e Receipt! a&.?

A o,egotiable receipt !hall ha%e plaily placed $po it!face by the i!!$ig &areho$!ema( o,egotiable5 or otegotiable.5

@po fail$re to do !o( a holder &ho p$rcha!ed it for %al$e!$ppo!ig it to be egotiable( may( at hi! optio treat !$ch receipt a!impo!ig $po the &areho$!ema the !ame liabilitie! he &o$ld ha%eic$rred had the receipt bee egotiable. >/ec. 7( The -areho$!eReceipt! a&.?

c. Neo%&+'e w&)eho!se )e$e%#@ *e,%/e* A receipti &hich it i! !tated that the good! recei%ed &ill be deli%ered to thebearer or to the order of ay per!o amed i !$ch receipt. >/ec. (The -areho$!e Receipt! a&?

2 2atric" deposited 3ith Warehouse Companyfor safe"eeping


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good!( or &ho ha! &ritte a$thority from the per!o !oetitled either idor!ed $po the receipt or &ritte $poaother paperK or

3? A per!o i po!!e!!io of a egotiable receipt bythe term! of &hich the good! are deli%erable to him or order(or to the bearer( or &hich ha! bee idor!ed to him or i blaby the per!o to &hom deli%ery &a! promi!ed by the term! ofthe receipt or by hi! mediate or immediate idor!er. >/ec. (

-R?The &+o1e .&( +e !se* +( he w&)eho!se.&/ o

*e,e/* h%.se', WH6 HE DEIVERED

c. W&)eho!se '%&+'e ,o) $o/1e)s%o/ if he deli%er!&itho$t a %alid idor!emet the good! co%ered by a egotiable&areho$!e receipt deli%erable to the depo!itor or hi! order.

d. I/s&/$es whe)e '%&+'e ,o) $o/1e)s%o/ e1e/w%h %/*o)se.e/ o) &!ho)%(" The &areho$!ema i! al!o liablee%e &ith idor!emet or &ith a$thority ( he i! lie&i!e liable( if priorto deli%ery he had either;

1? bee re'$e!ted( by or o behalf of the

per!o la&f$lly etitled to a right of property orpo!!e!!io i the good!( ot to mae !$ch deli%eryKor

2? Gad iformatio that the deli%ery abo$t tobe made &a! to oe ot la&f$lly etitled to thepo!!e!!io of the good!. >/ec. 10( -R?

= 0o guarantee the payment of a loan obtainedfrom a ban" Raoul pledged ()) bales of tobaccodeposited in a 3arehouse to said ban" and endorsed inblan" the 3arehouse receipt $efore Raoul could pay forthe loan# the tobacco disappeared from the 3arehouse

Who should bear the loss H the pledgor or theban" ? Why ?

/@E/TED A"/-ER; The pledgor !ho$ld bear thelo!!.

-here a &areho$!e receipt i! pledged( the o&er!hipof the good! remai! &ith the depo!itor or hi! tra!feree. Aycotract or real !ec$rity( !$ch a! a pledge( doe! ot re!$lt toa a!!$mptio of ri! of lo!! by the creditor..

> Albert purchased from &ammy Act '


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addition# the receipt issued to &amantha contains astipulation that Warren 3ould not responsible for the lossof all or any portion of the hard3are materials covered bythe receipt even if such loss is caused by the negligenceof Warren or his representatives or employees &amanthaendorsed and negotiated the 3arehouse receipt to $ritney#3ho demanded delivery of the goods Warren could not

deliver because the goods 3ere no3here to be found inhis 3arehouse .e claims that he is not liable because ofthe freefromliability clause stipulated in the receipt Doyou agree 3ith Warren8s contention ? 47plain

/@E/TED A"/-ER; "o. The free,from,liability5cla$!e i! %oid. The la& re'$ire! the &areho$!ema toe#erci!e d$e diligece i the care ad c$!tody of the thig!depo!ited i hi! &areho$!e.

9%%%; P)es%*e/%&' De$)ee ::? o/ T)!sRe$e%#s

: .erminio opened a letter of credit 3ith the$an" of 2hilippine !slands for the importation of certaine9uipment .e failed to pay and also failed to deliver thee9uipment despite demand .e no3 assails theconstitutionality of 2D o Tiomico v. Court of Appeals, et al.,.R."o. 1223( 6arch J( 1?

"BTE/ A"D *B66E"T/; a. T)!s )e$e%#@ *e,%/e* A tr$!t receipt i! co!idered

a! a !ec$rity tra!actio iteded to aid i fiacig importer! adretail dealer! &ho do ot ha%e !$fficiet f$d! or re!o$rce! to fiacethe importatio or p$rcha!e of merchadi!e &ho may ot be able toac'$ire credit e#cept thro$gh $tili+atio( a! collateral( of themerchadi!e imported or p$rcha!ed. The good! are held a! !ec$rityby the ledig i!tit$tio for the loa obligatio. >"ac$ %!. *o$rt of

Appeal!( et al.( .R. 108938( 6arch 11( 1J?

A'e)/&%1e *e,%/%%o/" A tr$!t receipt i! a doc$met i&hich i! e#pre!!ed a !ec$rity tra!actio &here$der the leder(ha%ig o prior title to the good! o &hich the loa i! to be gi%e adot ha%ig po!!e!!io &hich remai! i the borro&er( led! hi!moey to the borro&er o !ec$rity of the good! &hich the borro&er i!pri%ileged to !ell clear of the lie &ith a agreemet to pay all or partof the proceed! of the !ale to the leder. )t i! a !ec$rity agreemetp$r!$at to &hich a ba ac'$ire! a !ec$rity itere!t5 i the good!. )t!ec$re! a idebtede!! ad there ca be o !$ch thig a! !ec$rityitere!t that !ec$re! o obligatio. >*hig %. *o$rt of Appeal!( et al.(.R. "o. 1108JJ( April 27( 2000?

b. N&!)e o, & )!s )e$e%# A tr$!t receipt partae! ofthe at$re of a !ec$rity tra!actio. )t co$ld e%er be a mereadditioal or !ide doc$met. Bther&i!e( a party to a tr$!t receiptagreemet co$ld ea!ily reege o it! obligatio there$der($dermiig the importace ad defeatig &ith imp$ity the p$rpo!eof !$ch a idi!pe!able tool i commercial tra!actio!. >*hig %.*o$rt of Appeal!( et al.( .R. "o. 1108JJ( April 27( 2000?

c. P!)#ose o, T)!s Re$e%#s &w )t p$i!he!di!hoe!ty ad ab$!e of cofidece i the hadlig of moey or

good! to the preC$dice of p$blic order. >Bg %. *o$rt of Appeal!( etal.( . R. "o. 1188( April 2( 2003?

d. A$s &/* o.%ss%o/s #e/&'%Fe* The Tr$!t Receipt!a& i! %iolated &hee%er the etr$!tee fail! to;

1? t$r o%er the proceed! of the !ale( or 2?ret$r the good! co%ered by the tr$!t receipt if the good! areot !old. >Bg %. *o$rt of Appeal!( et al.( . R. "o. 1188(

April 2( 2003? Ret$rig the good! re!$lt! to ab!ece ofcrimial liability b$t the etr$!tee i! !till liable for the balaceof &hat he o&e! the etr$!ter.e. V%o'&%o/ o, T)!s Re$e%#s &w %s $)%.%/&' %/

$h&)&$e) Ret$r of the good! if $!old merely e#tig$i!he! theetr$!tee! crimial liabil ity. Ge i! !till ci%illy l iable for the $paid loa.>Vitola %. )4AA( 1 /*RA 1J0?

The mere fail$re to acco$t or ret$r gi%e! ri!e to the crime&hich i! malum prohibitum. There i! o re'$iremet to pro%e itet todefra$d. >Bg %. *o$rt of Appeal!( et al.( . R. "o. 1188( April 2(2003?

f. T)!ss )e$e%#s &/* *o.es%$ 'ee)s o, $)e*% &)e$o/)&$s o, &*hes%o/ &/* &/( &.+%!%%es .!s +e he'*s)%$'( &&%/s he +&/ >/ec$rity 4a L Tr$!t *ompay %.*o$rt of Appeal!( et al.( .R. "o. 117( "o%ember 27( 2000?

g. Pe)so/s $)%.%/&''( '%&+'e ,o) 1%o'&%o/ %/ $&se o,$o)#o)&%o/s@ are the officer! or employer! or other per!o!

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re!po!ible for the offe!e are liable to !$ffer the pealty ofimpri!omet.

2 Who is an entrustee for purposes of the0rust Receipts 1a3 ?

/@E/TED A"/-ER; A etr$!tee i! oe ha%ig ortaig po!!e!!io of good!( doc$met! or i!tr$met! $der a

tr$!t receipt tra!actio( ad ay !$cce!!or i itere!t of !$chper!o for the p$rpo!e of paymet !pecified i the tr$!t receiptagreemet. MChin% v. ecretar" of )ustice, et al., . R. "o. 19J317(:ebr$ary 9( 2009 citig /ec. 3 >b? of P.D. "o. 11N

= What are the obligations of an entrustee ?/@E/TED A"/-ER; The etr$!tee i! obliged to;a. hold the good!( doc$met! or i!tr$met! i

tr$!t for the etr$!ter ad !hall di!po!e of them !trictly iaccordace &ith the term! ad coditio! of the tr$!t receiptK

b. recei%e the proceed! i tr$!t for the etr$!ter

ad t$r o%er the !ame to rthe etr$!ter or a! appear! tr$!treceiptKc. i!$re the good! the good! for their total %al$e

agai!t lo!! from fire( theft( pilferage or other ca!$altie!Kd. eep !aid good! or proceed! thereof &hether i

moey or &hate%er form( !eparate ad capable of idetificatioa! property of the etr$!terK

e. ret$r the good!( doc$met! or i!tr$met! ithe e%et of o,!ale or $po demad of the etr$!terK ad

f. ob!er%e all other term! ad codit io! of thetr$!t receipt ot cotrary to the Tr$!t Receipt! a&. >Chin% v.

ecretar" of )ustice, et al., . R. "o. 19J317( :ebr$ary 9(2009 citig /ec. of P.D. "o. 11?

92; Neo%&+'e I/s)!.e/s &w 9A$ No20=:;

: What is a negotiable instrument ?/@E/TED A"/-ER; A egotiable i!tr$met i! a

&ritte cotract !iged by the maer or dra&er &hich cotai!a $coditioal promi!e or order to pay a !$m certai imoey to order or to bearer &hich by it! form ad face i!

iteded a! a !$b!tit$te for moey ad pa!!e! from oe had

to aother a! moey( !o a! to gi%e a holder i d$e co$r!e theright to hold the i!tr$met ad collect the !$m for him!elf.

