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PRE-BAR REVIEW DIVISION

2007 PRE-WEEK REVIEWNOTES

DOMONDONs CUT AND PASTEThe BAR STAR NOTES

ERCANTILE LAW

VER. 2007.08.13copyrighted 2007

Prepared by Prof. Abelardo T. Domodo

How o !se he Noes" The!e "ote! i theform 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$cted byPrim$! )formatio( *eter( )c(( ad other! 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 $!e of re%ie& material!. Domodo! *$t adPa!te( The 4ar /tar "ote!5 &ere !pecially prepared to help yo$foc$! o the area! that are probable !o$rce! of '$e!tio! tobe gi%e d$rig the 2007 4ar E#amiatio i 6ercatile a&.The area! &ere idetified by the a$thor thro$gh !tati!ticalaaly!i! $!ig data from 4ar E#amiatio '$e!tio! i

6ercatile a& gi%e d$rig the period 113 $p to 2009. Thee!!ece of !elected /$preme *o$rt deci!io! $p to :ebr$ary2007 are al!o icl$ded.

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

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the cocept yo$ fid diffic$lty $der!tadig. )f yo$ ited todo a !elf,re%ie& d$rig the Pre,-ee the yo$ co$ld aotatethe Domodo! *$t ad Pa!te( The 4ar /tar "ote!5 by&ritig yo$r o& commet! ad ote!. /ometime!( it i! ea!ierto $der!tad the cocept if it i! i yo$r o& had&ritig.There may be o eed to highlight the area! mared ad

( beca$!e all the area! i thi! !ectio are e'$ally

dagero$!.

2. After yo$ ha%e ma!tered the area! maredad ( 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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9&; Me)$h&/s &/* Co..e)$%&'T)&/s&$%o/s A)%$'es : o 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$!ed maily i tra!actio! bet&ee per!o! phy!ically remote fromeach other. it i! a order made by oe per!o( !ay the b$yer of good!(addre!!ed to a per!o ha%ig i hi! po!!e!!io f$d! of !$ch b$yerorderig the addre!!ee to pay the p$rcha!e price to the !eller of thegood!. -here the order i! made by oe ba to aother( it i! referredto a! a ba draft. >Bank of Philippine Islands v. Commissioner ofInternal Revenue, . R. "o. 137002( I$ly 27( 2009?

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

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

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

a. The cotract of !ale bet&ee the b$yer ad the !ellerKb. The cotract of the b$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! !tatedtherei. >$en% ua Paper Products Co., Inc. v. Court of Appeals, et al.,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! ot ic$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 mailed to ,4 $an"

3ith the instruction 5to for3ard it to the beneficiary6 0heletter of credit provided that the draft to be dra3n is on &2$an" and that it be accompanied by# among other things# acertification from AC# stating that the logs have beenapproved prior to shipment in accordance 3ith the termsand conditions of the purchase order

$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 issue there9uired certification in the letter of credit $ecause of theabsence of the certification# ,4 $an" refused to advance

payment on the letter of credita May ,4 $an" be held liable under the letter of

credit? 47plainb :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 3hereby0ransfield# as 0urn"ey Contractor# undertoo" to construct#on a turn"ey basis# a +) Mega3att po3er station>2R-@4C0 0o ensure 0ransfield8s compliance 3ith thecontracted target completion date it opened# 3ith AB$an"# in favor of 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 arbitration3as 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 be madeto 1.C or its representatives other3ise it 3ould be subjectto damages 1.C then demanded from AB $an" paymentof the &4C:R!0!4& by surrendering the re9uired drafts anddocuments re9uired under the 1C and 3as in fact paid

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

ans3er

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/@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$rea$ ofDome!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$!e he i! i badfaith.

d. The reco$r!e of the creditor! i! to '$e!tio the %alidityof 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!.

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

/@E/TED A"/-ER;

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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 the ordiary

co$r!e of b$!ie!!Kb. -he there i! a &ai%er of the pro%i!io! of the 4$l

/ale! a& of all the creditor!Kc. -he the !ale( tra!fer or di!po!itio i! by %irt$e of a

C$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# butfound 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 in the3holesale of paper products# is o3ned (9uedans bounced After FB8s claim of o3nership 3asdismissed# it no3 refuses to release the sugar until @oy$an" pays storage fees !s FB justified in refusing torelease the sugar until the storage fees are paid ?

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

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.

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) thi! ca!e( HPhilippine National Bank, v. )ud%ee, )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$!t for him. b. No/-/eo%&+'e w&)eho!se )e$e%# *e,%/e* A

receipt 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$!e

Receipt! a&.?c. Neo%&+'e w&)eho!se )e$e%#@ *e,%/e* A receipt

i &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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the 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 prior todeli%ery he had either;

1? bee re'$e!ted( by or o behalf of theper!o la&f$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!hip ofthe good! remai! &ith the depo!itor or hi! tra!feree. Ay

cotract or real !ec$rity( !$ch a! a pledge( doe! ot re!$lt to aa!!$mptio of ri! of lo!! by the creditor..

> Albert purchased from &ammy Act '


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demanded delivery of the goods Warren could not deliverbecause the goods 3ere no3here to be found in his3arehouse .e claims that he is not liable because of thefreefromliability clause stipulated in the receipt Do youagree 3ith Warren8s contention ? 47plain

/@E/TED A"/-ER; "o. The free,from,liability5cla$!e i! %oid. The la& re'$ire! the &areho$!ema to e#erci!e

d$e diligece i the care ad c$!tody of the thig! depo!ited ihi! &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! ad

retail 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 part of

the proceed! of the !ale to the leder. )t i! a !ec$rity agreemet

p$r!$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!( et al.( . 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 liability. Ge i! !till ci%illy liable 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!re!po!ible for the offe!e are liable to !$ffer the pealty ofimpri!omet.

