mercantile-law-proper.pdf

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LETTERS OF CREDIT

ACADEMICSCHAIR:LESTERJAYALANE.FLORESII

VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA

VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE

VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ

1UNIVERSITY OF SANTO TOMAS

LETTERSOFCREDIT

I. DEFINITION/CONCEPTQ:WhatisLetterofCredit(LC)?

A: It is any arrangement, however named or

described,whereby

abank

(issuing

bank),

acting

at the request and on the instructions of a

customer (applicant) or on its own behalf, binds

itselfto:

1. Pay to the order of, oraccept andpay

drafts drawn by a third party

(Beneficiary),or

2. Authorize another bank to pay or to

acceptandpaysuchdrafts,or

3. Authorizes another bank to negotiate,

againststipulateddocument(s),

Provided, the terms and conditions of the credit

are

complied

with.(Art.

2,

Uniform

Customs

&

PracticeforDocumentaryCredits.)

Note: They are in effect absolute undertakings to

pay the money advanced or for the amount for

which the credit is given on the faith of the

instrument.

Q:WhatisthedurationofLC?

A:

1. Upontheperiodfixedbytheparties;or

2. Ifnoneisfixed:

a. 6 months from its date if used in

thePhilippines;

b. 12 months if used abroad (Art

572,ibid).

Q:WhatarethekindsofLC?

A:

COMMERCIALLETTERS

OFCREDIT

STANDBYLETTERSOF

CREDIT

Involvecontractsofsale.Involvenonsale

transactions.

Payableupon

presentationby

the

sellerbeneficiaryof

documentsthatshowhe

hasperformedhis

contract.

Payableupon

certificationbythe

beneficiaryofthe

applicantsNON

performanceofthe

agreement.(Transfieldv.

LuzonHydroCorp.,G.R.

No.146717,Nov.22,

2004)

Q: Is irrevocable letter of credit and confirmed

letterofcreditsynonymous?

A: An irrevocable letter of credit is not

synonymous withaconfirmed letterofcredit. In

an irrevocable letter of credit, the issuing bank

may not, without the consent of the beneficiary

and

the

applicant,

revoke

its

undertaking

under

the letter, whereas, in a confirmed letter of

credit,thecorrespondentbankgivesanabsolute

assurancetothebeneficiarythatitwillundertake

the issuingbanksobligationas itsownaccording

to the terms and condition of the credit.

(PrudentialBankandTrustCompanyv. IAC,G.R.

No.74886,Dec.8,1992)

Q:Canacourtorderthereleasetotheapplicant

the proceeds of an irrevocable letter of credit

withouttheconsentofthebeneficiary?

A:No,suchorderviolates the irrevocablenature

ofthe

letter

of

credit.

The

terms

of

an

irrevocable

letter of credit cannot be changed without the

consentoftheparties,particularlythebeneficiary

thereof. (Phil.VirginiaTobaccoAdministrationv.

DeLosAngeles,G.R.No.L27829,Aug.19,1988)

II.GOVERNINGLAWQ: What is the law governing letter of credit

(LC)?

A: It is the Uniform Customs and Practice (UCP)

for documentary Credits for International

Chamber of Commerce governs the Letters of

credit(Metropolitan

Waterworks

vs.

Daway,

G.R.

No.160723,July21,2004).

Articles567to572of theCodeofCommerceon

Letters of Credit are obsolete. However, in the

absence of any provision in the Code of

Commerce, commercial transaction shall be

governed by the usages and customs generally

observed.(Sec.2,CodeofCommerce)

III. NATUREOFLETTEROFCREDITQ:WhatisthenatureandpurposeofLC?

A: To ensure certainty of payment. The seller is

assuredofpaymentbecausethebank intervenes

and makes the commitment to pay. This

addressesproblemsarisingfromsellersrefusalto

part with his goods before being paid and the

buyers refusal to part with his money before

acquiringthegoods,thus,facilitatingcommercial

transactions.


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USTGOLDENNOTES2011

MERCANTILELAWTEAM:

ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;

ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,

ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,

RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES

2

Q:WhataretheessentialconditionsofLC?

A:

1. Issued infavorofadefinitepersonandnottoorder.

Note: The Uniform Commercial Practice for

DocumentaryCredits

allows

letters

of

credit

to

bepayabletoorder

2. Limited to a fixed or specified amount,ortooneormoreamounts,butwithamaximumstatedlimit.(Article568,Ibid)

Note:Ifanyoftheseessentialconditionsisnotpresent,theinstrumentismerelyconsideredasaletterofrecommendation.

Q: In case the buyer was not able to pay its

obligation under the letter of credit, can the

banktakepossessionoverthegoodscoveredby

thesaid

letter

of

credit?

A: No. The opening of a Letter of Credit did notvest ownership of the goods in the bank in theabsenceofa trustreceiptagreement.A letterofcredit is a mere financial device developed bymerchants as a convenient and relatively safemodeofdealingwiththesalesofgoodstosatisfythe seemingly irreconcilable interests of a seller,who refuses to part with his goods before he ispaid,andabuyer,whowants tohavecontrol ofthe goods before paying. (Transfield Philippines,Inc.v.LuzonHydroCorporation,G.R.No.146717,

Nov.22,2004)

IV.PARTIESTOALETTEROFCREDIT

Q: Who are the parties to a Letter of Credit

transaction?

A:

1. Applicant/Buyer/Importer procurestheletterofcredit,purchasesthegoodsand obliges himself to reimburse theissuing bank upon receipt of thedocumentstitle.

2. Issuing Bank One which, whether a

payingbank

or

not,

Issues

the

letter

of

credit and undertakes to pay the sellerupon receipt of the draft and properdocuments of title from the seller andto surrender them to the buyer uponreimbursement.

3. Beneficiary/Seller/Exporter In whosefavor the instrument is executed. Onewhodeliversthedocumentsoftitleand

draft to the issuing bank to recoverpayment.

The number of parties may be increased.Modern letters of credit usually involvebanktobank transactions. The followingadditionalpartiesmaybe:

1. Advising/notifying bank Thecorrespondent bank (agent) of theissuing bank through which it advisesthebeneficiaryoftheLC.

2. Confirming bank bank which, upontherequestofthebeneficiary,confirmstheLCissued.

3. Payingbankbankonwhichthedraftsare to be drawn, which may be theissuingbankoranotherbanknot inthecityofthebeneficiary.

4. Negotiating bank bank in the city ofthebeneficiarywhichbuysordiscountsthe drafts contemplated by the LC, ifsuch draft is to be drawn on theopening bank not in the city of thebeneficiary.

Q:WhatarethestagesofLC?

A:

1. Contractofsalebetweenthebuyerandseller

2. ApplicationforLCbythebuyerwiththe

bank

3. IssuanceofLCbythebank4. Shippingofgoodsbytheseller5. Execution of draft and tender of

documentsbytheseller6. Redemption of draft (payment) and

obtaining of documents by the issuingbank

7. Reimbursement to the bank andobtainingofdocumentsbythebuyer

A.RIGHTSANDOBLIGATIONSOFPARTIES

Q:Explainthethree(3)distinctbut intertwined

contractrelationships

that

are

indispensable

in

a

letterofcredittransaction.

A:

1. Between the applicant/buyer/importerandthebeneficiary/seller/exporterTheapplicant/buyer/importeristheonewhoprocures the letter of credit while thebeneficiary/seller/exporter is the one


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LETTERS OF CREDIT






who in compliance with the contract of

sale ships the goods to the buyer and

deliversthedocumentsoftitleanddraft

to the issuing bank to recover payment

for the goods. Their relationship is

governedbythecontractofsale.

2. Betweenthe

issuing

bank

and

the

beneficiary/seller/exporter The issuing

bank is theone that issues the letterof

credit and undertakes to pay the seller

upon receipt of the draft and proper

documents of title. On the other hand,

the beneficiary/seller/exporter

surrendersdocumentoftitletothebank

incompliance with the terms of the LC.

Their relationship is governed by the

termsoftheLC.

3. Between the issuing bank and the

applicant/buyer/importer The

applicant/buyer/importer

obliges

himself to reimburse the issuing bank

upon receipt of the documents of title.

Their relationship is governed by the

termsoftheapplicationfortheissuance

oftheletterofcreditbythebank.(2002

BarQuestion)

Q:Isanissuingbankaguarantor?

A: No, the concept of guarantee visavis the

conceptofirrevocableLCisinconsistentwitheach

other. LCs are primary obligations and not

security contracts and while they are security

arrangements,

they

are

not

converted

thereby

intocontractsofguaranty.(MWSSv.Hon.Daway,

G.R.No. 160732,June21,2004)

Q:Whenisthebankentitledtoreimbursement?