2 Iive the characteristics of a negotiableinstrument

/@E/TED A"/-ER; The characteri!tic! of aegotiable i!tr$met are;

a. "egotiability. The ability of the i!tr$met to betra!ferred from oe had to aother( ad for the holder toha%e the right to hold the i!tr$met ad to collect the !$mcertai i moey.

b. Acc$m$latio of !ecodary cotract!. A! thei!tr$met i! tra!ferred from oe had to aother( cotract!are etered ito bet&ee tho!e &ho are partie! to eachtra!fer idepedetly of the cotract bet&ee the pre%io$!ad !$b!e'$et partie!.

"BTE/ A"D *B66E"T/;a. Ch&)&$e)%s%$s o, /eo%&+'e #e) The lag$age

of egotiability &hich characteri+e! egotiable paper a! a crediti!tr$met i! it! freedom to circ$late a! a !$b!tit$te for moey.>Traders Ro"al Bank v. Court of Appeals, 29 /*RA 1?

= Distinguish a negotiable document from anegotiable instrument

/@E/TED A"/-ER;a. /$bCect matter of a egotiable doc$met i! good!

&hile that of a egotiable i!tr$met i! moey.b. Partie! prior to the holder of a egotiable doc$met

may ot beheld liable &hile the e!!ece of a egotiable i thatliability attache! to prior partie!.

c. There i! eed for otice! of di!hoor iegotiable i!tr$met to hold prior partie! liable &hile there i!o cocept of otice! of di!hoor i egotiable doc$met!.

> What are the re9uisites of a negotiableinstrument ?

/@E/TED A"/-ER; A i!tr$met to beegotiable m$!t coform to the follo&ig re'$iremet!;

a. )t m$!t be i &ritig ad !iged by the maer ordra&erK

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b. )t m$!t cotai a $coditioal promi!e or order topay a !$m certai i moeyK

c. )t m$!t be payable to order to bearerKd. -here the i!tr$met i! addre!!ed to a dra&ee( he

m$!t be amed or other&i!e idicated therei &ith rea!oablecertaity. >/ec. 1( ".)..?

ANA6TICA STEPS 5OR SOVIN3 PROBEMSINVOVIN3 NE3OTIABIIT6 O5 INSTRUMENTS "BTE;Th%s &)e& %s o/e o, he .os #o#!'&) &)e&s !/*e)Neo%&+'e I/s)!.e/s &w The +&) $&/*%*&e sho!'*.&se) he &/&'(%$&' se#s"

a. oo ,o) he !AT*+1) )f *&e*. The date i! prima faciethe tr$e date

of the i!tr$met. "egotiability i! ot affected.2) )f &/e-*&e* o) #os-*&e*. "egotiability ot

affected @"E// ate,dated or po!t,dated forfra$d$let p$rpo!e.

3) No *&e. "egotiable character ot affected.4) )f o date( tr$e date may be i!erted.

a? )f i!tr$met payable at fi#ed period afterdate>1? -rog date i! i!erted

>a? "o effect o i!tr$met( if holder id$e co$r!e

>b? )!tr$met i%alid( if ot holder i d$eco$r!e

b. oo ,o) INAT-R* of maer >P"? or dra&er >4E?.1? )f o !igat$re( ot egotiable.

2? )f !iged( egotiable.c. oo ,o) -NCN!ITINA' PR/I* 9PN; or-NCN!ITINA' R!*R9BE; )f pre!et( egotiable

1? *oditioal ad ot egotiable( if promi!e ororder deped! $po;a? A f$t$re e%et &hich may or may ot happeb? A pa!t e%et $o& to the partie!

2? *oditioal ad ot egotiable if promi!e ororder to pay o$t of a partic$lar f$d. E#ample;OPay 4 or order P10(000.00 o$t of my moey iyo$r had!.O "ot egotiable beca$!e it i!

coditioal beig payable o$t of a partic$larf$d ad o other.

3? @coditioal ad egotiable e%e if idicate! apartic$lar f$d o$t of &hich reimb$r!emet i! tobe made or partic$lar acco$t to be debited.E#ample; OPay 4 or order P10(000.00 adreimb$r!e yo$r!elf o$t of my moey i yo$r

had!.O "egotiable beca$!e there i! ocoditio a! to !o$rce of f$d! oly &ith re!pectto reimb$r!emet &hich occ$r! after thei!tr$met i! paid.

J? @coditioal ad egotiable if depedet $poa f$t$re e%et &hich i! certai to happe e%e iftime of happeig i! ot o&.

? @coditioal ad egotiable e%e if !tatemetof the tra!actio i! gi%e. E#ample; O) promi!eto pay 4 or order P1(000(000.00 i paymet ofthe ho$!e ) bo$ght from him o 6arch 17(

200.O9? *oditioal ad ot egotiable beca$!e

'$alified. E#ample; O) promi!e to pay 4 ororder P1(000( 000.00 !$bCect to the term! adcoditio! of the 6arch 17( 200 Deed of /alefor the !ale of hi! ho$!e.O

d. Is he s!. C*RTAIN IN /N*0 )f !o( egotiable1? "ot egotiable( if ot i moey. E#ample; O)

promi!e to pay 4 or order the e'$i%alet ofP0(000.00 i carabao!.O

2? "egotiable e%e if holder ha! electio re'$ire

!omethig to be doe i lie$ of moey.E#ample; OTo *; Pay to 4 or order P0(000.00or 0 ca%a! of rice at the optio of theholder.O

3? )f at the optio of the dra&er( ot egotiablebeca$!e it i! coditioal.

e. Is he %/s)!.e/ #&(&+'e N !*/AN! o) AT A#I1*! R !*T*R/INAB'* #-T-R* TI/* )f !o(egotiable.

1? )f ot( ot egotiable.2? "ot egotiable( if payable o cotigecy.

Gappeig of the e%et doe! ot c$re the

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defect. E#ample; OPay to 4 or orderP100(000.00( t&o >2? day! after he pa!!e! the4ar.O "egotiable;

3? Payable o demad ad egotiable &hee#pre!!ed to be payable o demad( at !ight orpre!etatio( o time for paymet i! e#pre!!edo the i!tr$met( or &he the i!tr$met i!

o%erd$e.J? Payable at a determiable f$t$re time ad

egotiable if payable at a fi#ed period after dateor !ight( o or before a fi#ed or determiablef$t$re time !pecified therei( or o or before afi#ed period after occ$rrece of a certai e%ettho$gh happeig be $certai.

f. Is he %/s)!.e/ #&(&+'e T R!*Ro) B*AR*R )f !o( the egotiable. )f ot( ot egotiable.

g. I, he %/s)!.e/ %s &**)esse* o & *)&wee@ %s he/&.e* o) ohe)w%se %/*%$&e* o/ he %/s)!.e/ w%h

)e&so/&+'e $e)&%/( G )f !o egotiable. )f ot( otegotiable.

? Mi"y brought a motor car payable ininstallments from Autocars# !nc for 2(()#))))) .e madea do3n payment of 2()#))))) and e7ecuted a promissorynote for the balance 0he company subse9uently indorsedthe note to California ,inance Corporation 3hich financedthe purchase 0he promissory note readsL

5,or value received# ! promise to pay

Autocars# !nc or order at its office in Ma"ati City#the sum of 2())#))))) 3ith interest at t3elvepercent >


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a? -ith forgery ad alteratiob? -itho$t forgery ad alteratio

2? "ot deli%ereda? -ith forgery ad alteratiob? -itho$t forgery ad alteratio

b. *omplete i!tr$met1? Deli%ered

a? -ith forgery ad alteratiob? -itho$t forgery ad alteratio

2? "ot deli%ereda? -ith forgery ad alteratiob? -itho$t forgery ad alteratio

INCOMPETE INSTRUMENT BUT DEIVEREDa. Golder ha!prima faciea$thority to fill $p bla!

1? /igat$re o bla paper deli%ered by!igatory &ith itetio of maig it aegotiable i!tr$met(prima faciea$thority

to fill it $p for ay amo$t.2? Party prior to completio bo$d if filled $p

a? ) accordace &ith a$thorityb? -ithi rea!oable time

b. )rre!pecti%e of compliace &ith o. 2? abo%e priorpartie! !till bo$d b$t oly to holder i d$e co$r!e.

c. The r$le! apply &hether the i!tr$met i! apromi!!ory ote or bill of e#chage( &hetherpayable to bearer or order.

IUSTRATIVE PROBEMS" INCOMPETE

B-TDEIVERED INSTRUMENTS

Meg issued a negotiable promissory note to1eon authorizing 1eon to fill up the amount in blan" up to2


15/110

a. *ompleted ad deli%ered w%ha$thority( %alid.b. *ompleted ad deli%ered w%ho!a$thority

1? Valid agai!t party &ho!e !igat$re &a!placed &,e)deli%ery lie idor!er. Rea!o;)dor!er &arrat! the i!tr$met i! i allre!pect &hat it p$rport! to be.

2? "ot %alid agai!t party &ho!e !igat$re &a!

placed +e,o)e deli%ery( if ot a holder i d$eco$r!e. Rea!o; Deli%ery i! e!!etial to%alidity. Go&e%er( &ith re!pect to a holder id$e co$r!e( there i!prima facie pre!$mptioof deli%ery &hich may be reb$tted.

c. R$le! apply &hether1? Promi!!ory ote or bill of e#chage2? Payable to bearer or order3? -ith or &itho$t forgery ad material

alteratio.

IUSTRATIVE PROBEMS" INCOMPETENT DEIVERED INSTRUMENT

:: 2ocholo signed a blan" chec" and "ept it inhis safe 0his 3as stolen by 4d3in 3ho filled in theamount and placed a fictitious person as payee signed thename of the payee and indorsed the same to 2aolo# 2aoloto 2atric"# 2atric" to &ally# &ally to @eddah# @eddah toRhia All of the subse9uent indorsers as 3ell as the holder3ere all holders in due course

May Rhia proceed against 2ocholo in case of

dishonor by the dra3ee ban" ?/@E/TED A"/-ER; "o( beca$!e there &a! o

%alid deli%ery &hich i! e!!etial to the %alidity of the i!tr$met.:nder the same set of facts# if 2ocholo as 3ell as

the dra3ee ban" dishonors the chec"# may Rhia proceedagainst @eddah ?

/@E/TED A"/-ER;


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&o$ld remo%e a chec from her checboo. Ge had o rea!oto !$!pect that a cla!!mate ad fried &o$ld breach her tr$!t.

b. A ba i! bo$d to o& the !igat$re! of it! cliet!ad if it pay! o a forged chec( it i! co!idered a! ha%ig paido$t of it! o& f$d!.