2 Who is an entrustee for purposes of the 0rustReceipts 1a3 ?

/@E/TED A"/-ER; A etr$!tee i! oe ha%ig or

taig po!!e!!io of good!( doc$met! or i!tr$met! $der a

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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! itr$!t for the etr$!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$!t for the etr$!terad t$r o%er the !ame to rthe etr$!ter or a! appear! tr$!treceiptK

c. i!$re the good! the good! for their total %al$eagai!t lo!! from fire( theft( pilferage or other ca!$altie!K

d. eep !aid good! or proceed! thereof &hether imoey 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 coditio! 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( 2009citig /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 i moeyto 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 the right to hold thei!tr$met ad collect the !$m for him!elf.

2 Iive the characteristics of a negotiableinstrument

/@E/TED A"/-ER; The characteri!tic! of a

egotiable i!tr$met are;

a. "egotiability. The ability of the i!tr$met to betra!ferred from oe had to aother( ad for the holder to ha%ethe right to hold the i!tr$met ad to collect the !$m certai imoey.

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 each tra!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$met to hold prior partie! liable &hile there i! ococept of otice! of di!hoor i egotiable doc$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 or

dra&erKb. )t m$!t cotai a $coditioal promi!e or order to

pay a !$m certai i moeyKc. )t m$!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( ".)..?

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ANA6TICA STEPS 5OR SOVIN3

PROBEMS INVOVIN3 NE3OTIABIIT6 O5INSTRUMENTS "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 payableat fi#ed period after date>1? -rog date i! i!erted

(a) "o effect o i!tr$met( ifholder i d$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 or orderdeped! $po;a? A f$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 or orderto pay o$t of a partic$lar f$d. E#ample; OPay 4or order P10(000.00 o$t of my moey i yo$rhad!.O "ot egotiable beca$!e it i! coditioalbeig payable o$t of a partic$lar f$d ad oother.

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! o

coditio 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 $po af$t$re e%et &hich i! certai to happe e%e iftime of happeig i! ot o&.5) @coditioal ad egotiable e%e if

!tatemet of the tra!actio i! gi%e. E#ample;O) promi!e to pay 4 or order P1(000(000.00 ipaymet of the ho$!e ) bo$ght from him o6arch 17( 200.O6) *oditioal ad ot egotiable beca$!e'$alified. E#ample; O) promi!e to pay 4 or orderP1(000( 000.00 !$bCect to the term! adcoditio! of the 6arch 17( 200 Deed of /ale forthe !ale of hi! ho$!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(000.00 or 0ca%a! of rice at the optio of the holder.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 defect.E#ample; OPay to 4 or order P100(000.00( t&o >2?day! after he pa!!e! the 4ar.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 date

11


12/108

or !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( ot egotiable.

? 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 t3elve

percent >


13/108

Manila# @une G# '))(

2iii 1etters of credit>iv Warehouse receipts>v 0reasury 3arrants payable from a specific

fund/@E/TED A"/-ER; The !$bCect of po!tal moey

order( a certificate of time depo!it ad letter! of credit i! moeyb$t they are ot egotiable i!tr$met! beca$!e they do otbear the &ord! of egotiability to order(5 or to bearer.5 -hile iti! tr$e( that &areho$!e receipt! may be egotiable b$t their!$bCect i! good! ad ot moey. Th$!( they are ot egotiable

i!tr$met!. :ially( trea!$ry &arrat! are ot egotiable

i!tr$met! beca$!e they are coditioal i character( beigpayable o$t of a !pecific f$d.

Can a bill of e7change or a promissory note9ualify as a negotiable instrument ifL

>a it is not dated or>b the day and the month# but not the year of its

maturity# is given or>c it is not payable to 5cash6 or>d it names t3o alternative dra3ees ?/@E/TED A"/-ER;>a? b? "o. The i!tr$met i! ot payable at a fi#ed ordetermiable f$t$re time.

>c? d? "o. The order i! coditioal if addre!!ed to t&o or

more dra&ee! i the alterati%e or i !$cce!!io.

SUMMAR6 O5 VARIOUS SITUATIONSINVOVIN3 NE3OTIABE INSTRUMENTSAother areathat the reader !ho$ld ma!ter; )f the re%ie&ee &o$ld be able to!ol%e all of the follo&ig problem!( he &o$ld be able to a!&eray '$e!tio gi%e &ith re!pect to irreg$lar i!tr$met!. SUMMAR6 O5 SITUATIONS

a. )complete i!tr$met

1? Deli%ereda? -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%ered

a? -ith forgery ad alteratio

13


14/108

b? -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 facie a$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( &hether payableto 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


15/108

d$e co$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 itin his 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 to Rhia

All of the subse9uent indorsers as 3ell as the holder 3ereall holders in due course

May Rhia proceed against 2ocholo in case ofdishonor 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 asthe dra3ee ban" dishonors the chec"# may Rhia proceedagainst @eddah ?

/@E/TED A"/-ER;


16/108

(1) Prior partie! /o bo$d. Rea!o;:orged !igat$re &holly ioperati%e$le!! e!toppel !et! i( the prior partie!bo$d.(2) /$b!e'$et partie! bo$d.Rea!o; 4o$d o &arratie! ofidor!er! $le!! other&i!e !pecified

>a? -hether or ot holderi d$e co$r!e>b? Bly forged !igat$rei! ioperati%e

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

>a? )f charged dra&er ha! right toreco%er

>2? Dra&er ha! o right agai!tcollectig ba

>3? Dra&ee ca reco%er fromcollectig ba>J? *ollectig ba bear! lo!!