A: Once the issuing bank shall have paid the

beneficiaryafterthe latterscompliancewiththe

terms of the LC. Presentment for acceptance to

thecustomer/applicantisnotaconditionsinequa

non for reimbursement. (PrudentialBank v. IAC,

G.R.No.74886,Dec.8,1992)

Q:Whatistheconsequenceofpaymentuponan

expiredLC?

A: An issuing bank which paid the beneficiary of

an expired letter of credit can recover the

payment from the applicant which obtained the

goods from the beneficiary to prevent unjust

enrichment.(RodzssenSupplyCo.v.FarEastBank

andTrustCo,G.R.No.109087,May9,2001)

Q: Should the marginal deposit made by the

customer, in possession of the bank be first

deducted from the principal indebtedness

beforecomputingtheinterest?

A: Yes, since it is supposed to be returned upon

compliance with his obligation. Indeed, it would

be

onerous

to

compute

interest

and

other

charges on the face value of the letter of credit

which the issuing bank issued, without first

creditingorsettingoffthemarginaldepositwhich

theimporterpaidtoit.Requiringtheimporterto

pay the interest on the entire letter of credit

without deducting first his marginal deposit

wouldbeaclearcaseofunjustenrichmentbythe

bank.(Abadv.CA,G.R.42735,Jan.22,1990)

Q:Whataretheliabilitiesofcorrespondent

banks?

A:

ROLE LIABILITYNotifying/Advising

Servesasanagentof

theissuingbank;

Warrantstheapparent

(Appearanceto

unaidedsenses)

authenticityofthe

LetterofCredit.(Bank

ofAmericaNT&SAv.

CA,G.R.No. 105395,

Dec.10,1993)

Doesnotincurany

obligationmorethan

justnotifyingthe

seller/beneficiaryofthe

openingoftheLCafter

ithasdeterminedits

apparentauthority.

(BankofAmericaNT&

SAv.CA,G.R.No.

105395,Dec.10,1993)

Notliablefordamages

unlessthedocumenton

itsfaceismanifestly

fake.

Confirming

Lendscredencetothe

LCissuedbyalesser

knownbank.

Directobligation,asifit

istheonewhichissued

theLC.

Negotiating

Buysthesellersdraft

andlateronsellsthe

drafttotheissuing

bank.

Dependsonthestageof

negotiation,thus:

1.Beforenegotiation

Noliabilitywithrespect

totheseller.Merely

suggestsitswillingness

tonegotiate.

2.Afternegotiation A

contractualrelationship

willthenarise,making

thebankliable.

Paying

Mayeitherbethe

issuingbankorany

otherbankintheplace

ofthebeneficiary.

Directobligation.


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USTGOLDENNOTES2011

4MERCANTILELAWTEAM:





V. BASICPRINCIPLESOFLETTEROFCREDIT

A.DOCTRINEOFINDEPENDENCE

Q:Whatistheindependenceprinciple?

A: The relationship of the buyer and the bank is

separateand

distinct

from

the

relationship

of

the

buyerandsellerinthemaincontract;thebankisnot required to investigate if the contractunderlying the LC has been fulfilled or notbecause in transactions involving LC, banks dealonly with documents and not goods (BPI v. DeReny Fabric Industries, Inc., L2481, Oct. 16,

1970).Ineffect,thebuyerhasnocourseofactionagainsttheissuingbank.

Q: What is the effect of the buyers failure to

procureanLCtothemaincontract?

A: The LC is independent from the contract of

sale.

Failure

of

the

buyer

to

open

the

Letter

of

Credit does not prevent the birth of the SalesContract. (RelianceCommodities, Inc. v.DaewooIndustrial Co. Ltd., G.R. No. 100831, Dec. 17,

1993) The opening of the LC is only a mode ofpayment. The LC is not an essential requisite tothecontractofsale.

Q:InacontractofloansecuredbyastandbyLC,

can the partial payments made on the loan be

added in computing the issuing banks liability

underitsownstandbyletterofcredit?

A: No, although these payments could result in

thereduction

of

the

actual

amount,

which,

could

ultimatelybecollectedfromtheissuingbank,thelatters separate undertaking under its letters ofcreditremain.This isbecausethe letterofcreditis an absolute and primary undertaking which isseparate and distinct from the contractunderlying it. (InsularBankofAsia&America v.IAC,Nov.17,1988)

B.FRAUDEXCEPTIONPRINCIPLE

Q: What is the exception to the independence

principle?

A:The

Fraud

exception

rule.

It

provides

that

the

untruthfulness of a certificate accompanying ademand for payment under a standby letter ofcredit may qualify as fraud sufficient to supportan injunction against payment. (Transfield v.LuzonHydro,G.R.No.146717,Nov.22,2004)

C.DOCTRINEOFSTRICTCOMPLIANCE

Q:Whatisthedoctrineofstrictcompliance?

A: The documents tendered by theseller/beneficiary must strictly conform to theterms of the letter of credit. The tender of

documentsmust

include

all

documents

required

by the letter. Thus, a correspondent bank whichdepartsfromwhathasbeenstipulatedundertheLCactsonitsownriskandmaynotthereafterbeable to recover from the buyer or the issuingbank,asthecasemaybe,themoneythuspaidtothebeneficiary.(FeatiBankandTrustCompanyv.CA,G.R.No.940209,Apr.30,1991)


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WAREHOUSE RECEIPTS LAW

UNIVERSITY OF SANTO TOMAS





5

WAREHOUSERECEIPTSLAW

(ACT2137ASAMENDED)

I. NATUREANDFUNCTIONSOFAWAREHOUSERECEIPT

Q:Whatisawarehousereceipt?

A: A written acknowledgment by the

warehouseman that he has received and holds

certaingoodsthereindescribedinhiswarehouse

for the person towhom thedocument is issued.

The warehouse receipt has twofold functions,

that is, it is a contract and a receipt. (Telengtan

Bros.& Sons v. CA,G.R.No. L110581, Sept 21,

1994)

Q: Distinguish Warehouse Receipts Law from

DocumentsOfTitleunderCivilCode.

A:

WAREHOUSERECEIPTS

LAW

DOCUMENTSOF

TITLE

UNDERCIVILCODE

Warehousereceipts

issuedbywarehouses,

whetherpublicor

private,bondedornot.

Otherreceiptsof

documentsissuedin

bailmentcontractsother

thanwarehousereceipts

(CivilCode15071520)

Q:Whoisawarehouseman?

A:Aperson,naturalorjuridical,lawfullyengaged

inthebusinessofstoringofgoodsforprofit.(Sec.

58,WRL)

Q:What

is

awarehouse?

A: The building or place where goods are

depositedandstoredforprofit.

Q:Whomayissuewarehousereceipt?

A:

1. A warehouseman, whether public or

private,bondedornot.(Sec.1)

2. A person authorized by a

warehouseman.

Q:What istheformofawarehousereceiptand

whatare

its

essential

terms?

A: It need not be in particular form but must

embodywithinitswrittenorprintedterms:

1. Thelocationofthewarehouse

2. Thedateoftheissue

3. Theconsecutivenumberofthereceipt

4. A statement whether the goods

received will bedelivered to bearer, to

a specified person or to a specified

personorhisorder

5. Fees

6. Adescriptionofthegoods

7. Thesignatureofthewarehouseman

8. If the receipt is issued for goods of

whichthewarehouseman istheowner,

either

solely

orjointly

or

in

common

withothers,thefactofsuchownership;

and

9. Astatementoftheamountofadvances

made and of liabilities incurred for

whichthewarehousemanclaimsa lien.

(Sec.2)

Q:Whataretheeffectsofomissionofanyofthe

essentialterms?

A:

1. A warehouseman shall be liable to any

person injured thereby for all damages

causedby

the

omission

2. Validityofreceiptnotaffected

3. Negotiabilityofreceiptsnotaffected

4. Contract is converted to ordinary

deposit. (Gonzalesv.GoFiong&Luzon

Surety Co., G.R. No. 91776, Aug. 30,

1958)

Q:What istheeffectwhenthegoodsdeposited

areincorrectlydescribed?

A: Itdoesnotmake thereceipt ineffectivewhen

the identity of the goods is fully established by

evidence. Thus, the indorsement and delivery

shall

constitute

sufficient

transfer

of

the

title

of

the goods. (American Foreign Banking Corp. v.