COMPETE AND DEIVERED INSTRUMENTa. -itho$t forgery ad alteratio( all partie! bo$d.b. -ith forged idor!emet adFor alteratio

1? Brder i!tr$met!a? Brder promi!!ory ote

>1? Prior partie! /o bo$d. Rea!o;:orged !igat$re &holly ioperati%e$le!! e!toppel !et! i( the priorpartie! bo$d.

>2? /$b!e'$et partie! bo$d. Rea!o;4o$d o &arratie! of idor!er! $le!!other&i!e !pecified

>a? -hether or ot holder i d$e co$r!e>b? Bly forged !igat$re i! ioperati%e

b? Brder bill of e#chage>1? Dra&ee caot charge dra&erQ!

acco$t>a? )f charged dra&er ha! right to

reco%er>2? Dra&er ha! o right agai!t collectig

ba>3? Dra&ee ca reco%er from collectig

ba

>J? *ollectig ba bear! lo!!>a? *a reco%er from per!o it paid

>? Payee ca reco%er from>a? Dra&er>b? *ollectig ba>c? Payee caot reco%er from dra&ee

>9? Dra&er ot liable to the collectig ba2? 4earer i!tr$met!

a? 4earer promi!!ory ote>1? Prior partie! liable>2? :orged !igatory ot liable to party ot

holder i d$e co$r!e

b? 4earer bill of e#chage>1? Dra&ee ba liable

IUSTRATIVE PROBEM" RI3HTS O5PARTIES IN #R*! INDORSEMENT O5PROMISSOR6 NT* PA0AB'* T R!*R

:= Dennis ma"es a promissory note payable tothe order of Kay# 3ho indorses it to Mic"y &omeho3#,reddie obtains possession of the note and forging thesignature of Mic"y endorses it to Angelo 3ho thenindorses it to $ea &tate the rights and liabilities of the

parties/@E/TED A"/-ER; 6icy &ho!e idor!emet i!

forged ad the partie! prior to him icl$dig the maer( Dei!ad the payee( ay caot be held liable to the holder 4ea(&hether or ot !he i! a holder i d$e co$r!e. Rea!o!;

a. A order ote ca be egotiated oly by

idor!emet completed by deli%ery. A forged idor!emet i!&holly ioperati%e ad doe! ot tra!fer ay right!.

b. "o right to retai the ote( gi%e di!charge therefore(or eforce paymet co$ld be ac'$ired $der a forgedidor!emet.

c. /ice the predece!!or of the holder obtaied theote by fra$d$let ad $la&f$l mea!( the there are oright! that are tra!ferred.

d. Agelo i! liable to 4ea beca$!e of AgeloQ!&arratie! a! a geeral idor!er that the i!tr$met i! &hat itp$rport! to be ad that he !hall pay i ca!e of di!hoor.

IUSTRATIVE PROBEM" RI3HTS O5PARTIES IN #R*! INDORSEMENT O5 BI'' O5ECHAN3E PA6ABE T R!*R.

:> 0ina issued a chec" to ellie or order as thepayee 3ith 4astern $an" as the dra3ee ,idel fraudulentlyobtains the chec" and forges ellieOs signature ,idel thendeposits it in Daya $an" >Collecting $an" Western $an"indorses the chec" to 4astern $an" through the clearinghouse ,idel then 3ithdra3s from Daya $an"# the

proceeds of the chec"

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What are the rights of the parties ?/@E/TED A"/-ER;a. Dra&erQ! acco$t >TiaQQ!? caot be charged

>debited( ded$cted( !$btracted or red$ced? by the dra&ee>Ea!ter 4a?( for the amo$t paid( ad if her acco$t i!charged( Tia ca reco%er from Ea!ter 4a.

Rea!o; The depo!itory >dra&ee Ea!ter 4a? o&e!

to the depo!itor >dra&er Tia?( a ab!ol$te ad cotract$ald$ty to pay the chec oly to the per!o to &hom madepayable or $po hi! ge$ie idor!emet.

The dra&er a$thori+e! ad direct! the dra&ee to payoly to the payee or to the order of the payee ot to aother.

b. Dra&ee >Ea!ter 4aQ!? defe!e!; Dra&er( Tia i!precl$ded from rai!ig the defe!e of forgery d$e to e!toppelo acco$t of egligece( for e#ample( if the payee "elliead%i!ed Tia of the lo!!( b$t !he >Tia? did ot iform Ea!ter4a.

c. Dra&er >Tia? ha! o right to reco%er from the

collectig ba >Daya 4a?. Rea!o!;1? D$ty of collectig ba to e#erci!e care icollectig i! tr$e oly to the p$rported payee.

2? The dra&er doe! ot !$ffer ay damageca$!ed by the collectig ba a! he ca reco%er fromthe dra&ee ba &hich ha! o right to charge thedra&erQ! acco$t.d. Dra&ee ba >Ea!ter 4a? ca reco%er from the

collectig ba >Daya 4a?.Rea!o; /ice the chec pa!!ed thro$gh the clearig

ho$!e( the collectig ba >Daya 4a? m$!t ha%e idor!ed

the chec to the dra&ee ba >Ea!ter 4a?( therefore it i!liable o a idor!erQ! &arraty of ge$iee!! ad liability topay i ca!e of di!hoor.

e. *ollectig ba >Daya 4a? bear! the lo!! b$t itca reco%er from the per!o to &hom it paid the chec( :idel.

f. The payee >"ellie? ca !till reco%er from thedra&er >Tia?. Rea!o; /he !till retaied her claim a! it &a!ot e#tig$i!hed.

E#ceptio; The payee >"ellie? caot reco%er if thechec &a! impaired thro$gh her fa$lt.

g. The payee >"ellie? ca reco%er from the collectig

ba >Daya 4a?.

Rea!o; Po!!e!!io of the forged i!tr$met i!$la&f$l ad moey collected i! held i tr$!t for rightf$lo&er!. >"ote; Thi! i! o the a!!$mptio that( the dra&erQ!acco$t &a! charged by the dra&ee ba( other&i!e thedra&er &o$ld be $C$!tly eriched?

h. The payee >"ellie? caot reco%er from the dra&eeba >Ea!ter 4a?. Rea!o; There i! o pri%ity of cotract.

i. Dra&er >Tia? i! ot liable to the collectig ba>Daya 4a?. Rea!o; There i! o pri%ity of cotract bet&eeTia ad Daya 4a.

:? -n @une


18/110

chec! &ere mi!!ig. The ba &o$ld ha%e bee theimmediately ad%i!ed. >/ec$rity 4a L Tr$!t *ompay %. Tri$mph$mber ad *o!tr$ctio *orporatio( .R. "o. 12999( Ia$ary 21(1?

NOTES A"D *B66E"T/; The abo%e cited ca!e &a!decided a! !ho& abo%e beca$!e of Tri$mph! fail$re to pro%eforgery. )t i! the a$thor! %ie& that had Tri$mph bee able to pro%eforgery( the ba &o$ld "BT ha%e bee liable a! !ho& by thefollo&ig di!c$!!io.

a. Che$s w%h ,o)e* %/*o)se.e/s sho!'* +e*%,,e)e/%&e* ,)o. $he$s +e&)%/ ,o)e* s%/&!)es o, he*)&we) >A!!ociated 4a %. *o$rt of Appeal!( et al.( ad it!compaio ca!e Philippie "atioal 4a %. *o$rt of Appeal!( et al.(22 /*RA 920?

b. E,,e$ o, ,o)e* s%/&!)e -he a !igat$re i!forged or made &itho$t a$thority of the per!o &ho!e !igat$re itp$rport! to be( % %s who''( %/o#e)&%1e@ ad o right to retai thei!tr$met( or to gi%e a di!charge therefor( or to eforce paymetagai!t ay party thereto( ca be ac'$ired thro$gh or $der !$ch

!igat$re !/'ess he #&)( &&%/s who. % %s so!h oe/,o)$e s!$h )%hi! precl$ded from !ettig $p the forgery or &atof a$thority. >/ec. 23( "egotiable )!tr$met! a&?

/ec. 23 doe! ot a%oid the i!tr$met b$t oly the forged!igat$re. Th$!( a forged idor!emet doe! ot operate a! thepayee! idor!emet.

c. A #e)so/ .&( +e +o!/* !/*e) & ,o)e*s%/&!)e. if he i! precl$ded from !ettig $p the forgery or &at ofa$thority. Partie! &ho &arrat or admit the ge$iee!! of the!igat$re i '$e!tio ad tho!e &ho( by their act!( !ilece oregligece are e!topped from !ettig $p the defe!e of forgery areprecl$ded from $!ig thi! defe!e. )dor!er!( per!o! egotiatig by

deli%er ad acceptor! are &arrator! of the ge$iee!! of the!igat$re! o the i!tr$met.) bearer i!tr$met!( the !igat$re of the payee or holder i!

ot ece!!ary to pa!! title to the i!tr$met. Gece( &he theidor!emet i! a forgery( oly the per!o &ho!e !igat$re i! forgedca rai!ed the defe!e of forgery e%e agai!t a holder i d$e co$r!e.>A!!ociated 4a %. *o$rt of Appeal!( et al.( supra?

d. E,,e$s o, & ,o)e* %/*o)se.e/ o/ &/ %/s)!.e/#&(&+'e o o)*e)

1? -here the i!tr$met i! payable to order at thetime of the forgery( the !igat$re of the rightf$l holder i!e!!etial to tra!fer title to the !ame i!tr$met. -he the

holder! idor!emet i! forged all partie! prior to the forgery

may rai!e the real defe!e of forgery agai!t all partie!!$b!e'$et thereto.

2? A idor!er of a order i!tr$met &arrat! thatthe i!tr$met i! ge$ie ad i all re!pect! &hat it p$rport!to beK that he ha! good title to itK that all prior partie! hadcapacity to cotractK ad that the i!tr$met i! at the time ofhi! idor!emet %alid ad !$b!i!tig.5 Ge caot iterpo!ethe defe!e that !igat$re! prior to him are forged.

3? A collectig ba &here a chec i! depo!ited ad&hich idor!e! the chec $po pre!etmet &ith the dra&eeba i! a geeral idor!er &hich &arrat! the ge$iee!! ofthe i!tr$met. /o( e%e if the idor!emet o the checdepo!ited by the ba! cliet i! forged( the collectig ba i!bo$d by it! &arratie! a! a idor!er ad caot !et $p thedefe!e of forgery a! agai!t the dra&ee ba.

/ice a forged idor!emet i! ioperati%e( thecollectig ba had o right to be paid by the dra&ee ba.The collectig ba m$!t ece!!arily ret$r the moey to thedra&ee ba beca$!e it &a! paid &rogf$lly.

Thi! liability !cheme operate! &itho$t regard to fa$lt

o the part of the collectigFpre!etig ba. E%e if it &a!ot egliget( it &o$ld !till be liable to the dra&ee babeca$!e of hi! idor!emet.