>a? *a reco%er fromper!o it paid

>? Payee ca reco%er from>a? Dra&er >b? *ollectig ba>c? Payee caot reco%erfrom 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 toparty 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 O5

PROMISSOR6 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!emetcompleted by deli%ery. A forged idor!emet i! &hollyioperati%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 the ote

by fra$d$let ad $la&f$l mea!( the there are o right! thatare 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

the payee 3ith 4astern $an" as the dra3ee ,idelfraudulently obtains the chec" and forges ellieOssignature ,idel then deposits it in Daya $an" >Collecting$an" Western $an" indorses the chec" to 4astern $an"through the clearing house ,idel then 3ithdra3s fromDaya $an"# the proceeds of the chec"

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.

16


17/108

Rea!o; The depo!itory >dra&ee Ea!ter 4a? o&e! tothe depo!itor >dra&er Tia?( a ab!ol$te ad cotract$al d$ty topay the chec oly to the per!o to &hom made payable or$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!toppel oacco$t of egligece( for e#ample( if the payee "ellie ad%i!edTia of the lo!!( b$t !he >Tia? did ot iform Ea!ter 4a.

c. Dra&er >Tia? ha! o right to reco%er from thecollectig 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 thecollectig 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 thechec to the dra&ee ba >Ea!ter 4a?( therefore it i! liableo a idor!erQ! &arraty of ge$iee!! ad liability to pay ica!e of di!hoor.

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

f. The payee >"ellie? ca !till reco%er from the dra&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 collectigba >Daya 4a?.

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

h. The payee >"ellie? caot reco%er from the dra&ee

ba >Ea!ter 4a?. Rea!o; There i! o pri%ity of cotract.

i. Dra&er >Tia? i! ot liable to the collectig ba >Daya4a?. Rea!o; There i! o pri%ity of cotract bet&ee Tia adDaya 4a.

:? -n @une


18/108

ba &o$ld "BT ha%e bee liable a! !ho& by the follo&igdi!c$!!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 $p the forgery or &at of a$thority.Partie! &ho &arrat or admit the ge$iee!! of the !igat$re i'$e!tio ad tho!e &ho( by their act!( !ilece or egligece aree!topped from !ettig $p the defe!e of forgery are precl$ded from$!ig thi! defe!e. )dor!er!( per!o! egotiatig by deli%er adacceptor! are &arrator! of the ge$iee!! of the !igat$re! o thei!tr$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 theholder! idor!emet i! forged all partie! prior to the forgerymay 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!e

the 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( the

collectig 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$t regard to fa$lto 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 i abetter 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 $der a forged edor!emet i! ot to thedra&er! order. -he the dra&ee ba pay! a per!o othertha the payee( it doe! ot comply &ith the term! of the checad %iolate! it! d$ty to charge it! c$!tomer! >the dra&er!?acco$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 may

ot debit the dra&er! acco$t ad i! ot etitled to

18


19/108

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$r!emet or a ret$r

of the amo$t it paid from the pre!etorFcollectig ba orper!o. E%et$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$tpaid o the chec bearig the forged edor!emet from thecollectig ba.

8? A dra&ee ba ha! the d$ty to promptly iform thepre!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 ba i!deemed egliget ad ca o loger reco%er from the

pre!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 to

i!$re ad to di!trib$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( it

i! 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( !$ch lo!! &o$ldbe bore by the egliget party( e%e if iocet of itetioal fra$d.>PNB v. National Cit" Bank of Ne2 0ork, 93 Phil. 711 >139? The bai! !o !it$ated that it &o$ld ha%e bee the la!t b$l&ar i the detectioof the forgery.

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

:


20/108

IUSTRATIVE PROBEM" RI3HTS O5PARTIES IN COMPETE AND DEIVEREDINSTRUMENT BUT MATERIA6 ATERED

:7 -n ".)..( /ec.12J?

d. 2>-ho!) )!'e *e'ee* s%/$e :0 @der /ectio J >c? of*.4. *irc$lar "o. 80( item! bearig a forged edor!emet !hall beret$red &ithi t&ety,fo$r >2J? ho$r! after di!co%ery of the forgery b$ti o e%et beyod the period fi#ed or pro%ided by la& for filig of alegal actio by the ret$rig ba.

The *etral 4a *irc$lar &a! i force for all ba! $til I$e180 &he the Philippie *learig Go$!e *orporatio >P*G*? &a! !et

$p ad commeced operatio!. /ectio 23 of the P*G* R$le!deleted the re'$iremet that item! bearig a forged edor!emet!ho$ld be ret$red &ithi t&ety,fo$r >2J? ho$r!. >A!!ociated 4a %.*o$rt of Appeal!( et al.( ad it! compaio ca!e Philippie "atioal4a %. *o$rt of Appeal!( et al.( 22 /*RA 920?

: -n August G


21/108

account 3as already closed or had insufficient balances !tis from Annabelle8s account that @ulio 3as paid 0hus#

Annabelle sued $2! demanding for the return of the2';+#;='() and damages

!s the court correct in a3arding the return toAnnabelle of the amount debited# and in a3ardingdamages in her favor ?

/@E/TED A"/-ER;The co$rt erred i orderig theret$r b$t &a! correct i a&ardig damage!.