Herridge,G.R.No.L21005,Dec.20,1924)

GR: Warehouseman shall be liable for

damages for nonexistence or

misdescription of goods at the time of its

issue.

XPN:Whenthegoodsaredescribedbased

on:

1.Seriesorlabelsuponthem

2.Statementthatthegoodsareofcertain

kind.

Q:Whattermsmayandmaynotbeinserted?

A:Awarehousemanmayinsertinareceiptissued

by him any other terms and conditions provided

thatsuchtermsandconditionsshallnotbe:

1. Contrary to the Warehouse Receipts

Law.(Sec.3)


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USTGOLDENNOTES2011

MERCANTILELAWTEAM:





6

2. Terms reducing the required diligenceofthewarehouseman.(Ibid.)

3. Contraryto law,morals,goodcustoms,publicorderorpublicpolicy.

4. Those exempting the warehousemanfrom liability for misdelivery or for notgivingstatutorynoticeincaseofsaleof

goods.

5. Those exempting the warehousemanfromliabilityfornegligence.

A.TOWHOMDELIVERED

Q:Towhomshouldthegoodsbedelivered?

A:

1. To the person lawfully entitled to thepossessionofthegoods,orhisagent;

2. Tothepersonentitledtodeliveryundera nonnegotiable instrument or withwrittenauthority;or

3. To

the

lawful

order

of

a

negotiable

receipt. (person in possession of anegotiablereceipt)(Sec.9)

B.KINDS

Q:Whatarethekindsofwarehousereceipt?

A:

1. Negotiablewarehousereceipt2. Nonnegotiablewarehousereceipt

Q:Whatisanegotiablewarehousereceipt?

A:It

is

areceipt

in

which

it

states

that

the

goods

receivedwillbedeliveredtothebearerortotheorder of any person named in such receipt (Sec.5). It is negotiated by either delivery orindorsementplusdelivery.

Note:Noprovisionshallbe inserted inanegotiablereceipt that it is nonnegotiable. Such provision, ifinserted, shall be void. A negotiable warehousereceipt cannot be converted into nonnegotiable.(Sec.5)

Q:Whomaynegotiate?

A:

1. Theownerthereof;or2. Anypersontowhom thepossessionor

custody of the receipt has beenentrustedbytheowner,if,bythetermsofthereceipt,thegoodsaredeliverabletotheorderofthepersontowhomthepossession or custody of receipt hasbeen entrusted or in such form that itmaybenegotiatedbydelivery.(Sec.40)

Q:Whathappensiftheindorsementisnecessary

butthenegotiablereceiptwasonlydelivered?

A:

1. Thetransfereeacquirestitleagainstthetransferor

2. There is no direct obligation of the

warehouseman;and

3. The transferee can compel thetransferor to complete the negotiationby indorsing the instrument.Negotiation takes effect as of the timewhentheindorsementisactuallymade.

Q: In case the signature of an owner of a

negotiable receipt was forged and the forger

whonow holds thenegotiable receipt wasable

towithdrawthegoodsfromthewarehouseman.

What are the rights of the owner of the

negotiablereceipt?

A:

If

under

the

terms

of

the

negotiable

warehouse receipt, the goods are deliverable tothe depositor or to his order, the owner of thesaid negotiable receipt may proceed against thewarehouseman and/or the holder. Without thevalid indorsement of theowner to the holderorinblank,thewarehousemanisliabletotheownerforconversion inthemisdelivery.If,however,bythe terms of the negotiable warehouse receipt,the goods are deliverable to bearer (eitherbecause it is so expressed in the warehousereceipt or because of a blank indorsement by apersontowhoseorderthegoodsaredeliverable)the owner may only proceed against the holder.

The

warehouseman

is

not

liable

for

conversion

where the goods are delivered to a person inpossessionofabearernegotiableinstrument.

Q: What is the rule when more than one

negotiablereceiptisissuedforthesamegoods?

A: A warehouseman shall be liable for alldamagescausedbyhisfailuretodosotoanyonewho purchased the subsequentreceipt for valuesupposing it to be an original, even though thepurchasebeafterthedeliveryofthegoodsbythewarehouseman to the holder of the originalreceipt(Sec.6).

Note: The word duplicate shall be plainly placeduponthefaceofeverysuchreceipt,exceptthefirstoneissued.(Sec.6.

Q: What are the warranties on a warehouse

receipt?

A: A person who, for value, negotiates ortransfers a receipt by indorsement or delivery,


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7

including one who assigns for value a claim

secured by a receipt, unless a contrary intention

appearswarrants:

1. Receiptisgenuine

2. Legalrighttonegotiateortransferit

3. No knowledge of defects that may

impair the validity or worth of the

receipt

4. That he has a right to transfer title to

the goods and that the goods are

merchantable or fit for a particular

purpose whenever such warranties

would have been to transfer without a

receipt of goods represented thereby.

(Sec.44)

Note: The indorsee does not guarantee that the

warehousemanwillcomplywithhisduties.(Sec.45)

Acreditorreceivingthewarehousereceiptgivenasa

collateralmakesnowarranty.(Sec.46)

Q:Whatisanonnegotiablewarehousereceipt?

A:It isareceipt inwhich itstatesthatthegoods

received delivered to the depositor or to any

otherspecifiedperson.(Sec.4)

Q:Whatisrequiredinanonnegotiablereceipt?

A: Itshallhaveplainlyplaceduponitsfacebythe

warehouseman issuing it nonnegotiable, or

notnegotiable.(Sec.7)

Note:Failuretomarknonnegotiableshallmakeit

negotiable

(if

the

holder

purchased

it

for

valuesupposingittobenegotiable).

Q:Howisittransferred?

A: A nonnegotiable warehouse receipt may be

transferred by its delivery to the transferee

accompanied bya deed of assignment, donation

orotherformoftransfer.

Q:Whatistheeffectofindorsement?

A: Even if the receipt is indorsed, the transferee

acquiresnoadditionalright(Sec.39)

C.DISTINCTIONBETWEENANEGOTIABLEINSTRUMENTANDANEGOTIABLE

WAREHOUSERECEIPT

Q: Distinguish negotiable instrument from a

negotiablewarehousereceipt.

A:

NEGOTIABLE

INSTRUMENT

NEGOTIABLE

WAREHOUSERECEIPT

Contains an

unconditional promise

topay asumcertain in

money.

Does not contain an

unconditional promise to

pay a sum certain in

money.

Thesubject

is

money.

The

subject

is

merchandise.

Thenegotiable

instrumentistheobject

ofvalue.

Thewarehousereceiptis

nottheobjectofvalue.

Intermediateparties

becomesecondarily

liable.

Intermediatepartiesare

notliableforthe

warehousemansfailure

todeliverthegoods.

D.RIGHTSOFAHOLDEROFANEGOTIABLE

WAREHOUSERECEIPTASAGAINSTA

TRANSFEREEOFANONNEGOTIABLE

WAREHOUSERECEIPT

Q: Distinguish the rights of a holder of a

negotiablewarehousereceiptfromtherightsof

a transferee of a nonnegotiable warehouse

receipt.

A:SeeAppendixA.

Q: Coco was issued by a warehouseman a

negotiable receipt for safekeeping by the latter

ofhisgoods.CanthejudgmentcreditorofCoco

levy by execution the goods covered by the

negotiablereceipt?

A:

The

goods

cannot,

while

in

the

possession

ofthe warehouseman, be attached by garnishment

or otherwise, or be levied upon under an

executionunless thereceiptbe first surrendered

to the warehouseman, or its negotiation

enjoined. The warehouseman cannot be

compelledtodelivertheactualpossessionofthe

goods until the receipt is surrendered to it or

impoundedbythecourt.

Q: Assuming that prior to the levy, the receipt

wassoldtoYoyoonthebasisofwhichhefileda

claim with the sheriff. Would Yoyo have better

rights to the goods than the creditor? Explain

youranswer.

A:Yes.Yoyo,asaholderforvalueofthereceipt,

hasabetterrighttothegoodsthanthecreditor.

It isYoyothatcansurrenderthereceiptwhich is

in its possession and can comply with the other

requirements which will oblige the

warehouseman to deliver the goods, namely, to

signareceiptforthedeliveryofthegoods,andto

paythewarehouseman'sliensandfeesandother


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USTGOLDENNOTES2011

MERCANTILELAWTEAM:





8

charges.(1999BarQuestion)

Q: Bon took the goods of Angela without her

consent and deposited the same with a

warehouseman. The latter issued to Bon a

negotiablereceipt which she indorsed for value

to Ryan. Between Angela and Ryan, who has

betterright

over

the

goods?