J? The collectig ba or la!t edor!er geerally!$ffer! the lo!! beca$!e it ha! the d$ty to a!certai thege$iee!! of all prior edor!emet! co!iderig that theact of pre!etig the chec for paymet to the dra&ee i! aa!!ertio that the party maig the pre!etmet had doe it!d$ty to a!certai the ge$iee!! of the edor!emet!.

? 6oreo%er( the collectig ba i! made liablebeca$!e it i! pri%y to the depo!itor &ho egotiated the chec.The ba o&! him( hi! addre!! ad hi!tory beca$!e he i! acliet. )t ha! tae a ri! o the depo!it. The ba i! al!o ia better po!itio to detect forgery( fra$d or irreg$larity i theedor!emet.

9? The dra&ee ba i! ot !imilarly !it$ated a! thecollectig ba beca$!e the dra&ee ba mae! o &arratya! to the ge$iee!! of the edor!emet!. The dra&eeba! d$ty i! b$t to %erify the ge$iee!! of the dra&er!!igat$re ad ot of the edor!emet beca$!e the dra&er i!it! cliet.

The dra&ee ba i! $der !trict liability to pay thechec to the order of the payee. The dra&er! i!tr$ctio! arereflected o the face ad by the term! of the chec.

Paymet $der a forged edor!emet i! ot to the

dra&er! order. -he the dra&ee ba pay! a per!o other

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tha the payee( it doe! ot comply &ith the term! of thechec ad %iolate! it! d$ty to charge it! c$!tomer! >thedra&er!? acco$t oly for properly payable item!.

-here the dra&ee ba did ot pay a holder or otherper!o etitled to recei%e paymet( it ha! o right toreimb$r!emet from the dra&er.

The geeral r$le the i! that the dra&ee ba mayot debit the dra&er! acco$t ad i! ot etitled to

idemificatio from the dra&er. The ri! of lo!! m$!tperforce fall o the dra&ee ba.

7? The chai of liability doe! ot ed &ith the dra&eeba. -hile the dra&ee ba may ot debit the dra&er!acco$t( it may geerally pa!! liability bac thro$gh thecollectio chai to the party &ho too from the forger ad. ofco$r!e( to the forger him!elf( if a%ailable.

The dra&ee ba ca !ee reimb$r!emet or aret$r of the amo$t it paid from the pre!etorFcollectig baor per!o. E%et$ally( the lo!! fall! o the party &ho too thechec from the forger >the collectig ba?( or o the forgerhim!elf. Gece( the dra&ee ba ca reco%er the amo$t

paid o the chec bearig the forged edor!emet from thecollectig ba.8? A dra&ee ba ha! the d$ty to promptly iform the

pre!etorFcollectig ba of the forgery $po di!co%ery. )f thedra&ee ba delay! i iformig the pre!etorFcollectig baof the forgery( thereby depri%ig !aid pre!etorFcollectigba of the right to reco%er from the forger( the dra&ee bai! deemed egliget ad ca o loger reco%er from thepre!etorFcollectig ba.

? )f the dra&ee ba ca pro%e a fail$re by thec$!tomerFdra&er to e#erci!e ordiary care that !$b!tatiallycotrib$ted to the maig of the forged !igat$re( the dra&eri! precl$ded from a!!ertig the forgery a! a defe!e.

)f at the !ame time the dra&ee ba &a! al!oegliget to the poit of !$b!tatially cotrib$tig to the lo!!(the !$ch lo!! from the forgery ca be apportioed bet&eethe egliget dra&er ad the egliget ba. >A!!ociated4a( supra?e. E,,e$s whe)e he *)&we)s s%/&!)e w&s ,o)e*

The dra&er ca reco%er from the dra&ee ba. "o dra&ee ba ha!the right to pay a forged chec. )f it doe!( it !hall ha%e to recredit theamo$t of the chec to the amo$t of the dra&er. The liability chaied! &ith the dra&ee ba &ho!e re!po!ibility it i! to o& thedra&er! !igat$re !ice the latter i! it! c$!tomer. >A!!ociated 4a(supra?

f. R&%o/&'e ,o) +&/s '%&+%'%( %, % #&(s o/ & ,o)e*s%/&!)e )f paymet i! made the dra&ee caot charge thedra&er! acco$t. The traditioal C$!tificatio for the re!$lt i! that thedra&ee i! i a !$perior po!itio to detect forgery beca$!e he ha! themaer! !igat$re ad i! e#pected to o& ad compare it. The r$leha! a healthy ca$tioary effect o ba! by eco$ragig care i thecompari!o of the !igat$re! agai!t tho!e o the !igat$re card!they ha%e o file. 6oreo%er( the %ery opport$ity of the dra&ee toi!$re ad to di!trib$te the co!t amog it! c$!tomer! &ho $!e chec!mae! the dra&ee a ideal party to !pread the ri! to i!$race.>amsun% Construction Compan" Philippines, Inc., v. #ar *ast Bankand Trust Compan", et al., . R. "o. 1201( A$g$!t 13( 200J?

g. B&/ '%&+%'%( &&$hes e1e/ %, /o /e'%e/ Theba! liability attache! e%e if it e#ert! d$e diligece ad care ipre%etig !$ch fa$lty di!charge. :orgerie! ofte decei%e the eye ofthe mo!t ca$tio$! e#pert!( ad &he a ba ha! bee !o decei%ed( iti! a har!h r$le &hich compel! it to !$ffer altho$gh o oe ha! !$fferedby it! beig decei%ed. The forgery may be !o bear lie the ge$ie a!to defy detectio by the depo!itor him!elf( ad yet the ba i! liable tothe depo!itor if it pay! the chec. .>amsun% Construction Compan"

Philippines, Inc., v. #ar *ast Bank and Trust Compan", et al., . R."o. 1201( A$g$!t 13( 200J citig %ario$! a$thoritie!?

)f a lo!!( &hich m$!t be bore be by oe or t&o iocetper!o!( ca be traced to the eglect or fa$lt of either( !$ch lo!!&o$ld be bore by the egliget party( e%e if iocet of itetioalfra$d. >PNB v. National Cit" Bank of Ne2 0ork, 93 Phil. 711 >139?The ba i! !o !it$ated that it &o$ld ha%e bee the la!t b$l&ar i thedetectio of the forgery.

IUSTRATIVE PROBEM" RI3HTS O5PARTIES IN #R*! INDORSEMENT O5PROMISSOR6 NT* PA6ABE TO B*AR*R. OR O5B*AR*R BI''O5 ECHAN3E

:


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/@E/TED A"/-ER; 2J? ho$r!. >A!!ociated 4a %.

20


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*o$rt of Appeal!( et al.( ad it! compaio ca!e Philippie "atioal4a %. *o$rt of Appeal!( et al.( 22 /*RA 920?

: -n August G


22/110

chec! ad to gi%e otice &ithi a rea!oable time >or a!re'$ired by !tat$te? of ay di!crepacy &hich it may i thee#erci!e of d$e care ad diligece fid therei. >P*)4 %. *o$rtof Appeal!( et al.( .R. "o!. 121J13( 121J7 L 12870J( Ia$ary 2(2001?

"BTE/ A"D *B66E"T/;a. 5o)e)( $o..%e* +( *)&we)-#&(o)s

$o/,%*e/%&' e.#'o(ee *oes /o &!o.&%$&''( )es!' o+&/s &+so'!%o/ The mere fact that the forgery &a! committedby a dra&er,payor! cofidetial employee or aget( &ho by %irt$e ofhi! po!itio had $$!$al facilitie! for perpetratig the fra$d adimpo!ig the forged paper $po the ba( doe! ot etitle the ba to!hift the lo!! to the dra&er,payor( i the ab!ece of !omecirc$m!tace rai!ig e!toppel agai!t the dra&er. the r$le lie&i!eapplie! to chec! fra$d$letly egotiated or di%erted by thecofidetial employee! &ho hold them i their po!!e!!io. >P*)4 %.*o$rt of Appeal!( et al.( .R. "o!. 121J13( 121J7 L 12870J(Ia$ary 2( 2001?

The bare fact that the forgery &a! committed by a employeeof the party &ho!e !igat$re &a! forged doe! ot ece!!arily implythat !$ch party! egligece &a! the ca$!e for the forgery. Employer!do ot po!!e!! the preterat$ral gift of cogitio a! to the e%il thatmay l$r &ithi the heart! ad mid! of their employee!. >amsun%Construction Compan" Philippines, Inc. v. #ar *ast Bank and TrustCompan", et al., . R. "o. 1201( A$g$!t 13( 200J?

b. Re'&%o/sh%# +ewee/ #&(ee &/* $o''e$%/ +&/The relatio!hip bet&ee the payee or holder of commercial paperad the ba to &hich it i! !et for collectio i!( i the ab!ece ofagreemet to the cotrary( that of pricipal ad aget. A ba &hichrecei%e! !$ch paper for collectio i! the aget of the payee or holder.>P*)4 %. *o$rt of Appeal!( et al.( .R. "o!. 121J13( 121J7 L12870J( Ia$ary 2( 2001?

20 A chec" 3ith serial number +G;;;''GG# datedAugust +# '))( in the amount of 2=+#;())) 3as issued byPAP to PP Mar"eting dra3n against D4 $an" the chec"clearly sho3s the name of PAP printed on its face -n

August alteratio! doe by a !trager? &ill ot a%oid thei!tr$met( b$t the holder may eforce it oly accordig to it!origial teor. >Vit$g cited i Philippine National Bank v. Court of

Appeals, et al.( 29 /*RA J1K International Corporate Bank, Inc. v.Court of Appeals, et al., . R. "o. 1210( /eptember ( 2009?

"BTE/ A"D *B66E"T/;a. The s&'&)( $he$ o, & o1e)/.e/ o,,%$e) o)

e.#'o(ee *oes /o +e'o/ o h%. +e,o)e % %s #h(s%$&''(*e'%1e)e* o h%. @til that time the chec belog! to thego%ermet.

@der /ec. 19 of the "egotiable )!tr$met! a&( e%ery

cotract o a egotiable i!tr$met i! icomplete ad re%ocable $tildeli%ery of the i!tr$met for the p$rpo!e of gi%ig effect thereto. A!ordiarily $der!tood( *e'%1e)(mea! the tra!fer of the po!!e!!ioof the i!tr$met by the maer or dra&er &ith itet to tra!fer title tothe payee ad recogi+e him a! the holder thereof. >De la Victoria %!.4$rgo!( et al.( 2J /*RA 37J?