)t i! clear that there &a! o tra!fer of o&er!hip of thechec to Aabelle beca$!e of the lac of idor!emet. Brderi!tr$met! are to be tra!ferred oly by edor!emet co$pled&ith deli%ery. Th$!( Aabelle &a! ot etitled to the chec a!o&er!hip did ot flo& to her beca$!e of the lac ofidor!emet.

-hile it i! tr$e that 4P) made a mi!tae i creditigAabelle! acco$t( ad it &arrated All prior edor!emet!adFor lac of edor!emet! g$arateed(5 a! the collectig ba

it had the right to debit Aabelle! other acco$t beca$!e it hadthe right of !et,off.Aabelle ha! a right to damage! beca$!e had 4P)

adhered to the diligece e#pected of oe egaged i thebaig b$!ie!! it &o$ld ha%e a%oided the icidet ad thedamage! !$ffered by Aabelle. Thi! i! !o e%e if 4P)!egligece &a! ot atteded &ith malice ad bad faith. >Bank ofPhilippine Islands, v. Court of Appeals, et al., .R. "o. 139202( Ia$ary2( 2007?

: ,ord 2hilippines# !nc issued various crosschec"s dra3n against C!0!$AK# A# 3ith theCommissioner of !nternal Revenue !t appears that Rivera,ord8s Ieneral 1edger Accountant# prepared chec"s for

payment to the $!R !nstead# ho3ever# of delivering thesame to the payee# Rivera passed on the chec"s to Castro3ho 3as a promanager of the &an Andres $ranch of 2C!$!n connivance 3ith Dulay# 2C!$8s Asst Manager at itsMeralco $ranch# Castro himself subse9uently opened aChec"ing Account in a name of a fictitious persondenominated as 5Reynaldo Reyes6 in the Meralco $ranchof 2C!$an" 3here Dulay 3or"s as Asst Manager 0hus# thesyndicate succeeded in encashing the chec"s and

appropriating the value

As a result of the $!R did not receive the ta7payment# and ,ord 3as forced to pay the ta7 ane3 ,ordfiled suit to recover from the dra3ee C!0!$AK# A andthe collecting ban" 2C!$an" the value of the chec"s

.as ,ord the right to recover from the collectingban" and the dra3ee ban" the value of the chec"s intendedas payment to the Commissioner of !nternal Revenue

/@E/TED A"/-ER;


22/108

fra$d$letly egotiated or di%erted by the cofidetial employee! &hohold 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 paper adthe 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 L 12870J(Ia$ary 2( 2001?

20 A chec" 3ith serial number +G;;;''GG# datedAugust +# '))( in the amount of 2=+#;())) 3as issued by

PAP 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$met! a&( e%erycotract o a egotiable i!tr$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 to

the payee ad recogi+e him a! the holder thereof. >De la Victoria %!.4$rgo!( et al.( 2J /*RA 37J?

COMPETE BUT NT DEIVEREDINSTRUMENT

a. Deli%ery complete! the cotract1? 4et&ee immediate ad remote partie!2? Deli%ery effect$al

b. )f $der a$thority1? To a holder i d$e co$r!e

a? Valid deli%ery pre!$med

b? Prior partie! bo$d2? )f deli%ery coditioal

a? Prior partie! ot bo$d

2: A ,rancisco Realty and DevelopmentCorporation >A,RDC represented by its president Adeliaas 3ell as .erby Commercial and Construction Corporation>.CCC represented by its president @aime entered into acontract 3ith I&!& for the construction of housing unitsand land development I&!& partially paid on the contractthe amount of 2())#))))) @aime discovered that from the

I&!& payment Adelia had received and signed seven

22


23/108

chec"s of various dates and amounts dra3n against !$AAand payable to .CCC for completed and delivered 3or"under the contract Adelia forged @aime8s signature3ithout his "no3ledge or consent# at the dorsal portion ofthe said chec"s to ma"e it appear that .CCC had indorsedthe chec"s# and then deposited the chec"s in her !$AAsavings account Adelia no3 claims that she 3as

authorized to sign @aime8s name on the chec" by virtue of aCertification e7ecuted by @aime in her favor giving herauthority to collect all the receivables of .CCC from I&!including the 9uestioned chec"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$ld idicate that he i! merely !igig ibehalf of the pricipal ad m$!t di!clo!e the ame of hi!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$met iaccordace &ith la&. )!tead of !igig Iaime! ame( Adelia!ho$ld ha%e !iged her o& ame ad e#pre!!ly idicated 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;


24/108

a edor!er for the beefit of the !ecod party a! a re!$lt of theirb$!ie!! arragemet ad ot i fa%or the borro&er.

2? Alpha# 2hi and -mega signed a promissorynote in favor of Rho statingL 5We promise to pay Rho onDecember G02C# a firm engaged in the manufacture oflongganisa# engaged one of its suppliers Mr $ A $oy# todeliver (#))) "ilos of carabeef# starting -ctober '))N 02Cissued t3o >' crossed postdated chec"s both dated March'' postdated crossed chec"s# chec" no N(;+J=

24


25/108

amounting to 2NG)#))))) payable on March (# '))(# andchec" no


26/108

== 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$met

d. :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$rt appoited g$ardiai. Void cotract

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

=> Iive e7amples of personal or e9uitabledefenses that are available against any person other than aholder 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!taee. "egotiatio amo$tig to fra$df. :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, $o/s%*e)&%o/ E%ery egotiablei!tr$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$e co$r!eSKad partial fail$re of co!ideratio i! a defe!epro tanto( &hether thefail$re i! a a!certaied ad li'$idated amo$t or other&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$r!e( for ha%ig taethe i!tr$met &ith otice that the !ame &a! for depo!it oly tothe acco$t of the payee( he &o$ld be altogether precl$ded fromreco%erig o the i!tr$met. The "egotiable )!tr$met! a&

doe! ot pro%ide that a holder ot i d$e co$r!e ca ot reco%ero 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!eceor fail$re of co!ideratio. >Atri$m 6aagemet *orp. %. *o$rt of

Appeal!( et al.( .R. "o!. 10J1 L 1217J( :ebr$ary 28( 2001?