Why?

A:Ryanhasbetterrighttothegoods.Thegoodsare covered by a negotiable warehouse receiptwhich was indorsed to Ryan for value. ThenegotiationtoRyanwasnot impairedbythefactthat Bon took the goods without the consent ofAngela, as Ryan had no notice of such fact.Moreover,Ryanisinpossessionofthewarehousereceipt and only he can surrender it to thewarehouseman.(Sec.8,WRL)

Q: What is the proper recourse of the

warehouseman if he is uncertain as to who is

entitledto

the

goods?

Explain.

A:Sincethere isaconflictingclaimofownershipor title, the warehouseman should file acomplaint in interpleader requiring Ryan andAngela to interplead. The matter involves a

judicialquestionastowhoseclaimisvalid.(2005BarQuestion)

Q:Whatistherulewhereawarehousereceiptis

transferredtosecurepaymentofa loanbyway

ofpledgeormortgage?

A: The pledgee or mortgagee does not

automaticallybecome

the

owner

of

the

goods

but

merely retains the right to keep and with theconsentoftheownertosellthemsoastosatisfythe obligation from the proceeds for the simplereasonthatthetransactionisnotasalebutonlyamortgage or pledge. Likewise, if the property islost without the fault or negligence of themortgageeorpledgee,thensaidgoodsaretoberegarded as lost on account of the real owner,mortgagor orpledgor. (PNBv.Sayo,Jr.,G.R.No.129198,July9,1998)

Q: Does the nonpayment by the original

depositors of the purchase price render the

furthernegotiation

of

the

receipt

invalid?

A: No, the negotiation of the warehouse receiptby the buyer of goods purchased from anddeposited to the warehouseman is valid even ifthe warehouseman who issued the negotiablewarehousereceiptwasnotpaidbythebuyer.Thevalidityofthenegotiationcannotbe impairedbythe fact that the owner/warehouseman was

deprivedofthepossessionofthesamebyfraud,mistakeor conversion. (PNBv.NoahsArkSugarRefinery,G.R.No.107243,Sept.1,1993)

II. DUTIESOFAWAREHOUSEMAN

Q: What are the obligations of a

warehouseman?

A:

1. To takecare of the goods entrusted tohissafekeeping

2. To deliver them to the holder of thereceipt or the depositor providedthere is demand by the depositoraccompaniedbyeither:a. An offer to satisfy the

warehousemanslienb. Anoffertosurrenderthereceipt,if

negotiable with such

indorsements

as

would

be

necessary for the negotiation ofthereceipts;or

c. A readiness and willingness tosign, when the goods aredelivered, an acknowledgementthatthey have been delivered, ifsuch signature isrequestedbythewarehouseman(Sec.8);and

3. To keep the goods separate from thegoods of other depositors, except ifauthorizedbyagreementorbycustom,fungible goods may be mingled with

other

goods

of

the

same

kind

and

grade.

Q: When is the need for a demand by the

depositornotnecessary?

A: When the warehouseman has rendered itbeyondhispowertodeliverthegoods.

Q: When is refusal to deliver by the

warehousemanjustified?

A:

1. If the warehousemans lien is notsatisfied

by

the

claimants.

(Sec.

31)

2. Where the goods have already beensoldtosatisfythewarehousemans lienor because of their perishable orhazardousnature.(Sec.34)

3. If the warehouse receipt is negotiatedbacktohim.


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9

4. When the holder does not satisfy the

conditionsprescribedinSection8:

a. Nonsatisfaction of

warehousemanslien.

b. Failure to surrender warehouse

receipt.

c. Refusal

to

sign

the

acknowledgement receipt,

acknowledging the receipt of the

goodsfromthewarehouse.

5. Thefailurewasnotduetoanyfaulton

thepartofthewarehouseman:

a. Upon request by or on behalf of

the person lawfully entitled. (Sec.

10)

b. If he had information that the

delivery about to be made was to

onenotlawfullyentitled.(Ibid.)

c. Ifseveralpersonsclaimthegoods.

(Sec.17)

d. If the warehouseman needs

reasonable time to ascertain the

validity of the claim if someone

other than the depositor claims

titletothegoods.(Sec.18)

e. If the goods are lost, despite

ordinary care by the

warehouseman.

Q:Whatifthereceiptsarelostordestroyed?

A: A court of competentjurisdiction may order

thedeliveryofthegoodsonly:

a. Upon satisfactory proof of the loss or

destructionofthereceipt;and

b. Upon the giving of a bond with

sufficient sureties to be approved by

thecourt.(Sec.14)

Note: The delivery of the goods under an order of

the court shall not relieve the warehouseman from

liabilitytoapersontowhomthenegotiablereceipt

has been or shall be negotiated for value without

notice of the proceedings or of the delivery of the

goods.(Sec.14)

Q:

When

does

the

duty

to

insure

the

goods

arise?

A:

1. Wherethelawprovides

2. Where it was an inducement for the

depositortoenterintothecontract;

3. Establishedpractice;or

4. Where the warehouse receipt contains

arepresentationtothateffect.

Q:Whatisconversion?

A:Anunathorizedassumptionandexerciseofthe

right of ownership over goods belonging to

anotherthrough thealterationof theircondition

or the exclusion of the owners right. (Bouviers

LawDictionary)

Q: What are the instances where a

warehousemanisliableforconversion?

A:

1. Where the delivery is made to person

otherthanthoseauthorized

2. Evenifdeliveredtopersonsentitled,he

maystillbeliableforconversionifprior

todelivery:

a. He had been requested not to

makesuchdelivery;or

b. He

had

received

notice

of

the

adverse claim or title of a third

person.

Q:Givetheeffectsofalterationofthereceipton

theliabilityofthewarehouseman.

A:

1. Alteration immaterial whether

fraudulent or not, whether authorized

or not, the warehouseman is liable

on the altered receipt according to its

originaltenor

2. Authorizedmaterial

alteration

the

warehouseman is liable according to

thetermsofthereceiptasaltered

3. Material alteration innocently made

the warehouseman is liable on the

altered receipt according to its original

receipt

4. Material alteration fraudulently made

warehouseman isliable according to

the original tenor of the receipt to a

purchaser of the receipt for value

withoutnotice,andevento the alterer

and

subsequent

purchasers

with

noticeexcept that as regards to

the last two, thewarehousemans

liability is limitedonlytodeliveryashe

isexcusedfromanyliability


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Q: What are the instances where a

warehousemaniscriminallyliableforhisacts?

A:

1. Issuance of receipts for goods notreceived.(Sec.50)

2. Issuance of receipt containing false

statement.(Sec.

51)

3. Issuance of duplicate negotiablewarehousereceiptnotmarkedassuch.(Sec.52)

4. Issuance of a negotiable warehousereceiptofwhichheisanownerwithoutstatingsuchfactofownership.(Sec.53)

5. Delivery of goods without obtainingnegotiablewarehousereceipt.(Sec.54)

6. Negotiation of receipt for mortgagedgoods.(Sec.55)

7. Issuance of warehouse receipts forgoodnotreceived.(Sec.50)

8. Comminglingofgoods.(Sec.24)

Q: What are the other acts for which

warehousemanisliable?

A:

1. Failure to stamp duplicate on copiesofnegotiablereceipt.(Sec.6)

2. Failure to place nonnegotiable ornotnegotiable on a nonnegotiablereceipt.(Sec.7)

3. Misdeliveryofgoods.(Sec.10)4. Failure to effect cancellation of a

negotiable receipt upon delivery of thegoods.(Sec.11)

5. Issuingreceipt

for

non

existing

goods

or

misdescribedgoods.(Sec.20)6. Failure to take care of the goods. (Sec.

21)

7. Failure to give notice in case of sale ofgoodstosatisfylien(Sec.33)orbecausethe goodsare perishableor hazardous.(Sec.34)

III. WAREHOUSEMANSLIEN

Q:Whatiscoveredbythewarehousemanslien

over the goods deposited or on the proceeds

thereof?

A:

1. Chargesforstorageandpreservationofthegoods(insuranceandothersmaybeincludedaslongasitisstipulated)

2. Money advanced, interest, insurance,transportation, labor, weighing,

coopering and other charges andexpensesinrelationtosuchgoods

3. Charges and expenses for notice, andadvertisements of sale, and for sale ofthe goods where default had beenmade insatisfyingthewarehousemans

lien.(Sec.

27)

Q: What are the remedies available to a

warehouseman to enforce his warehousemans

lien?