COMPETE BUT NTDEIVERED INSTRUMENTa. Deli%ery complete! the cotract

1? 4et&ee immediate ad remote partie!2? Deli%ery effect$al

b. )f $der a$thority

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1? To a holder i d$e co$r!ea? Valid deli%ery pre!$medb? Prior partie! bo$d

2? )f deli%ery coditioala? Prior partie! ot bo$d

2: A ,rancisco Realty and Development

Corporation >A,RDC represented by its president Adeliaas 3ell as .erby Commercial and ConstructionCorporation >.CCC represented by its president @aimeentered into a contract 3ith I&!& for the construction ofhousing units and land development I&!& partially paidon the contract the amount of 2())#))))) @aimediscovered that from the I&!& payment Adelia hadreceived and signed seven chec"s of various dates andamounts dra3n against !$AA and payable to .CCC forcompleted and delivered 3or" under the contract Adeliaforged @aime8s signature 3ithout his "no3ledge or

consent# at the dorsal portion of the said chec"s to ma"e itappear that .CCC had indorsed the chec"s# and thendeposited the chec"s in her !$AA savings account Adeliano3 claims that she 3as authorized to sign @aime8s nameon the chec" by virtue of a Certification e7ecuted by @aimein her favor giving her authority to collect all thereceivables of .CCC from I&! including the 9uestionedchec"s Will the defense prosper ?

/@E/TED A"/-ER; "o. -here ay per!o i!$der obligatio to idor!e i a repre!etati%e capacity( he mayidor!e i !$ch term! a! to egati%e per!oal liability. A

aget( &he !o !igig( !ho$ld idicate that he i! merely!igig i behalf of the pricipal ad m$!t di!clo!e the ame ofhi! pricipalK other&i!e he !hall be held per!oally liable.

E%e a!!$mig that Adelia &a! a$thori+ed by G*** to!ig Iaime! ame( !till( Adelia( did ot idor!e the i!tr$meti accordace &ith la&. )!tead of !igig Iaime! ame(

Adelia !ho$ld ha%e !iged her o& ame ad e#pre!!lyidicated that !he &a! !igig a! a aget of G***.>:raci!co %. *o$rt of Appeal!( et al.( .R. "o. 119320("o%ember 2( 1?

22 $rad @olie ma"es a promissory note payableto bearer and delivers the same to Angelina 2itt Angelina2itt# ho3ever# endorses it to in this mannerL

52ayable to &ignedL Angelina6

1ater# # 3ithout endorsing the promissory note#

transfers and delivers the same to Michael 0he note issubse9uently dishonored by $rad @olie May Michael

proceed against $rad @olie for the note ?/@E/TED A"/-ER;


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Amalia# e7ecuted a promissory note in favor of $:R $an"When &usan defaulted $:R $an" sued Amalia# despite its"no3ledge that Amalia received no part of the loan

May Amalia be held liable ? 47plain/@E/TED A"/-ER; 6ora( !$pra?

There i! a elemet of certaity or a!!$race i a ordiarychec that it &ill be paid $po pre!etatio that i! &hy it i! percei%eda! a !$b!tit$te for c$rrecy i commercial ad fiacial tra!actio!.>Ta %!. *o$rt of Appeal!( et al.( 23 /*RA 310?

27 A foreign chec" in the amount of *+#())))3as dra3n against a : & $an" in favor of 4va# the otherof Melva# a local ban" employee !n accordance 3ith theban"8s policy to accommodate its employees to receivethe chec"8s value 3ithout 3aiting clearing Melva 3asre9uested to endorse the chec"# but another ban"employee 3rote 5up to 2


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him!elf get! a&ay !cot,free. >on(ales v. Ri(al CommercialBankin% Corporation, . R. "o. 192J( "o%ember 2( 2009?

2 -n @uly ' crossed postdated chec"s both datedMarch '' postdated crossed chec"s# chec" noN(;+J= amounting to 2NG)#))))) payable on March (#'))(# and chec" no


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&he it i! !ho& that the title of ay per!o &ho ha!egotiated the i!tr$met &a! defecti%e( the b$rde i! o theholder to pro%e that he or !ome other per!o $der &hom heclaim!( ac'$ired the title a! holder i d$e co$r!e.

=2 What are the "inds of defenses against thevalidity of a negotiable instrument ?

/@E/TED A"/-ER; The defe!e! that may berai!ed agai!t a egotiable i!tr$met are;

a. The real( legal or ab!ol$te defe!e!. The!edefe!e! attache! to the i!tr$met ad i! a%ailable agai!tthe &hole &orld icl$dig a holder i d$e co$r!e.

b. The per!oal or e'$itable defe!e!. Thi! i!agreemet or cod$ct &hich reder! the eforcemet of thei!tr$met ie'$itable. The!e defe!e! are a%ailable olyagai!t a per!o &ho i! ot a holder i d$e co$r!e.

== Iive e7amples of real# legal or absolutedefenses 3hich are available against the 3hole 3orldincluding a holder in due course

/@E/TED A"/-ER;a. larig alteratiob. :orgeryc. -at of deli%ery of icomplete i!tr$metd. :ra$d amo$tig to forgerye. 6iorityf. :ra$d in factum or fra$d in esse contractusg. -at of a$thority of ageth. )!aity &itho$t co$rt appoited g$ardia

i. Void cotractC. )llegality of the cotract or i!tr$met by !tat$te

=> Iive e7amples of personal or e9uitabledefenses that are available against any person other thana holder in due course

/@E/TED A"/-ER;a. Ab!ece or fail$re of co!ideratiob. -at of deli%ery of a complete i!tr$metc. :ra$d i id$cemetd. 6i!tae

e. "egotiatio amo$tig to fra$d

f. :ilig of &rog date or bla! cotrary to a$thorityg. Ac'$i!itio of i!tr$met by force( d$re!! or fear( by

$la&f$l mea!( or for illegal co!ideratio( i breach of faithh. ac of aget! a$thority &here he ha! apparet

a$thority"BTE/ A"D *B66E"T/;a. P)es!.#%o/ o, $o/s%*e)&%o/ E%ery egotiable

i!tr$met i! deemed prima facie to ha%e bee i!!$ed for a %al$ableco!ideratio( ad e%ery per!o &ho!e !igat$re appear! thereo toha%e become a party thereto for %al$e.5 >/ec. 2J( ")?

b. A+se/$e o, $o/s%*e)&%o/ &1&%'&+'e o/'( &&%/s/o ho'*e) %/ *!e $o!)se Ab!ece or fail$re of co!ideratio i!a matter of defe!e a! agai!t ay per!o ot a holder i d$eco$r!eSK ad partial fail$re of co!ideratio i! a defe!e pro tanto(&hether the fail$re i! a a!certaied ad li'$idated amo$t orother&i!e.5 >/ec. 28( ")?

=? !s one 3ho is not a holder in due courseprecluded from recovering on the instrument ?

/@E/TED A"/-ER; "o. )t doe! ot follo& thatbeca$!e a holder i! ot a holder i d$e co$r!e( for ha%igtae the i!tr$met &ith otice that the !ame &a! for depo!itoly to the acco$t of the payee( he &o$ld be altogetherprecl$ded from reco%erig o the i!tr$met. The "egotiable)!tr$met! a& doe! ot pro%ide that a holder ot i d$eco$r!e ca ot reco%er o the i!tr$met.

The di!ad%atage of a holder &ho i! ot a holder i d$eco$r!e i! that the i!tr$met i! !$bCect to defe!e! a! if it &ereo,egotiable. >4ataa *igar ad *igarette :actory( )c. %!. *o$rtof Appeal!( et al.( 230 /*RA 9J3? Be !$ch defe!e i! ab!ece

or fail$re of co!ideratio. >Atri$m 6aagemet *orp. %. *o$rt ofAppeal!( et al.( .R. "o!. 10J1 L 1217J( :ebr$ary 28( 2001?

=


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maturity C!,C issued a chec" of 2(0 When is notice of dishonor not re5uired to begiven to dra3er?

/@E/TED A"/-ER;a. -here the dra&er ad the dra&ee are the !ame

per!oKb. -he the dra&ee i! a fictitio$! per!o or a per!o

ot ha%ig capacity to cotractKc. -he the dra&er i! the per!o to &hom the

i!tr$met i! pre!eted for paymetKd. -here the dra&er ha! o right to e#pect or re'$ire

that the dra&ee or acceptor &ill hoor the i!tr$metK

e. -here the dra&er ha! co$termaded paymet.>/ec. 11J( ".)..?

"BTE/ A"D *B66E"T/;a. No%$e o, *%sho/o) The term deote! that a chec

ha! bee pre!eted for paymet ad &a! !$b!e'$etly di!hoored bythe dra&ee ba. Thi! mea! that the chec m$!t ece!!arily be d$ead demadable beca$!e oly a chec that ha! become d$e ca bepre!eted for paymet ad !$b!e'$etly di!hoored. >!ico v. Courtof Appeals, et al., :ebr$ary 28( 200?

b. Pos*&e* $he$ $&//o +e *%sho/o)e* if it &a!pre!eted for paymet before it! d$e date. . >!ico v. Court of

Appeals, et al., :ebr$ary 28( 200?c( No%$e o, *%sho/o) o +e %/ w)%%/ The otice of

di!hoor of a chec may be !et to the dra&er or maer by thedra&ee ba( the holder of the chec( or the offeded party either byper!oal deli%ery or by regi!tered mail. >Ri%or v. People, . R. "o.1JJ887( "o%ember 17( 200J citigia v. People, . R. "o. 1J9(

April 28( 200J( J28 /*RA 209?

>: Iemma dre3 a chec" on &eptember 9? moth! from date of thei!!$e of the chec. Ay period beyod !i# >9? moth! i!co!idered $rea!oable time5 ad the chec become! !tale.

2? "o( for the follo&ig rea!o!;a? The chec i! already !tale ha%ig bee

pre!eted for paymet oly o 6arch ( 200( &hich i!beyod !i# >9? moth! from the i!!$e of the chec o/eptember 13( 2001. /he co$ld ot be held liablebeca$!e the !ame &a! ot pre!eted &ithi area!oable period of time.

b? A! the dra&er &ho i! !ecodarily liableemma i! di!charged beca$!e of the fail$re to gi%e

28


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otice of di!hoor &ithi thirty >30? day! from di!hoor.)t i! ot !ho& that the holder ad emma re!ided ithe !ame place hece( the period to gi%e otice ofdi!hoor m$!t be the !ame time that otice &o$ldreach emma if !et by mail. >#ar *ast Realt"Investment, Inc., v. Court of Appeals, et al., 199 /*RA 29?

>2 56 issued a chec" to 5F6 dra3n againstA$C $an" When 5F presented the chec" for payment#

A$C $an" for reasons "no3n to it refused encashmentdespite the sufficiency of funds Assuming that there 3asno valid reason for the ban"8s refusal# may 5F6 the payeeholder sue the ban" ?