=


27/108

a. C&sh%e)s $he$ )t i! a primary obligatio of the i!!$igba ad accepted i ad%ace by it! mere i!!$ace ad( by it!pec$liar character ad geeral $!e i the commercial &orld i!regarded !$b!tatially to be a! good a! the moey &hich it repre!et!.>Ta %!. *o$rt of Appeal!( et al.( 23 /*RA 310?

=7 Can a payee in a promissory note be a5holder in due course6 3ithin the meaning of theegotiable !nstruments 1a3 >Act o ')G


28/108

period as the holder may allo3# to return the bill acceptedor nonaccepted to the holder# he 3ill be deemed to haveaccepted the same6 Was there effective payment to%icente ?

/@E/TED A"/-ER; "o. )t i! clear that a moeymaret tra!actio i! oe of loa( &hich !ho$ld ha%e bee paidfor i ca!h. The deli%ery of a chec prod$ce! oly paymet

&he it ha! bee eca!hed or &he thro$gh the fa$lt of thecreditor it ha! bee impaired. A chec i! merely a !$b!tit$te formoey. >*eb$ )teratioal :iace *orporatio %. *o$rt of Appeal!(et al.( .R. "o. 123031( Bctober 12( 1?

>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$metKe. -here the dra&er ha! co$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 be

pre!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 ofdi!hoor of a chec may be !et to the dra&er or maer by the dra&eeba( the holder of the chec( or the offeded party either by per!oaldeli%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%eotice of di!hoor &ithi thirty >30? day! from di!hoor.)t i! ot !ho& that the holder ad emma re!ided i the!ame place hece( the period to gi%e otice of di!hoorm$!t be the !ame time that otice &o$ld reach emmaif !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.


29/108

>= 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%ember12( 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(=


30/108

the o3ner as the beneficiary $oth of the policies 3ere upto December G/ec. 10( )!$race *ode?b. P!)#ose ,o) )e!%)e.e/ o, %/s!)&+'e %/e)es %/

'%,e To remo%e the temptatio of i!$rig a per!oQ! life ad theillig him to reco%er the i!$race proceed!.

c. I/s!)&+'e %/e)es %/ '%,e sho!'* e%s at thetime of taig ad "BT ece!!arily at the time of death.

d. I/s!)&+'e %/e)es %/ #)o#e)( %s re'$ired for a per!o&ho !ec$re! property i!$race E%ery itere!t i property( &hether

real or per!oal( or ay relatio thereto or liability i re!pect thereof of

!$ch at$re that a cotemplated peril might directly damify thei!$red. >/ec. 13( )!$race *ode?

e. I/s!)&+'e %/e)es %/ #)o#e)( .!s e%sat thetime of taig A"D at the time of lo!!.

f. I/s!)&+'e %/e)es %/ '%,e distin%uished from%/s!)&+'e %/e)es %/ #)o#e)(

1? ) i!$rable itere!t i life m$!t e#i!t at the time of taigad eed ot e#i!t at the time of death -G)E i!$rable itere!t iproperty m$!t e#i!t both at the time of taig ad time of lo!!.

2? The beeficiary eed ot ha%e a i!$rable itere!t i thelife of the i!$red -G)E the beeficiary i property i!$race !ho$ldha%e a i!$rable itere!t i the property i!$red both at the time ofi!$race ad at the time of lo!!.

> @Q# o3ner of a condominium unit# insured thesame against fire 3ith FB !nsurance Co# and made theloss payable to his brother# M1Q !n case of loss by fire ofthe said condominium unit# 3ho may recover on the fireinsurance policy ? &tate the reason>s for your ans3er

/@E/TED A"/-ER; "obody. 6 caot reco%eraltho$gh he &a! amed the beeficiary beca$!e he had oi!$rable itere!t i the property at the time of the lo!!. "eitherco$ld I the o&er reco%er beca$!e he i! ot the amedbeeficiary.

"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'$ired that hem$!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


31/108

Revie3 classes for the $ar she 3as run over by a bulldozer3hich caused her death on the spot @effrey no3 claimsthe life insurance proceeds Decide

/@E/TED A"/-ER; Ieffrey co$ld ot reco%er.There &a! cocealmet( &hich i! a eglect to comm$icate that&hich a party o&! ad o$ght to comm$icate. The mattercocealed &a! material ad rele%at to the appro%al ad

i!!$ace of the policy( it ha%ig probable ad rea!oableifl$ece $po the i!$rer! formig a e!timate of thedi!ad%atage! of the propo!ed cotract.

ood faith i! ot a defe!e to cocealmet( a!materiality of the iformatio &ithheld doe! ot deped o the!tate of mid of the i!$red or o the act$al or phy!ical e%et!&hich e!$e.

)t i! !ettled that the i!$red eed ot die of the di!ea!ehe had failed to di!clo!e to the i!$rer. )t i! !$fficiet that theo,di!clo!$re mi!led the i!$rer i formig hi! e!timate! o theri!! of the propo!ed i!$race policy or i maig i'$irie!.

>unlife Assurance Compan" of Canada vs. Court of Appeals,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.