A:

1. By refusing to deliver the goods untilthelienissatisfied

2. By causing the extrajudicial sale of theproperty and applying the proceeds ofthevalueofthelien

Note:Where

the

sale

was

made

without

the publication required and before thetimeprovidedbylaw,suchsaleisvoidandthe purchases of the goods acquires notitletothem.

3. By filing a civil action for collection ofthe unpaid charges or by way ofcounterclaiminanactiontorecovertheproperty from him or such otherremedies allowed by law for theenforcement of a lien against personalproperty or to a creditor against hisdebtor, for the collection from the

depositor

of

all

the

charges

which

the

depositorhasboundhimselftopay.

Q: Against whose goods may the lien be

enforced?

A:

1. Goods belonging to the person who isliableasdebtor;and

2. Goods belonging to others which havebeen deposited at any time by thedebtor with authority to make a validpledge.(Sec.28)

Q:Howmaythewarehousemanlosehislien?

A:

1. Bysurrenderingpossessionthereof,or

2. Byrefusingtodeliverthegoodswhenademandismadewithwhichheisboundtocomply.(Sec.29)


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Note:Whereanegotiablereceiptisissued,with the

exception of the charges for the storage or

preservation of goods for which a negotiable

receipt hasbeen issued,the lien exists only for

otherchargesexpressly enumerated in the receipt

so far as they arewrittenalthoughtheamountof

thesaidchargeisntstated.

Lossof liendoesnotmeanthatthewarehouseman

doesnothaveanyotherremedy.


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TRUSTRECEIPTSLAW(P.D.115)

I. DEFINITION/CONCEPTOFATRUSTRECEIPT

TRANSACTION

Q:Whatisatrustreceipttransaction?

A:It

is

any

transaction

between

the

entruster

and

entrustee:

1. Whereby the entruster who owns orholdsabsolutetitleorsecurityinterestsover certain specified goods,documents or instrument, releases thesame to the possession of entrusteeupon the latters execution of a TRagreement.

2. Whereintheentrusteebindshimselftohold the designated goods in trust fortheentrusterand,incaseofdefault,to

sell

such

goods,

documents

or

instrument with the obligation to turnover to the entruster the proceeds totheextentoftheamountowingtoitorto turn over the goods, documents orinstrumentitselfifnotsold.(Sec.4,P.D.115)

Q:Whatisatrustreceipt(TR)?

A:ItisthewrittenorprinteddocumentsignedbytheentrusteeinfavoroftheentrustercontainingtermsandconditionssubstantiallycomplyingwiththeprovisionsofPD115.

Q:WhatarethetwoviewsregardingTR?

A:

1. Asacommercialdocument(Sec.4,P.D.115)

2. As a commercial transaction It is aseparate and independent securitytransaction intendedtoaid infinancingimportersandretaildealerswhodonothavesufficient funds. (Nacuv.CA,G.R.No.108638,Mar.11,1994)

Q:Are

LC

and

TR

negotiable

instruments?

A: Letters of credit and trust receipts are notnegotiable instrument, but drafts issued inconnection with letters of credit are negotiableinstruments. Hence, while the presumption ofconsideration under the negotiable instrumentlaw may not necessarily be applicable to trustreceipts and letters of credit, the presumption

that the drafts drawn in connection with theletters of credit have sufficient considerationapplies.(Leev.CA,G.R.No.117913,Feb.1,2002)

A.LOAN/SECURITYFEATURE

Q: What is the loan and security feature of the

trustreceipt

transaction?

A: A trust receipt arrangement is endowed withits own distinctive features and characteristics.Underthatsetup,abankextendsaloancoveredbytheLetterofCredit,withthetrustreceiptasasecurity for the loan. In other words, thetransaction involves a loan feature representedby the letter of credit, and a security featurewhich is in the covering trust receipt. A trustreceipt, therefore, is a security agreement,pursuant to which a bank acquires a "securityinterest"inthegoods.Itsecuresanindebtednessand there can be no such thing as securityinterest that secures no obligation. (Sps.Vintolavs. Insular Bank of Asia and America, G.R. No.

73271,May29,1987)

B.OWNERSHIPOFTHEGOODS,DOCUMENTS,

ANDINSTRUMENTSUNDERATRUSTRECEIPT

Q:Whoistheownerofthearticlessubjectofthe

TR?

A:Theentrustee.Atrustreceipthastwofeatures,the loan and security features. The loan isbrought about by the fact that the entruster

financed

the

importation

or

purchase

of

the

goodsunderTR.Untilandunlessthisloanispaid,theobligation topaysubsists. If the entrustee ismade to appear as the owner, it was but anartificialexpedient,moreoflegalfictionthanfact,for if it were really so, it could dispose of thegoods in any manner that it wants, which itcannotdo.Toconsidertheentrusteeasthetrueowner from the inception of the transactionwould be to disregard the loan feature thereof.(Rosario Textile Mills Corp. v. Home Bankers

Savings and Trust Company, G.R. No. 137232.

June29,2005)

II.RIGHTSOFTHEENTRUSTER

Q:Whoisanentruster?

A: A lender, financer or creditor. Person holdingtitle over the goods documents or instruments(GDI) subject of a trust receipt transaction;releasespossessionof thegoodsuponexecutionoftrustreceipt.(Sec.3[c])


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13

Q:Whataretherightsoftheentruster?

A:

1. To receive the proceeds from the sale

of the goods, documents, or

instruments to the extent of the

amountowingtohim

2. To the returnof thegoods,documents

orinstruments(GDI)incaseofnonsale

and enforcement of all other rights

conferredtohiminthetrustreceipt

3. May cancel the trust and take

possession of the goods, upon default

or failure of the entrustee to comply

withanyofthetermsandconditionsof

thetrustreceipt.(Sec.7,P.D.115)

A.VALIDITYOFTHESECURITYINTERESTAS

AGAINSTTHECREDITORSOFTHE

ENTRUSTEE/INNOCENTPURCHASERS

FOR

VALUE

Q:Asbetweentheentrusterandthecreditorsof

the entrustee, who has a better right over the

goods?

A: The entruster. His security interest in goods,

documents, or instruments pursuant to the

written terms of a trust receipt shall be valid as

against all creditors of the entrustee for the

durationofthetrustreceiptagreement.(Sec.12,

P.D.115)

Q: Who can defeat the rights of the entruster

overthegoods?

A:Apurchaser in good faith.He acquiresgoods,

documents or instruments free from the

entruster'ssecurityinterest.(Sec.11,P.D.115)

III.OBLIGATIONSANDLIABILITYOFTHE

ENTRUSTEE

Q:Whoisanentrustee?

A:Aborrower,buyer,importerordebtor.Person

to

whom

the

goods

are

delivered

for

sale

or

processing in trust, with the obligation to return

the proceeds of sale of the goods or the goods

themselvestotheentruster.(Sec.3[b])

Q:Whataretheobligationsandliabilititesofthe

entrustee?

A:

1. To hold good, documents and

instruments (GDI) in trust for the

entrusterandtodisposeofthemstrictly

inaccordancewiththetermsofTR;

2. Toreceive theproceedsof thesale for

theentrusterandtoturnoverthesame

to the entruster to the extent of

amountowing

to

the

entruster;

3. To insure GDI against loss from fire,

theft,pilferageorothercasualties.

4. To keep GDI or the proceeds thereof,

whether in money or whatever form,

separate and capable of identification

aspropertyoftheentruster;

5. To return GDI to the entruster in case

theycouldnotbesoldorupondemand

oftheentruster;and

6. To

observe

all

other

conditions

of

the

trustreceipts.(Sec.9,P.D.115)

A.PAYMENT/DELIVERYOFPROCEEDSOFSALEORDISPOSITIONOFGOODS,DOCUMENTSOR

INSTRUMENTS

Q: What is the order in the application of

proceedsortheTRtransactions?

A:

1. Expensesofthesale

2. Expensesderivedfromstoringthegoods

3. Principalobligation

Q:Istheentrusteeliableforthedeficiency?

A: Yes, but any excess shall likewise belong to

him.(Sec.7,P.D.115)

B.RETURNOFGOODS,DOCUMENTSORINSTRUMENTSINCASEOFNONSALE

Q:Whatistheobligationoftheentrusteeincase

the goods, documents or instruments were not

sold?

A: The entrustee should return the goods,

documents,or

instruments

to

the

entrustor.

(Sec.

4,P.D.115)


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C.LIABILITYFORLOSSOFGOODS,DOCUMENTS

ORINSTRUMENTS

Q: Who shall bear the loss of goods which are

thesubjectofTR?