/@E/TED A"/-ER; "o. = 2 is the holder of a negotiable promissorynote 3ithin the meaning of the egotiable !nstruments 1a3>Act ')G> May the provisions of the Civil Code oncommon carriers be applied in determining liability ofban"s on negotiable instruments ?

/@E/TED A"/-ER; 2000?( !ee al!o Bank ofPhilippine Islands v. Court of Appeals, . R. "o. 102383( 29"o%ember 12( 219 /*RA 1N

9=; I/s!)&/$e Co*e 9PD :>M!1, or its brea"a3ay group# Abu &ayyaf# beinsured 3ith a company licensed to do business under the

!nsurance Code of the 2hilippines >2D o RA o G(=


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for the e7cess by ta"ing out an insurance against all ris"sor contingencies of loss arising from any unsound orunsafe ban"ing practices including unforeseen adverseeffects of the continuing crisis involving the ban"ing andfinancial sector in the Asian region Does $C have aninsurable interest 3ithin the meaning of the !nsuranceCode of the 2hilippines >2D


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"either co$ld I the o&er reco%er beca$!e he i! ot theamed beeficiary.

"BTE/ A"D *B66E"T/; @P a& *eter !$gge!t! thefollo&ig a!&er; I ca reco%er o the fire i!$race policy for thelo!! of the !aid codomii$m $it. Ge had i!$rable itere!t a!o&er,i!$red. A! beeficiary i the fire i!$race policy( 6caot reco%er o the fire i!$race policy. :or the beeficiary toreco%er o the fire or property i!$race policy( it i! re'$ired that he

m$!t ha%e i!$rable itere!t i the property i!$red. ) thi! ca!e(6 doe! ot ha%e i!$rable itere!t i the codomii$m $it.5

? -n &eptember unlife Assurance Compan" of Canada vs. Court ofAppeals, et al., 2J /*RA 298?

) the abo%e problem( the icote!tability cla$!e doe!ot fid applicatio beca$!e the t&o year period ha! ot yetlap!ed.

&upposing under the above set of facts that theinsurance 3as secured on August G/ec. 29( )!$race*ode?

"ote that if the party doe! ot o& he i! !ic( there i! ococealmet.


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policy on the sole basis of the application !n April# '))(2hilAm 1ife received a claim from 4liza 3hich declaredthat ,lorence died of acute pneumonia on &eptember un Insurancev. Court of Appeals, et al., 211 /*RA J?

"BTE/ A"D *B66E"T/;a. De&h +( s!%$%*e )e$o1e)&+'e +! &,e) #o'%$( h&s

+e$o.e %/$o/es&+'e The i!$rer i a life i!$race cotract!hall be liable i ca!e of !$icide by the i!$red committed after thepolicy ha! bee i force for a period of t&o year! from the date of it!i!!$e or it! la!t rei!tatemet( $le!! the policy pro%ide! a !horterperiod; pro%ided( ho&e%er( that !$icide committed i a !tate of

i!aity !hall mae the i!$rer liable regardle!! of the date of thecommi!!io of the !$icide. >/ec. 180,A( )!$race *ode?

b. K%''e)-+e/e,%$%&)( $&//o )e$o1e) A beeficiary &hoparticipate! i illig the i!$red( &hether a! acce!!ory( accomplice orpricipal( caot reco%er from the death of the i!$red by rea!o ofp$blic policy. The eare!t of i of the i!$red( if ot di!'$alified(!hall recei%e the i!$race proceed!. >/ec. 12( )!$race *ode?

E$e#%o/s o) %/s&/$es whe)e %''e)-+e/e,%$%&)($o!'* )e$o1e)"

1? -here the illig i! accidetalK2? -here the illig i! i !elf,defe!eK ad3? -here the beeficiary &a! i!ae at the time of

the illig.

32


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c. Be/e,%$%&)( $&//o )e$o1e) whe)e %/s!)e*'&w,!''( ee$!e*

@uan de la Cruz 3as issued 2olicy o JJJ ofthe Midland 1ife !nsurance Co on a 3hole life plan for2')#)))))# on August ea%onia v. Court of Appeals, et al.,2J1 /*RA 12( 19J?

"BTE/ A"D *B66E"T/;a. E&.#'e whe)e he)e %s /o *o!+'e %/s!)&/$e

The i!$rable itere!t! of a mortgagor ad a mortgagee o themortgaged policy are !eparate ad di!tict hece there i! o do$ble

i!$race if the mortgagor ad the mortgagee tae o$t !eparatei!$race!.

:2 What is coinsurance ?/@E/TED A"/-ER; -here a i!$red i!$re!

hi! property for le!! tha it! %al$e( he i! deemed to ha%e acteda! a co,i!$rer &ith the i!$rer $p to the e#tet of thedeficiecy. ) !$ch a ca!e( &here there i! lo!! or damage( thei!$rer !hall be liable oly for !$ch proportio of the lo!! ordamage that the amo$t of i!$race bear! to the de!igatedpercetage of the f$ll %al$e of the property i!$red.

33


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:or e#ample( property %al$ed a! P1(000(000.00 &a!i!$red oly for P700(000.00. ) !$ch a ca!e there i! co,i!$race by the i!$red $p to the e#tet of 30=. ) ca!e oflo!! there co$ld oly be 70= reco%ery of the damage or lo!!.

:= What is reinsurance ?/@E/TED A"/-ER; Thi! i! a !it$atio &here the

i!$rer proc$re! a third party( called the rei!$rer( to i!$re himagai!t the liability by rea!o of !$ch origial i!$race.4a!ically( a rei!$race i! a i!$race agai!t liability &hichthe origial i!$rer may ic$r i fa%or of the origial i!$red.

:> @ulie and Alma formed a businesspartnership :nder the business name 2ino &hop# thepartnership engaged in a sale of construction materials@ulie insured the stoc"s in trade of 2ino &hop 3ith WIC!nsurance Company for 2G()#))))) &ubse9uently# sheagain got an insurance contract 3ith R&! for 2Ne2 'ife *nterprises, et al., v.Court of Appeals, et al.( .R. "o. J071( 6arch 31( 12?

2? "o. I$lie! fail$re to di!clo!e the other i!$race! i!co!idered a! %iolatio of a &arraty. >Ibid.?

"BTE/ A"D *B66E"T/;

a. Ohe) %/s!)&/$e #)oh%+%%o/ $'&!se A i!$racepolicy cotai! the follo&ig cla$!e; The i!$red !hall gi%e otice tothe *ompay of ay i!$race or i!$race! already effected( or&hich may !$b!e'$etly be effected co%erig ay of the property orpropertie! hereby i!$red $le!! !$ch otice be gi%e ad thepartic$lar! be !tated therei before the occ$rrece of the lo!!other&i!e all beefit! $der the policy !hall be deemed forfeited.5

The coditio i! a pro%i!io &hich i%ariably appear! i fire

i!$race policie! ad i! iteded to pre%et a icrea!e i the moralha+ard. )t i! commoly o& a! the additioal or other i!$race55cla$!e ad ha! bee $pheld a! %alid ad a! a &arraty that o otheri!$race e#i!t!.

b. E,,e$ o, 1%o'&%o/ The %iolatio of the otheri!$race5 cla$!e &o$ld a%oid the policy. E$e#%o/" The otheri!$race m$!t be $po the !ame !$bCect matter( the !ame itere!ttherei( ad the !ame ri!. There i! o %iolatio &here the mortgagorad the mortgagee too !eparate i!$race!( i %iolatio of the otheri!$race cla$!e5 beca$!e their i!$rable itere!t i! differet.>ea%onia vs. Court of Appeals, et al.,.R. "o. 11JJ27( :ebr$ary 9(1?

:? 1ara obtained a loan of 2())#))))) fromAngelina and as security she mortgaged her house 3orth2+()#))))) to Angelina 1ara insured the house againstfire for 2+()#))))) 3ith Croft !nsurance 3ith the policystating that any other insurances shall be declaredother3ise all benefits under the policy shall be forfeited

Angelina li"e3ise insured the house# also against fire 3ithRaider !nsurance in the amount of 2())#))) 0heinsurance policy also contained an 5other insurance6clause $oth 1ara and Angelina did not advise their

respective insurers of the e7istence of the otherinsurancesWhile both of the insurance policies 3ere in force

the house 3as burneda $oth insurance companies no3 disclaim

responsibility because of the violation of the 5otherinsurance clause6 Could they legally do so ?

b !n case# both 1ara and Angelina could recover#ho3 much 3ould be the e7tent of their respective liabilities?

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c Could 1ara refuse to pay her obligation of2())#))))) considering that the house 3as alreadyburned ? Reason out your ans3ers

/@E/TED A"/-ER/;a. "o. There i! o %iolatio of the other i!$race

cla$!e &here the mortgagor ad the mortgagee too !eparatei!$race!( beca$!e their i!$rable itere!t i! differet.

>eagoia %!. *o$rt of Appeal!( et al.( 2J1 /*RA 12?b. ara co$ld reco%er P70(000.00 ad Agelia(P00(000.00( the e#tet of their re!pecti%e i!$rable itere!t!.:or rea!o! !ee abo%e.

c. "o. Raider )!$race tae! the place of Agelia. )other &ord! it i! !$brogated to the itere!t of Agelia.

"BTE/ A"D *B66E"T/;a. I/s!)&+'e %/ .o)&e* #)o#e)%es The

mortgagor ha! a i!$rable itere!t i the f$ll %al$e of the mortgagedproperty irre!pecti%e of the amo$t for &hich it i! mortgaged.

The mortgagee ha! a i!$rable itere!t oly $p to the e#tetof the credit he ha! grated to the mortgagor.

b. Mo)&e* #)o#e)%es The mortgagor ad themortgagee ha%e each a idepedet i!$rable itere!t o theproperty ad both itere!t! may be co%ered by oe policy or eachmay tae o$t a !eparate policy co%erig hi! itere!t( &ither at the!ame time or at !eparate time!.

The mortgagor! i!$rable itere!t co%er! the f$ll %al$e of themortgaged property( e%e tho$gh the mortgage debt i! e'$i%alet tothe f$ll %al$e of the property(

The mortgagee! i!$rable itere!t i! to the e#tet of the debt(!ice the property i! relied $po a! !ec$rity thereof( ad i i!$rig hei! ot i!$rig the property b$t hi! itere!t or lie thereo. Gi!i!$rable itere!t i!prima faciethe %al$e mortgaged ad e#ted! oly

to the amo$t of the debt( ot e#ceedig the %al$e of the mortgagedproperty( Th$!( !eparate i!$race! co%erig differet i!$rableitere!t! may be obtaied by the mortgagor ad the mortgagee( adthi! &o$ld ot %iolate the other i!$race5 cla$!e i the policy.>eagoia %!. *o$rt of Appeal!( et al.( 2J1 /*RA 12?

c. E,,e$ o, $h&/e o, %/e)es %/ #)o#e)( Aychage $accompaied by a chage i i!$race !$!ped! thei!$race $til the itere!t i the thig ad the i!$race i! %e!ted ithe !ame per!o. >/ec. 20( )!$race *ode?

d. S!+)o&%o/ )f the plaitiff! property ha! beei!$red( ad he ha! recei%ed idemity from the i!$race compayfor the iC$ry or lo!! ari!ig o$r of the &rog or breach of cotract

complaied of( the i!$race compay !hall be !$brogated to theright! of the i!$red agai!t the &rogdoer or the per!o &ho%iolated he cotract. >Article 2207( *i%il *ode?