32/108

4liza entitled to her claim of interest at double the legal ratebecause of delay in the payment of her claim ?

/@E/TED A"/-ER; Eli+a i! etitled to legalitere!t oly ad ot the 2J= !he claim!. :ra$d beig thegro$d i%oed by PhilAm ife )!$race for ref$!ig to hoorthe claim( there i! o $rea!oable delay.

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

a. U/*e) Se$%o/ 2>2 o, he I/s!)&/$e Co*e@ he)e,!s&' o, he %/s!)e) o #&( & '%,e %/s!)&/$e $'&%. w%h%/ he#e)%o* #)es$)%+e* w%'' e/%'e he +e/e,%$%&)( o $o''e$%/e)es o/ he #)o$ee*sat the rate of t&ice the ceilig pre!cribedby the 6oetary 4oard5 for the d$ratio of the delay( $le!! the ref$!alto pay i! ba!ed o the gro$d that the claim i! fra$d$let. >Philippine

American 'ife Insurance Compan" v. Court of Appeals, et al., .R. "o.129223( "o%ember 1( 2000K #inman eneral Assurance Corp. v.Court of Appeals, et al., .R. "o. 138737( I$ly 12( 2001?

&unMoon !nsurance issued a 2ersonalAccident 2olicy to .enry Dy 3ith a face value of

2())#))))) A provision in the policy states that 5thecompany shall not be liable in respect of bodily injuryconse9uent upon the insured person attempting to commitsuicide or 3illfully e7posing himself to needless perile7cept n an attempt to save human life6 &i7 months later.enry Dy died of a bullet 3ound in his head !nvestigationsho3ed that one evening .enry 3as in a happy moodalthough he 3as not drun" .e 3as playing 3ith hishandgun from 3hich he had previously removed itsmagazine .e pointed the gun at his sister 3ho got scaredhe assured her it 3as not loaded .e then pointed the gun

at his temple and pulled the trigger 0he gun fired and.enry slumped dead on the floor

.enry8s 3ife $everly# as the designated beneficiary#sought to collect under the policy &unMoon !nsurancerejected her claim on the ground that the death of .enry3as not accidental $everly sued the insurer

Decide Discuss fully/@E/TED A"/-ER; 4e%erly ca reco%er. )t i!

clear that Gery did ot commit !$icide. The fact that Geryremo%ed the maga+ie At the mo!t Gery &a! egliget i ot!eeig to it that the g$ &a! ot loaded. There i! o !ho&ig i

the problem that egligece i! a e#cepted ri!. >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!$rer liable regardle!! of the date of the commi!!ioof the !$icide. >/ec. 180,A( )!$race *ode?

b. K%''e)-+e/e,%$%&)( $&//o )e$o1e) A beeficiary &hoparticipate! i illig the i!$red( &hether a! acce!!ory( accompliceor pricipal( caot reco%er from the death of the i!$red by rea!o ofp$blic policy. The eare!t of i of the i!$red( if ot di!'$alified( !hallrecei%e the i!$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.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


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a. The $o/$e# o, #)oh%+%e* *o/ees Per!o! &ho aredi!'$alified $der the pro%i!io! of the *i%il *ode from beigde!igated a! doee! are al!o prohibited to be beeficiarie! of a lifei!$race cotract. Amog !$ch per!o! are the follo&ig;

1? Per!o! g$ilty of ad$ltery or coc$biage co$ldot tae a life i!$race ad ame the other a! a beeficiary.

2? Per!o! fo$d g$ilty of ad$ltery ad coc$biageco$ld ot tae a life i!$race ad ame the other a! a

beeficiary i co!ideratio of the ad$ltery or coc$biage a!the ca!e may be.

3? Per!o &ho tae! a i!$race policy o hi! o&life ad by the rea!o of the office of a p$blic officerde!igate! a! the beeficiary !$ch p$blic officer( hi! &ife(a!cedat!( or de!cedat!.

:0 I-F: applied for credit facilities andaccommodations 3ith Rizal $an" As security for its creditfacilities 3ith Rizal $an"# I-F: e7ecuted t3o real estatemortgages and t3o chattel mortgages in favor of Rizal$an"# 3ith 3ere registered 3ith the Registry of Deeds:nder the four mortgages# I-F: committed itself to insurethe mortgaged property 3ith M!C-# an insurance companyapproved by Rizal $an"# and subse9uently to endorse anddeliver the insurance policies to Rizal $an" Alchester#M!C-8s under3riter# from 3hom I-F: secured theinsurance prepared the indorsements but it turned out thatthe endorsements do not bear the signature of any officerof I-F:

Who could recover on the insurance claim ?/@E/TED A"/-ER; Ri+al 4a co$ld reco%er $p

to the e#tet of it! itere!t o the mortgage.

-hile it i! !ettled that a mortgagor ad a mortgageeha%e !eparate ad di!tict i!$rable itere!t! i the !amemortgaged property( !$ch that each oe of them may i!$re the!ame property for hi! o& !ole beefit( the itetio of thepartie! !ho$ld go%er. ) the ca!e at bar the edor!emet!made i fa%or of Ri+al 4a( clearly idicate that Ri+al 4a i!tr$ly the etity for &ho!e beefit the policie! &ere clearlyiteded. >Ri(al Commercial Bankin% Corporation, et al., v. Court of

Appeals, et al., and companion cases.28 /*RA 122?

:: What is double insurance ?