A: The entrustee. Loss of goods, documents or

instruments

which

are

the

subject

of

a

TR,

pendingtheirdisposition,irrespectiveofwhetherornotitwasduetothefaultornegligenceoftheentrustee, shall not extinguish his obligation totheentrusterforthevaluethereof.(Sec.10,P.D.115)

D.PENALSANCTIONIFOFFENDERISA

CORPORATION

Q: What acts or omissions are penalized under

theTRLaw?

A:

The

TR

Law

declares

the

failure

to

turn

over

goodsorproceedsrealizedfromsalethereof,asacriminal offense under Art. 315(l)(b) of RPC(estafa). The law is violated whenever theentrusteeorpersontowhomtrustreceiptswereissued fails to: (a) return the goods covered bythe trust receipts; or (b) return the proceeds ofthe sale of said goods. (Metropolitan Bank v.Tonda,G.R.No.134436,Aug.16,2000)

Q: Does P.D. 115 violate the prohibition in the

Constitution against imprisonment for non

paymentofadebt?

A:

No.

What

is

being

punished

is

the

dishonesty

andabuseofconfidenceinthehandlingofmoneyorgoodstotheprejudiceofanotherregardlessofwhetherthelatteristheownerornot.Itdoesnotseektoenforcepaymentofthe loan.Thus,therecan be no violation of a right againstimprisonmentfornonpaymentofadebt.(Peoplev.Nitafan,G.R.No.81559,Apr6,1992)

Q: Is lack of intent to defraud a bar to the

prosecutionoftheseactsoromissions?

A:No.Themerefailuretoaccountorreturngivesrise to the crime which is malum prohibitum.

There

is

no

requirement

to

prove

intent

todefraud (Ching v. Secretary of Justice, G.R. No.

164317, Feb. 6, 2006; Colinares v. CA, G.R. No.

90828,Sept.5,2000;Ongv.CA,G.R.No.119858,

Apr.29,2003)(2006BarQuestion)

Q:Whatistheeffectofinsufficiencyofproofof

deliveryofgoods?

A: Estafa cannot lie. (Ramos v. CA, G.R. No. L399225,Aug.21,1987)

Q:Whatwillhappentothecriminalactionifthe

entrusteecomplied

with

his

obligation

under

the

TRagreement?

A:

1. If compliance occurred before thecriminal charge there is no criminalliability.

2. Ifcomplianceoccurredafterthechargeeven before conviction the criminalactionwillnotbeextinguished.

Q: What is the penal sanction if offender is a

corporation?

A: The Trust Receipts Law recognizes theimpossibility of imposing the penalty ofimprisonment on a corporation. Hence, if theentrustee is a corporation, the law makes theofficers or employees or other personsresponsible for the offense liable to suffer thepenalty of imprisonment. The reason is obvious,corporations, partnerships, associations andother juridical entities cannot be put to jail.Hence, the criminal liability falls on the humanagent responsible for the violation of the TrustReceiptsLaw.(Ongvs.CA,G.R.No.119858,April29,2003)

IV.REMEDIESAVAILABLE

Q:Intheeventofdefaultbytheentrusteeonhis

obligationunderthetrustreceiptagreement, is

it absolutely necessary for the entruster to

cancel the trust and take possession of the

goodstobeabletoenforcehisrightthereunder?

A:Thelawusestheword"may"ingrantingtotheentruster the right to cancel the trust and takepossession of the goods. Consequently, theentrusteehasthediscretiontoavailofsuchrightor seek any alternative action, such as a thirdparty

claim

or

a

separate

civil

action

which

it

deemsbesttoprotect itsright,atanytimeupondefaultorfailureoftheentrusteetocomplywithany of the terms and conditions of the trustagreement.(SouthCityHomes,Inc.v.BAFinanceCorporation,G.R.No.135462,Dec.7,2001)


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Q: Can the repossession of the goods by the

entrusterbeconsideredaspayment?

A:No,paymentwouldlegallyresultonlyafterthe

entruster has foreclosed on the securities, sold

thesameandappliedtheproceedsthereoftothe

entrusteesobligation.Sincethetrustreceipt isa

mere

security

arrangement,

the

repossession

by

the entruster cannot be considered payment of

the loan/advances given to the entrustee under

the letter of credit/trust receipt. (PNBv.Pineda,

G.R.No.46658,May13,1991)

Q. Earl failed to comply with his undertaking

underthetrustreceiptheissuedinfavorofABC

bank.Thebankfiledbothcriminalandcivilcases

against Earl. The court proceeded with the civil

caseindependentlyfromthecriminalcase.Isthe

court correct in proceeding independently

althoughacriminalcaseisalsoinstituted?

A:Yes,

the

complaint

against

Earl

was

based

on

the failure of the latter to comply with his

obligationasspelledoutintheTR.

Thisbreachof

obligation is separate and distinct from any

criminal liability for "misuse and/or

misappropriation of goods or proceeds realized

fromthesaleofgoods,documentsorinstruments

released under trust receipts", punishable under

Section13oftheTrustReceiptsLaw.Beingbased

onanobligationexcontractuandnotexdelicto,

thecivilactionmayproceedindependentlyofthe

criminal proceedings instituted against

petitioners regardless of the result of the latter.

(Sarmientov.CA,G.R.No.122502,Dec.27,2002)

Q. What is the effect of novation of a trust

agreement?

A. Where the entruster and entrustee entered

into anagreementwhichprovides forconditions

incompatible with the trust receipt agreement,

the obligation under the trust receipt is

extinguished. Hence, the breach in the

subsequent agreement does not give rise to a

criminal liability under P.D. 115 but only civil

liability.(PhilippineBankv.Ong,G.R.No.133176,

Aug.8,2002)

Q:

What

are

the

defenses

to

negate

criminal

liabilityoftheentrustee?

A:

1. Compliancewiththetermsofthe trust

receipteitherbypayment,returnofthe

proceedsorreturnofthegoods.

2. The transaction does not fall under PD

115. (Colinares v.CA,G.R.No.90828,

Sept. 5, 2000, Consolidated v. CA,G.R.

No.114286,Apr.19,2001)

Note:Inthesecases,theexecutionofaTR

was made after the goods covered by it

had

been

purchased,

making

the

buyer

the owner thereof. The transaction does

not involve a trust receipt but a simple

loaneventhoughthepartiesdenominate

thetransactionasoneofatrustreceipt.

3. Nonreceipt of the goods or where

proofofdeliveryofgoodscoveredbya

trust receipt to the accused is

insufficient. (Ramos v. CA, G.R. No. L

399225,Aug.21,1987)

4. Cancellation of the trust receipt

agreement and taking into possession

ofthe

goods

by

the

entruster.

Note:Mererepossessionofthegoodswill

extinguishcriminalliability.

5. Compromise by parties before filing of

information in court. (Ong v. CA, G.R.

No.119858,Apr.29,2003)

6. Novation before the filing of the

criminalcomplaint.

7. Loss of goods without fault of the

entrustee.

8. Consignment.

Q:Candeposits inasavingsaccountopenedby

the buyer subsequent to the TR transaction be

appliedtooutstandingobligationsunder theTR

account?

A:No,thereceiptofthebankofasumofmoney

without reference to the trust receipt obligation

does not obligate the bank to apply the money

received against the trust receipt obligation.

Neither does compensation arise because

compensation is not proper when one of the

debts

consists

in

civil

liability

arising

from

criminal. (Metropolitan Bank and Trust Co. v.

Tonda,G.R.No.134436,Aug.16,2000).


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NEGOTIABLEINSTRUMENTSLAW

I.FORMSANDINTERPRETATION

Q: What are the elements of a negotiable

instrument?

A:

1. In writing and signed by the maker ordrawer

2. Contains an unconditional promise orordertopayasumcertaininmoney

3. Payable on demand, or at a fixed ordeterminablefuturetime

4. Payabletoorderortobearer(socalledbadgesofnegotiability)

5. If addressed to a drawee, he must benamed or otherwise indicated withreasonablecertainty.(Sec.1)

Note: A negotiable instrument need not follow the

exact

language

of

NIL,

as

long

as

the

terms

are

sufficient which clearly indicate an intention toconform to the requirements of the law. (Sec. 10)No.5appliesonlytobillsofexchange.Apromissorynotehasnodrawee.

A.REQUISITESOFNEGOTIABILITY

Q: What are the factors to determine the

negotiabilityoftheinstrument?