The right of !$brogatio i! ot depedet $po( or doe! itgro& o$t of( ay pri%ity of cotract or $po &ritte a!!igmet ofclaim. )t accr$e! !imply $po paymet of the i!$race claim by thei!$rer. >Coast2ise 'i%htera%e Corporation vs. Court of Appeals, etal.,2J /*RA 79?

:


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sho3ing of the e7act amount of Dr 1euterio8s outstandingindebtedness to D$2 at the time of his death

Could Dr 1euterio8s heirs recover ? &tate yourreasons

/@E/TED A"/-ER; reat Pacific

'ife Assurance Corporation v. Court of Appeals, et al.,.R. "o.1138( Bctober 13( 1?"BTE/ A"D *B66E"T/;a. I/s!)&+'e %/e)es %/ .o)&e* #)o#e)%es %/

.o)&e )e*e.#%o/ %/s!)&/$e The ratioale of a gro$pi!$race policy of mortgagor!( other&i!e o& a! the mortgageredemptio i!$race(5 i! a de%ice for the protectio of both themortgagee ad the mortgagor.

B the part of the mortgagee( it ha! to eter ito !$ch form ofcotract !o that i the e%et of the $e#pected demi!e of themortgagor d$rig the !$b!i!tece of the mortgage debt( the proceed!from !$ch i!$race &ill be applied to the paymet of the mortgage

debt( thereby relie%ig the heir! of the mortgagor from payig theobligatio.) a !imilar %ei( ample protectio i! gi%e to the mortgagor

!o that i the e%et of hi! death( the mortgage obligatio &ill bee#tig$i!hed by the applicatio of the i!$race proceed! to themortgage idebtede!!.

*o!e'$etly( &here the mortgagor pay! the i!$racepremi$m $der the gro$p i!$race policy( maig the lo!! payable tothe mortgagee( the i!$race i! o the mortgagor! itere!t( ad themortgagor coti$e! to be a party to the cotract. ) thi! type ofi!$race( the mortgagee i! !imply a appoitee of the i!$racef$d( !$ch lo!! payable cla$!e doe! ot mae the mortgagee aparty to the cotract.

Thi! co$ld be !ee from the pro%i!io! of /ectio 8 of the)!$race *ode( &hich read!; @le!! the policy pro%ide!( &here amortgagor of property effect! i!$race i hi! o& ame pro%idigthat the lo!! !hall be payable to the mortgagee( or a!!ig! a policy ofi!$race to a mortgagee( the i!$race i! deemed to be $po theitere!t of the mortgagor( &ho doe! ot cea!e to be a party to theorigial cotract( ad ay act of hi!( prior to the lo!!( &hich &o$ldother&i!e a%oid the i!$race( &ill ha%e the !ame effect( altho$gh the

property i! ) the had! of the mortgagee( b$t ay act &hich( $derthe cotract of i!$race( i! to be performed by the mortgagor( maybe performed by the mortgagee therei amed( &ith the !ame effecta! if it had bee performed by the mortgagor.5 >reat Pacific 'ife

Assurance Corporation v. Court of Appeals, et al., .R. "o. 1138(Bctober 13( 1

:7 What damages may be recovered in marineinsurance:

/@E/TED A"/-ER; Reco%ery co$ld be madeoly if the damage &a! ca$!ed by peril! of the !ea /o +(peril! of the !hip. Defect! of the !hip are peril! of the !hip.

: A marine insurance policy on a cargo statesthat 5the insurer shall be liable for losses incident to perilsof the sea6 During the voyage# sea3ater entered thecompartment 3here the cargo 3as stored due to thedefective drainpipe of the ship the insured filed an actionon the policy for recovery of the damages caused to thecargo May the insured recover damages ?

/@E/TED A"/-ER; "o. The lo!! &a! ca$!ed byperil! of the !hip ad ot of the !ea. Thi! i! !o beca$!e thedefecti%e draipipe i! attrib$table to the coditio of the !hip.

: What is meant by actual total loss in marineinsurance?

/@E/TED A"/-ER; A act$al total lo!! fori!$race p$rpo!e! i! ca$!ed by;

a. A total de!tr$ctio of the thig i!$redKb. The irretrie%able lo!! of thig by !iig or by beig

broe $pKc. Ay damage to the thig &hich reder! it %al$ele!!

to the o&er for the p$rpo!e for &hich he held itK or

36


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d. Ay other e%et &hich effecti%ely depri%e! the o&erof the po!!e!!io( at the port of de!tiatio( of the thigi!$red. >/ec. 130( )!$race *ode?

20 An insurance company issued a marineinsurance policy covering a shipment by sea from Mindoroto $atangas of


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a. ) ca!e of a life or id$!trial life policy &hee%er thegrace period pro%i!io applie!.

b. Ay aco&ledgmet i a policy or cotract ofi!$race of the receipt of premi$m i! cocl$!i%e e%idece ofit! paymet( !o far a! to mae the policy bidig(ot&ith!tadig ay !tip$latio therei that it !hall ot bebidig $til premi$m i! act$ally paid.5 >/ec. 78( )!$race *ode?

c. /ectio 77 may ot apply if the partie! ha%e agreedto the paymet i i!tallmet! of the premi$m! ad partialpaymet ha! bee made at the time of the lo!!. >/akatiTuscan" Condominium Corporation v. Court of Appeals, et al.( 21/*RA J93?

d. E!toppel. The i!$rer may grat credit e#te!io forthe paymet of premi$m ad if thi! ha! bee the co!i!tetpractice( the i!$rer co$ld ot tae ref$ge i the o,paymetof the premi$m. >-PCB eneral Insurance Co., v. /asa%anaTelamart,.R. "o. 137172( April J( 2001?

2= !n '))( Antonio obtained a fire insurance from

American .ome Assurance Companythe stoc" in trade ofhis business# Moonlight 4nterprises 0he insurance 3asdue to e7pire on '( March !n


39/110

0he insurer no3 disclaims liability on the additional2()#))))) coverage because of failure to comply 3ith thefollo3ing re9uisites stated in the application form for the

perfection of the contract of insuranceL 50here shall be nocontract of insurance unless and until a policy is issuedon this application and that the said policy shall not ta"eeffect until the premium has been paid and the policy

delivered to and accepted by meus in person 3hile !We#amare in good health6!s 2rimitivo8s beneficiary entitled to the proceeds

additional 2()#))))) additional insurance 3hich amountsto 2Pere( v. Court of Appeals, et al., .R. "o. 1123(Ia$ary 28( 2000?"BTE/ A"D *B66E"T/Ka. Whe/ %/s!)&/$e $o/)&$ #e),e$e* *otract of

i!$race i! perfected &here there i! a offer to be co%ered ad thei!$race ha! accepted the offer ab!ol$tely.

b. Re!%s%es ,o) & $o/)&$ o, %/s!)&/$e )!$racei! a cotract &hereby( for a !tip$lated co!ideratio( oe party$dertae! to compe!ate the other for lo!! o a !pecified !$bCect by!pecified peril!.

A cotract( o the other had( i! a meetig of the mid!bet&ee t&o per!o! &hereby oe bid! him!elf( &ith re!pect to the

other to gi%e !omethig or to reder !ome !er%ice.@der Article 1318 of the *i%il *ode( there i! o cotract$le!! the follo&ig re'$i!ite! coc$r;

>1? *o!et of the cotractig partie!K>2? BbCect certai &hich i! the !$bCect matter of the

cotractK>3? *a$!e of the obligatio &hich i! e!tabli!hed.

*o!et m$!t be maife!ted by the meetig of the offer ad theacceptace $po the thig ad the ca$!e &hich are to co!tit$te thecotract. The offer m$!t be certai ad the acceptace ab!ol$te.>Pere( v. Court of Appeals, et al.( .R. "o. 1123( Ia$ary 28( 2000?

2? ame instances 3hen an insured is entitled to areturn of the premium paid/@E/TED A"/-ER; The i!$red i! etitled to a

ret$r of the premi$m paid i the follo&ig i!tace!;a. To the &hole premi$m( if o part of the i!$red!

itere!t i the thig i!$red be e#po!ed to ay of the peril!agreed $po.

b. -here the i!$race i! made for a defiite period oftime ad the i!$red !$rreder! hi! policy( he !hall be etitledto !$ch portio of the premi$m corre!podig to the $e#piredtime at a pro rata rate( $le!! a !hort period rate ha! beeagreed $po ad appear! o the face of the policy( after

39


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ded$ctig from the &hole premi$m ay claim for lo!! ordamage $der the policy &hich ha! pre%io$!ly accr$ed.

c. -he the cotract i! %oidable o acco$t of thefra$d or mi!repre!etatio of the i!$rer or of hi! aget or oacco$t of fact! the e#i!tece of &hich the i!$red &a!igorat &itho$t hi! fa$ltK or &he( by ay defa$lt of thei!$red other tha act$al fra$d( the i!$rer e%er ic$rred ay

liability $der the policy.d. ) ca!e of o%er i!$race by !e%eral i!$rer!( thei!$red i! etitled to a ratable ret$r of the premi$m(proportioed to the amo$t by &hich the aggregate !$mi!$red i all the policie! e#ceed! the i!$rable %al$e of thethig at ri!.

2/ec. 378( )!$race *ode?

2 While driving his car along 4D&A# Cesarsides3iped Roberto# causing injuries to the latter Roberto suedCesar and the third party liability insurer for damages andorinsurance proceeds 0he insurance company moved to dismissthe complaint contending that the liability of Cesar has not yet

been determined 3ith finality

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a !s the contention of the insurer correct ? 47plainb May the insurer be held liable 3ith Cesar ?/@E/TED A"/-ER;a? "o. The i!$rer i! ot correct. There i! o eed to &ait

for a determiatio of *e!ar! liability &ith fiality. -here ai!$race policy i!$re! directly agai!t liability( the i!$rer! liabilityaccr$e! immediately $po the occ$rrece of the iC$ry or e%et $po&hich the liability deped!. >/hafer %. I$dge( etc.( et al.( .R. ,

788J8( "o%ember 1J( 188?b? "o. The i!$rer caot be held !olidarily liable &ith *e!arbeca$!e it! liability i! ba!ed o cotract &hile that of *e!ar i! ba!edo tort. >vda. de /a%lana, et al., v. on. Consolacion, et al., .R. "o.9009( A$g$!t 9( 12?