/@E/TED A"/-ER; A do$ble i!$race e#i!t!&here the !ame per!o or property i! i!$red by !e%erali!$rer! !eparately i re!pect of the !ame !$bCect ad itere!t.>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 the mortgaged policy are !eparate ad di!tict hecethere i! o do$ble i!$race if the mortgagor ad the mortgagee taeo$t !eparate i!$race!.

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

property for le!! tha it! %al$e( he i! deemed to ha%e acted a! aco,i!$rer &ith the i!$rer $p to the e#tet of the deficiecy. )!$ch a ca!e( &here there i! lo!! or damage( the i!$rer !hall beliable oly for !$ch proportio of the lo!! or damage that theamo$t of i!$race bear! to the de!igated percetage of thef$ll %al$e of the property i!$red.

: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 2


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condition 3hich re9uired the insurer to give notice of anyinsurance effected covering the stoc"s in trade @ulie 3entto court and contended that she should not be blamed forthe omission# alleging that the insurance agents for WIC#R&! and 4!C "ne3 of the e7istence of the additionalinsurance coverages and that she 3as not informed aboutthe re9uirement that such other or additional insurance

should be stated in the policyIbid.?

"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 firei!$race policie! ad i! iteded to pre%et a icrea!e i the moralha+ard. )t i! commoly o& a! the additioal or other i!$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 3orth

2+()#))))) to Angelina 1ara insured the house against

fire 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())#))) 0he insurance

policy also contained an 5other insurance6 clause $oth1ara and Angelina did not advise their respective insurers

of the e7istence of the other insurancesWhile both of the insurance policies 3ere in forcethe house 3as burned

a $oth insurance companies no3 disclaimresponsibility 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 respectiveliabilities ?

c Could 1ara refuse to pay her obligation of2())#))))) considering that the house 3as already burned

? 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!$rable itere!t o theproperty ad both itere!t! may be co%ered by oe policy or each maytae o$t a !eparate policy co%erig hi! itere!t( &ither at the !ametime or at !eparate time!.

34


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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$e mortgaged ad e#ted! olyto the amo$t of the debt( ot e#ceedig the %al$e of the mortgaged

property( 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! bee i!$red(ad he ha! recei%ed idemity from the i!$race compay for theiC$ry or lo!! ari!ig o$r of the &rog or breach of cotractcomplaied of( the i!$race compay !hall be !$brogated to the

right! 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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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 mortgagedebt( thereby relie%ig the heir! of the mortgagor from payig theobligatio.

) a !imilar %ei( ample protectio i! gi%e to the mortgagor !othat i the e%et of hi! death( the mortgage obligatio &ill be

e#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 a partyto 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%idig

that 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 theproperty i! ) the had! of the mortgagee( b$t ay act &hich( $derthe cotract of i!$race( i! to be performed by the mortgagor( may beperformed by the mortgagee therei amed( &ith the !ame effect a! ifit 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$ld be made olyif the damage &a! ca$!ed by peril! of the !ea /o +( peril! ofthe !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 action

on 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 marine

insurance?/@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 ord. Ay other e%et &hich effecti%ely depri%e! the o&er

of the po!!e!!io( at the port of de!tiatio( of the thig i!$red.>/ec. 130( )!$race *ode?

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


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b. I/s&/$es whe)e he)e %s & $o/s)!$%1e o&' 'osso, he h%/ %/s!)e* wh%$h wo!'* e/%'e &/ %/s!)e* o&+&/*o/ %/ .&)%/e %/s!)&/$e"

1? )f more tha three,fo$rth! of it! %al$e i!act$ally lo!t or &o$ld ha%e to be e#peded to reco%er itfrom the perilK

2? )f it i! iC$red to !$ch a e#tet a! to red$ce

it! %al$e more tha three,fo$rth!K3? )f the thig i!$red( i! a !hip ad thecotemplated %oyage caot be la&f$lly performed&itho$t ic$rrig either a e#pe!e to the i!$red ofmore tha three,fo$rth! the %al$e of the thig abadoedor a ri! &hich a pr$det ma &o$ld ot tae $der thecirc$m!tace!K or

J? )f the thig i!$red( beig cargo or freightage(ad the %oyage caot be performed or aother !hipproc$red by the ma!ter( &ithi a rea!oable time ad&ith rea!oable diligece( to for&ard the cargo( &itho$t

ic$rrig the lie e#pe!e or ri!. 4$t freightage caoti ay ca!e be abadoed $le!! the !hip i! al!oabadoed. >/ec. 13( )!$race *ode?c. 9U;#o/ &/ &$!&' o&' 'oss@ & #e)so/ %/s!)e* %s

e/%'e* o #&(.e/ w%ho! /o%$e o, &+&/*o/.e/ >/ec.13( )!$race *ode?

2: RC Corporation purchased rice from0hailand# 3hich it intended to sell locally Due to stormy3eather# the ship carrying the rice became submerged insea 3ater# and 3ith it the rice cargo When the cargoarrived in Manila# RC filed a claim for total loss 3ith theinsurer# because the rice 3as no longer fit for humanconsumption Admittedly the rice could still be used asanimal feed

!s RC8s claim for total loss justifiable ? 47plain/@E/TED A"/-ER; Pan /ala"an Insurance Corporation v. Court of Appeals, et al., .R."o. 070( /eptember ( 11 citig %ario$! ca!e!?