A:

1. Words that appear on the face ofnegotiableinstrument

2. Requirementsenumerated

in

Section

1

ofNIL3. Intention of the parties by considering

thewholeoftheinstruments

B.KINDSOFNEGOTIABLEINTRUMENTS

Q: What are the two kinds of negotiable

instrumentsunderthelaw?

A:

1. Promissory notes (PN) Anunconditionalpromise in writing madebyonepersontoanother,signedbythe

maker,engaging

to

pay

on

demand,

or

atafixedordeterminablefuturetime,asum certain in money to order or tobearer.(Sec.184)

2. Bill of exchange (BOE) Anunconditional order in writingaddressed by one person to anothersignedbythepersongivingit,requiringthe person to whom it is addressed to

pay on demand or at a fixed ordeterminablefuturetimeasumcertainin money to order or to bearer. (Sec.126)

Note:ChecksarespecialformofBOE.

Q:

Distinguish

promissory

note

from

a

bill

of

exchange.

A:

PROMISSORY

NOTE

BILLOF

EXCHANGE

Promisetopay

Ordertopay

Astonumberofparties

2originalparties

3parties

Astoliabilityofparties

Makerisprimarily

liable

Drawerissecondarily

liable

Astonumberof

presentmentsneeded

Only1

presentment(for

payment)isneeded

2

presentments(for

acceptance

andforpayment)are

generallyneeded

II.COMPLETIONANDDELIVERY

A.INSERTIONOFDATE

Q: Is the date essential to make an instrument

negotiable?

A:Thedate is notessential (Sec.6 [a]). Ifdated,

suchdateisdeemedaprimafacieproofthatitisthetruedateofthemaking,drawing,acceptanceorindorsementoftheinstrument.(Sec.11)

Q:Whenisdateimportant?

A: Date is important to determine maturity, aswhen:

1. Wheretheinstrumentispayablewithina specified period after date, or aftersight.

2. When the instrument is payable ondemand,dateisnecessarytodeterminewhether the instrumentwaspresentedwithinareasonabletimefrom issue,orfromthelastnegotiation.

3. When the instrument is an interestbearing one, to determine when theintereststartstorun.


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NEGOTIABLE INSTRUMENTS LAW






17

Q:Whenmaydatebeinserted?

A:

1. Where an instrument expressed to be

payable at a fixed period after date is

issuedundated,or

2. Wheretheacceptanceofaninstrument

payable

at

a

fixed

period

after

sight

is

undated

Note:Anyholdermayinsertthereinthetruedateof

issue or acceptance, and the instrument shall be

payableaccordingly.(Sec.13)

Q:Whatistheeffectofinsertionofwrongdate?

A: Itdoesnotavoidthe instrument inthehands

of a subsequent holder in due course. In the

hands of a holder in due course, the date

inserted, even if wrong, is toberegarded as the

truedate(Sec.13).

Note: With respect to the person who inserted the

wrong date, however, the instrument is avoided.

(BankofHoustonv.Day,145Mo.Appl.410,122SW

756)

B.COMPLETIONOFBLANKS

Q: Whohastheauthoritytofilluptheblanksin

anincompletebutdeliveredinstrument?

A: The holder has a prima facie authority to

completeit.

A

signature

on

a

blank

paper

delivered

by

theperson making the signature in order that the

paper may be converted into a negotiable

instrumentoperatesasaprimafacieauthorityto

fillitupassuchforanyamount.(Sec.14)

Q:Whatismeantbymaterialparticular?

A: Any particular proper to be inserted in a

negotiableinstrumenttomakeitcomplete.

Q: What are the various situations involving

negotiableinstruments?

A:

1. Incompleteinstrument

a. Delivered

i. Withforgeryandalteration

ii. Without forgery and

alteration

b. Notdelivered



alteration

2. Completeinstrument

a. Delivered



alteration

b. Notdelivered

i. Withforgery

and

alteration


alteration

C.INCOMPLETEBUTDELIVEREDINSTRUMENTS

Q:Whenisaninstrumentincomplete?

A: When it is wanting in any material particular.

(Sec.14)

Q: When may a prior party be bound by an

incompletebutdeliveredinstrument?

A: If it is filled up strictly in accordance with the

authoritygivenandwithinareasonabletime.But

if any such instrument, after completion, is

negotiated to a holder in due course, it is valid

andeffectualforallpurposesinhishands,andhe

mayenforceitasifithadbeenfilledupstrictlyin

accordancewiththeauthoritygivenandwithina

reasonabletime.(Sec.14)

Q: Lorenzo signed several blank checks

instructing Nicky, his secretary, to fill them as

payment for his obligations. Nicky filled one

check with her name as payee, placed

P30,000.00thereon,

endorsed

and

delivered

it

to

Evelynaspaymentforgoodsthelatterdelivered

to the former. When Lorenzo found out about

thetransaction,hedirectedthedraweebankto

dishonor the check. When Evelyn encashed the

check, itwas dishonored. Is Lorenzo liable to

Evelyn?

A:Yes.Thiscovers thedeliveryofan incomplete

instrument, under Section 14 of the Negotiable

Instruments Law, which provides that there was

prima facieauthorityon thepartofNicky to fill

upanyofthematerialparticularsthereof.Having

doneso,andwhenitisfirstcompletedbeforeitis

negotiatedto

aholder

in

due

course

like

Evelyn,

it

is valid for all purposes, and she may enforce it

within a reasonable time, as if it had been filled

upstrictlyinaccordancewiththeauthoritygiven.

(2006BarQuestion)


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D.INCOMPLETEANDUNDELIVERED

INSTRUMENTS

Q: What is the rule when an instrument is

incompleteandundelivered?

A: Not valid against the party whose signature

wasplaced

before

delivery,

whether

the

holder

is

a holder in due course or not. With respect,however,toaholder induecourse,nondeliverymust be proved because as to him, there is aprimafaciepresumptionofdelivery.

Reason:Deliveryisessentialtovalidity.(Sec.15)

Q: What about the party whose signature was

placedafterdelivery?

A: Valid against the party whose signature wasplacedafterdeliverylikeanindorserbecausetheindorser warrants the instrument to be genuine

andin

all

respect

what

it

purports

to

be.

Q:CanaHolder induecourseholdamakerfor

instruments which are incomplete and

undeliveredsupposingthatthenotewasstolen,

filledup,andwassubsequentlynegotiated?

A: No. the law is specific that the instrument isnot a valid contract in the hands of any holder.Thephraseanyholder includesaholder induecourse.

E.COMPLETEBUTUNDELIVERED

Q:

What

is

the

effect

if

an

instrument

is

undelivered?

A: Itisincompleteandrevocableuntildeliveryoftheinstrumentforthepurposeofgivingiteffect.(Sec.16)

Q: Whatisdelivery?

A: Delivery refers to the transfer of possession,actual or constructive, from one person toanother(Sec.191),withtheintenttotransfertitletopayeeandrecognizehimasholderthereof.

Q:

Whenis

an

instrument

issued?

A: The instrument is deemed issued the firstdeliveryoftheinstrument,completeinform,toapersonwhotakesitasholder.(Sec.191)

Q:Canacreditorbank whowasthe payee ina

check fraudulently obtained by a third person

who subsequently encashed it sue the drawer

debtor, third person, and drawee bank for the

amountofthecheck?

A: No, the payee of a negotiable instrumentacquiresno interestwithrespecttheretountil itsdeliverytohim.Withouttheinitialdeliveryoftheinstrument from the drawer to the payee, there

can

be

no

liability

on

the

instrument.

(DevelopmentBankofRizalv.SimaWei,G.R.No.

85419,Mar.9,1993)

Q:What istheeffect ifthe instrument is inthe

possessionofaholderinduecourse?

A: Valid delivery is conclusively presumed. (Sec.16)

Q:Whatiftheinstrumentisinthepossessionof

apartyotherthanaholderinduecourse?

A: Possession of such party constitutes primafacie presumption of delivery but subject to

rebuttal.

Q: When is delivery made conditional or for a

specialpurpose?Provideexamples.

A: It depends upon whom the instrument isdelivered.Iftheinstrument lands inthehandsofaholder indue course (onewhodoesnot knowof the conditional delivery or of its specialpurpose), the instrumentwillbeas if there isnocondition.

To a holder not in due course, prior parties arenotboundbytheinstrument.

Note: The law contemplates that the condition isorally or verbally conveyed to the holder upondelivery,becauseoftherulethatthenegotiabilityisdeterminedonlyuponthefaceoftheinstrument.

Q: Whoareimmediateparties?

A:Personshavingknowledgeoftheconditionsorlimitations placed upon the delivery of aninstrument.Itmeansprivity,andnotproximity.