=0 3as riding in a suburban utility vehicle>&:% covered by a comprehensive motor vehicle liabilityinsurance >CM%1! under3ritten by ,ast 2ay !nsuranceCompany 3hen it collided 3ith a speeding bus o3ned byRM 0ravel# !nc 0he collision resulted in serious injuries to

F# a passenger of the bus# and B# a pedestrian 3aiting

for a ride at the scene of the collision the police reportestablished that the bus 3as the offending vehicle 0hebus had a CM%1! policy issued by Dragon !nsuranceCorporation# # F and B jointly sued RM 0ravel and Dragon!nsurance for indemnity under the !nsurance Code of the2hilippines >2D un Insurance v. Court of Appeals, et al., .R. "o.87J1( 6arch 13( 11? 6ore tha oe year had lap!ed &hethe !$it &a! filed oly o 6arch 20( 200 de!pite the deial

ha%ig tae place o :ebr$ary 28( 2003.=2 @oseph Chua bought and imported from 0aipei

() metric tons of Dicalcium 2hospate# ,eed Irade 0hese3ere contained in


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There i! !olidary liability oly &he the obligatioe#pre!!ly !o !tate! or &he the la& or the at$re of theobligatio re'$ire! !olidarity. :$rthermore( /ec. 10 of the)!$race *ode clarifie! the role of the re!idet aget of aforeig i!$race compay to be merely the repre!etati%eta!ed to recei%e legal proce!!e! o behalf of it! pricipal adot to a!&er per!oally for ay i!$race claim!. >mith, Bell& Co., Inc. v. Court of Appeals, et al., 297 /*RA 30?

== What 3arranties are implied in marineinsurance ?

/@E/TED A"/-ER; The follo&ig are the implied&arratie! i marie i!$race;

a. That the !hip i! !ea&orthy to mae the %oyageadFor to tae i certai cargoe!K

b. That the !hip !hall ot de%iate from the %oyagei!$redK

c. That the !hip !hall carry the ece!!ary doc$met! to!ho& atioality or e$trality ad that it &ill ot carry doc$met&hich &ill ca!t rea!oable !$!picio thereoK

d. That the !hip !hall ot carry cotrabad( e!pecially ifit i! maig a %oyage thro$gh belligeret &ater!.

"BTE/ A"D *B66E"T/;a. W&))&/(@ *e,%/e* A &arraty i! a !tatemet or

promi!e !et forth i the policy or by referece icorporated therei(the $tr$th or o,f$lfillmet of &hich i ay re!pect ad &itho$treferece to &hether the i!$rer &a! i fact preC$diced by !$ch $tr$thor o,f$lfillmet( reder! the policy %oidable by the i!$rer.>Prudential uarantee and Assurance, Inc. v. Trans8Asia hippin%'ines, Inc., . R ."o. 1180( I$e 20( 2009( ad compaio ca!e?

b. B)e&$h .!s +e #)o1e* o 1o%* #o'%$( The%iolatio of a material &arraty( or other material pro%i!io of a policyo the part of either party etitle! the other to re!cid. Go&e%er( thebreach m$!t be d$ly !ho& by the party allegig the !ame.

There may be &ai%er of the right to re!cid o the ba!i! ofthe breach if the premi$m &a! accepted for t&o co!ec$ti%e year!.>Prudential uarantee and Assurance, Inc. v. Trans8Asia hippin%'ines, Inc., . R ."o. 1180( I$e 20( 2009( ad compaio ca!e?

=> Distinguish one from the otherLconcealment# representation and 3arranty as used ininsurance

/@E/TED A"/-ER;

a. )cl$!io i cotract; The fact! $o/$e&'e*are otpart of the cotractK )e#)ese/&%o/s are mere collateralid$cemet! to the cotractK tho!e w&))&/e*are part of thecotract.

b. "at$re of !tatemet!; Co/$e&'.e/t i! eglect tocomm$icateK )e#)ese/&%o/s oral or &ritte !tatemetKw&))&/%esmay be e#pre!! or implied.

c. E#tet; The fact! $o/$e&'e*m$!t be materialK !oal!o &ith )e#)ese/&%o/s( &hile w&))&/%esare cocl$!i%elypre!$med material.

d. *o!e'$ece!; Co/$e&'.e/%itiate! the cotractad etitle! the i!$rer to re!cid( e%e if the death or lo!! &a!die to a ca$!e ot at all related to the cocealed matterK if the)e#)ese/&%o/i! fal!e o a material poit( the iC$red party i!etitled to re!cid from the time &he the repre!etatiobecome! fal!eK $po breach of a w&))&/( the i!$rer ha! theright to re!cid.

=? -n March


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The t&o !torey,b$ildig &a! already e#i!tig &he thefire! i!$race policy cotract &a! etered ito. Ri+al !ho$ldha%e !pecifically e#cl$ded !aid t&o,!torey b$ildig from theco%erage of the fire i!$race if mided to e#cl$de the !ame(b$t it did ot. )t &et o to pro%ide !$ch fire i!$race policy&hich co%er! the prod$ct!( ra& material! ad !$pplie! !toredi the premi!e!5 of Tra!&orld &hich &a! a itegral part of

the fo$r,!pa b$ildig. >Ri(al uret" & Insurance Compan" v.Court of Appeals, et al.,I$ly 18( 2000?"BTE/ A"D *B66E"T/;a. I/e)#)e&%o/ o, %/s!)&/$e $o/)&$sA !tip$latio

a! to the co%erage of the fire i!$race policy &hich ha! createddo$bt !ho$ld be re!ol%ed agai!t the i!$rer &ho!e la&yer ormaager! &o$ld ha%e drafted the fire i!$race policy. Thi! i! iaccord &ith the pro%i!io! of Article 1377 of the "e& *i%il *ode &hichpro%ide! that( The iterpretatio of ob!c$re &ord! or !tip$latio! i acotract !hall ot fa%or the party &ho ca$!ed the ob!c$rity.5 >Ri(aluret" & Insurance Compan" v. Court of Appeals, et al., I$ly 18(2000?

=


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: .orace maintains a 2A .#. anche( Brokera%e, Inc. v. Courtof Appeals, et al., . R. "o. 1J707( December 21( 200J citig !eu(man v. Court of Appeals, 198 /*RA 912( 917 >188?

c. Co..o/ $&))%e) $e&ses o +e $o..o/ $&))%e) ifchartered ad become! a pri%ate carrier.

2 Christine charters a vessel o3ned and operatedby &tar &hipping Co# a common carrier# for the purpose oftransporting t3o generators to Cebu &tar &hipping8semployees negligently sto3ed the t3o generators by

failing to properly lash and secure them in the vessel8shold During the trip# a strong 3ind hits the vessel# causingsevere damages to the generators 3hich slid in the holdand hit each other

When sued for damages &tar &hipping cites astipulation in the charter agreement e7empting thecompany from liability for loss or damage a rising from thenegligence of its agents Christine countered by statingthat the aforementioned stipulation is against public policyand therefore# null and void

!s the stipulation valid ? Would you hold the

shipping company liable ?/@E/TED A"/-ER; ome Insurance Co., v. Americanteamship A%encies,23 /*RA 2J?

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= 1oadstar received# from a single consignee# onboard its M% Chero"ee la3anit hard3ood# tile 3oodassemblies and apitong mouldings 3ith a total value of2;#);+#


46/110

etirelyK if he adhere! he gi%e! hi! co!et. >Telen%tan Brothers &ons, Inc. vs. Court of Appeals( 239 /*RA 917? Bb!c$ritie! ad ambig$itie! i the re!tricti%e pro%i!io! ofcotract! of adhe!io !trictly iterpreted b$t ot $rea!oably agai!tthe drafter thereof &he C$!tified i the light of the operati%e fact! ad!$rro$dig circ$m!tace!. >Philippine Airlines, Inc., v. Court of

Appeals( 2 /*RA J8?A bill of ladig i! i the at$re of a cotract of adhe!io &here

oe of the partie! impo!e! a ready,made form of cotract &hich theother party may accept or reCect( b$t &hich the latter caot modify.Be party prepare! the !tip$latio i the cotract &hile the other partymerely affi#e! hi! !igat$re or hi! adhe!io5 thereto( gi%ig o roomfor egotiatio ad depri%ig the latter of the opport$ity to bargai oe'$al footig. "e%erthele!!( the!e type! of cotract! ha%e beedeclared a! bidig a! ordiary cotract!( the rea!o beig that theparty &ho adhere! to the cotract i! fee to reCect it etirely. >ProvidentInsurance Corporation v. Court of Appeals, et al., . R. "o. 118030(Ia$ary 1( 200J citig Philippine Commercial International Bank v.Court of Appeals, 32 Phil. 88K 2 /*RA 2 >19?


47/110

3ith 2agAsa ? What degree of diligence shouldCoast3ise observe ? Reasons

/@E/TED A"/-ER; "o( ad it !ho$ld ob!er%ee#traordiary diligece. :or rea!o!( !ee oad!tar ca!e( o. 3abo%e.

"BTE/ A"D *B66E"T/; a. B)e&$h o, *!( +( & $o..o/ $&))%e) The

fail$re of a commo carrier to maitai i !ea&orthy coditio the%e!!el i%ol%ed i a cotract of carriage i! a clear breach of it! d$typre!cribed i Article 17 of the *i%il *ode( &hich pro%ide! that( Acommo carrier i! bo$d to carry the pa!!eger! !afely a! far a!h$ma care ad fore!ight ca pro%ide( $!ig the $tmo!t diligece of%ery ca$tio$! per!o!( &ith a d$e regard for all the circ$m!tace!.5

A commo carrier( i allo&ig it! $!ea&orthy %e!!el to lea%ethe port of origi ad $dertae the cotracted %oyage( &ith f$lla&aree!! that it &a! e#po!ed to peril! of the !ea( deliberatelydi!regarded it! !olem d$ty to e#erci!e e#traordiary diligece adob%io$!ly acted &ith bad faith ad i a &ato ad carele!! maer(th$! maig it liable for moral ad e#emplary damage!.

-here the delay i a cotracted %oyage i! ic$rred after the

commecemet of !$ch %oyage( Article 29 of the *ode of*ommerce( ot Article 119 of the *i%il *ode applie!. >Trans8Asiahippin% 'ines, Inc. v. Court of Appeals, et al.,2J /*RA 290?

A)%$'e

2007 pre-week mercantile

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