22 0he general rule provided in &ec ++ of the!nsurance Code is that not3ithstanding any agreement tothe contrary# no policy or contract of insurance issued byan insurance company is valid and binding until the

premium thereof has been paidAre there any e7ceptions to the rule ? 47plain your

ans3er briefly/@E/TED A"/-ER; The follo&ig are the

i!tace! &here the opaymet of the premi$m doe! otreder the i!$race cotract or policy i%alid;

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$!i%e e%idece of it!paymet( !o far a! to mae the policy bidig( ot&ith!tadigay !tip$latio therei that it !hall ot be bidig $til premi$m i!act$ally paid.5 >/ec. 78( )!$race *ode?

c. /ectio 77 may ot apply if the partie! ha%e agreed tothe paymet i i!tallmet! of the premi$m! ad partialpaymet ha! bee made at the time of the lo!!. >/akati Tuscan"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$ge i the o,paymet ofthe premi$m. >-PCB eneral Insurance Co., v. /asa%ana Telamart,

.R. "o. 137172( April J( 2001?

2= !n '))( Antonio obtained a fire insurance fromAmerican .ome Assurance Company the stoc" in trade ofhis business# Moonlight 4nterprises 0he insurance 3asdue to e7pire on '( March


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bet3een 2 N million to 2 ( million 0he chec" 3as dra3nagainst a Manila ban" and deposited in American8sCagayan de -ro ban" account 0he corresponding officialreceipt 3as issued on


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policy &a! i!!$ed. Gece( the o,f$lfillmet of the coditiore!$lted i the o,perfectio of the cotract.

b? A cotract of i!$race( lie other cotract!( m$!t bea!!eted to by both partie! either i per!o or by their aget!./o log a! a applicatio for i!$race ha! ot bee eitheraccepted or reCected( it i! merely a offer or propo!al to mae acotract. The cotract( to be bidig from the date of

applicatio( m$!t ha%e bee a completed cotract( oe thatlea%e! othig to be doe( othig to be completed( othig tobe pa!!ed $po( or determied( before it !hall tae effect. Thereca be o cotract of i!$race $le!! the mid! of the partie!ha%e et i agreemet.

c? The i!$rer caot be held for gro!! egligece. )t!ho$ld be oted that a applicatio i! a mere offer &hichre'$ire! the o%ert act of the i!$rer for it to ripe ito a cotract.Delay i actig o the applicatio doe! ot co!tit$teacceptace e%e tho$gh the i!$red ha! for&arded hi! fir!tpremi$m &ith hi! applicatio. The corporatio may ot be

peali+ed for the delay i the proce!!ig of the applicatiopaper!. >Pere( 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!)&/$e )!$race i!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 theother 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!$red i! etitled to aret$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 !$rreder! hi! policy( he !hall be etitled to!$ch portio of the premi$m corre!podig to the $e#piredtime at a pro rata rate( $le!! a !hort period rate ha! beeagreed $po ad appear! o the face of the policy( afterded$ctig from the &hole premi$m ay claim for lo!! or damage$der the policy &hich ha! pre%io$!ly accr$ed.

c. -he the cotract i! %oidable o acco$t of the fra$dor mi!repre!etatio of the i!$rer or of hi! aget or o acco$tof fact! the e#i!tece of &hich the i!$red &a! igorat &itho$thi! fa$ltK or &he( by ay defa$lt of the i!$red other tha act$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$t by &hich the aggregate !$m i!$redi all the policie! e#ceed! the i!$rable %al$e of the thig at ri!.

2


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commo carrier! are re'$ired to !ec$re the *omp$l!ory 6otorVehicle iability )!$race >*6V)?.

Altho$gh the %ictim! or their heir! may proceed directlyagai!t the i!$rer for idemity( the third party liability i! oly$p to the e#tet of the i!$race policy ad tho!e re'$ired byla&.

-hile it i! tr$e that &here the i!$race cotract

pro%ide! for idemity agai!t liability to third per!o!( ad !$chthird per!o! ca directly !$e the i!$rer( the direct liability ofthe idemity cotract! agai!t third party liability doe! otmea that the i!$rer ca be held liable in solidum &ith thei!$red adFor the other partie! fo$d at fa$lt.

Thi! i! !o beca$!e the liability of the i!$rer i! ba!ed ocotractK that of the i!$red carrier or %ehicle o&er i! ba!ed$po tort. The liability of the i!$rer therefore( beig primary( i!ot depedet o the reco%ery of C$dgmet from the C$dgmeti!$red. >overnment ervice Insurance "stem v. Court of Appeals,et al.,.R. "o. 101J3( I$e 21( 1?

27 What is no fault insurance and 3hat is theproof re9uired in these cases ?

/@E/TED A"/-ER; "o eed to pro%e fa$lt oregligece of ay id i order of reco%er. Proof! of lo!! !hallbe !$fficiet to !$b!tatiate the claim( amog &hich icl$de

a. Police report of accidetKb. Death certificate ad e%idece !$fficiet to e!tabli!h

the proper payeeK or medical report ad e%idece of medical orho!pital di!b$r!emet i re!pect of &hich ref$d i! claimed.>/ec. 378( )!$race *ode?

2 What are the conditions for the availment ofa no fault insurance ?

/@E/TED A"/-ER;a. Bly for claim! for death or iC$ry of ay pa!!eger

or third party. )t doe! ot icl$de property damageKb. Total idemity i re!pect of oe per!o !hall ot

e#ceed P(000.00Kc. *laim may be made agai!t oe motor %ehicle oly.) the ca!e of a occ$pat if a %ehicle( claim !hall lie

agai!t the i!$rer of the %ehicle i &hich the occ$pat i! ridig(mo$tig or di!mo$tig from. ) ay other ca!e( claim !hall be

agai!t the i!$rer of the directly offedig %ehicle. ) all ca!e!(the right of the party payig the claim to reco%er agai!t

2. mercantile bar review material 2

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