Q: Whoareremoteparties?

A:

Persons

without

knowledge

as

to

the

conditionsorlimitationsplaceduponthedeliveryof an instrument, even if he is the next partyphysically.


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19

F.COMPLETEANDDELIVEREDINSTRUMENTS

Q: What are the rules when an instrument is

completeanddelivered?

A:

1. Without forgery and alteration, all

partiesare

bound.

2. With forged indorsement and/or

alteration

a. Orderinstruments

i. Orderpromissorynote

- Prior parties notbound.

Forged signature is

wholly inoperative (Sec.

23); unless estoppel sets

in with regard prior

parties(cutoffrule).

- Subsequent parties

bound.

ii. Orderbillofexchange

- Drawers account cannot

be charged by the

Drawee;

- Drawer has no cause of

action against collecting

bank, since the duty of

the latter is only to

payee;

- Draweecanrecoverfrom

collectingbank;

- Drawer not liable to the

collecting

bank.Collecting bank bears

loss (can recover from

personitpaid)

- Payee can recover from:

Drawer and Collecting

bank, but not from

Drawee unless with

acceptanceofthebill;

b. Bearerinstruments

i. Bearerpromissorynote

- Priorpartiesliable;

- Forged signatory not

liableto

party

not

holder

induecourse.

ii. Bearerbillofexchange

- Draweebankliable.

III.RULESONINTERPRETATION

Q: Whataretherulesofconstructionincaseof

ambiguitiesinanegotiableinstrument?

A:

1. Wordsprevailoverfigures

2. Interest

runs

from

the

date

of

the

instrument, if date from which interest

istorunisunspecified;ifundated,from

theissue

3. If undated, deemed dated on the date

ofissue

4. Writtenprovisionsprevailoverprinted

5. If there is doubt whether it is a bill or

note,theholdermaytreatitaseitherat

hiselection

6. Whennotclear inwhatcapacity itwas

signed,deemedsignedasanindorser

7. If"Ipromise topay"butsignedby two

or more persons,jointly and severally

liable.

IV.SIGNATURE

Q:Whoarethepersonsliableonaninstrument?

A:

GR:Onlypersonswhosesignaturesappearon

aninstrumentareliablethereon.(Sec.18)

XPN:

1. Personsigns in tradeorassumedname

(Sec. 18 [2]) Party who signed must

have

intended

to

be

bound

by

his

signature.

2. Principal is liable if a duly authorized

agentsigns inhisownbehalfdisclosing

the name of the principal and adding

wordstoshowhe ismerelysigning ina

representative capacity. (Sec. 19)

Authority may be given orally or in

writing (SPA, only an evidence of

authorityofanagenttothirdparties)

3. Incaseofforgery(Sec.23)

4. Acceptormakeshisacceptanceofabill

on

a

separate

paper

(Sec.

134)

5. Person makes a written promise to

accept the bill before it is drawn (Sec.

135)


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20

A.SIGNINGINTRADENAME

Q: Isapersonsigningintradenameliable?

A: Yes. As a general rule, only persons whosesignatures appear on an instrument are liablethereon.Butonewhosignsinatradeorassumed

nameis

liable

as

ifhe

signed

his

own

name

(Sec.

18 [2]). It is necessary, however, that the partywho signed intended to be bound by hissignature.

B.SIGNATUREOFANAGENT

Q: What are the legal effects of an agents

signatureinanegotiableinstrument?

A: Provided that the requisites are compliedwith,thelegaleffectsofanagentssignatureinanegotiableinstrumentare:

1. Hissignaturewillbindhisprincipal

2. He

will

be

exempt

from

personal

liability

Q: Whataretherequisitestoexemptanagent

fromliability?

A:

1. Heisdulyauthorized2. He adds words to his signature

indicating that he signs asagent/representative

3. He discloses the name of hisprincipal.(Sec.20)

Q:What

is

meant

by

procuration?

A: Procuration is the act by which a principalgives power to another to act in his place as hecouldhimself(Finkv.Scott,143S.E.305)

Q: What is the effect of a signature by

procuration?

A: Itoperatesasnoticethattheagenthasbutalimited authority to sign and the principal isboundonly incase the agent in so signingactedwithintheactuallimitsofhisauthority.(Sec.21)

C.INDORSEMENTBYMINORORCORPORATION

Q: What are the effects of an infant or

corporationsindorsement?

A:

1. Notvoid. Theincapacityoftheinfantisnot a defense which can be availed ofby prior parties. However, it does not

destroy the right of such an infantindorsertodisaffirmundertherulesofinfancy

2. Passespropertytherein3. Voidable.Therefore,partiespriortothe

minor or corporation cannot escapeliability by setting up as defense the

incapacityof

the

indorsers.

4. A minor, however, may be held boundbyhissignatureinaninstrumentwherehe is guilty of actual fraud committedby specifically stating that he is ofage.(PNB v.CA,G.R.No. L34404,June25,

1980)

D.FORGERY

Q: Whatisforgery?

A:Forgeryisthecounterfeitmakingorfraudulentalterationofanywriting.

Q: Whenisthereforgery?

A: Signatureisaffixedbyonewhodoesnotclaimto act as an agent and who has no authority tobindthepersonwhosesignaturehehasforged.

Q: Whenistherewantofauthority?

A: Signatureisaffixedbyonewhopurportstobeanagentbuthasnoauthoritytobindtheallegedprincipal.

Q: Whatistheeffectwhenthereisforgery?

A:

GR: It does NOT render the instrument void.The signature is wholly inoperative, and noright to retain the instrument, or to give adischarge thereof, or to enforce paymentthereof against any party to it, is acquiredthroughorundersuchsignature.(Cutoffrule)

XPN:

1. Ifthepartyagainstwhomitissoughttoenforce such right is precluded fromsettingupforgeryorwantofauthority.(Sec.23)

2. Where

the

forged

signature

is

not

necessarytotheholderstitle, inwhichcase, the forgery may be disregarded(Sec.48)


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21

Q: Can a payee sue the collecting bank for the

amountofthecheckswhenitmadepaymentof

the same under a forged endorsement in favor

oftheforger?

A: Yes, since the signature of the payee was

forged to make it appear that he had made an

indorsementin

favor

of

the

forger,

such

signature

should be deemed as inoperative and

ineffectual.The collecting bank grossly erred in

making payment by virtue of said forged

signature. The collecting bank is liable to the

payee and must bear the loss because it is its

legal duty to ascertain that the payees

endorsement was genuine before cashing the

check.(WestmontBankv.Ong,G.R.No.132560,

Jan.30,2002)

Q: Who are precluded from setting up the

defenseofforgery?

A:

1. Those who admit/warrant the

genuinenessofthesignature:indorsers,

persons negotiating by delivery and

acceptor;(Sec56)

2. Those who by their acts, silence, or

negligence,areestoppedfromclaiming

forgery;

3. A holder of a bearer instrument who

subsequently negotiates such

instrument with a prior forged

indorsement(forgedindorsementisnot

necessary to his title it being a bearer

instrument).

Q: Whataretherightsofthepartiesincasesof

forgedinstruments?

A:

1. Wherenotepayabletoorder:

1. Party whose signature was forged

is not liable to a holder, even a

HIDC

2. Indorsementiswhollyinoperative.

2. Wherenotepayabletobearer:

a. The party whose indorsement is

forged is liable to a HIDC, but not

toone

who

is

not

aHIDC

Reason: it can be negotiated by

meredelivery

b. Theonlydefenseavailable iswant

ofdeliverybutthisdefensecanbe

raised only againsta holdernot in

duecourse.

3. Where billpayable to order: The party

whose indorsement is forged is not

liable to any holder even a HIDC. The

forged indorsement is wholly

inoperative.

Q: A client indorsed a check with a forged

indorsement.

The

collecting

bank

indorsed

the

check with the drawee bank. What are the

liabilitiesoftheparties?

A:Thecollectingbank isboundby itswarranties

asan indorserandcannot set up the defense of

forgeryasagainstthedraweebank.

Thedraweebankisunderstrictliabilitytopaythe

checktotheorderofthepayee.Paymentundera

forged indorsement isnotto thedrawer'sorder.

Since the drawee bank did not pay a holder or

other person entitled to receive payment, it has

no right to reimbursement from the drawer.

(AssociatedBank

v.

CA,

G.R.

No.

107382,

Jan.

31,

1996)

Q: Whatistheremedyofthedraweebank?

A:Thedraweebankmaynotdebittheaccountof

the drawer but may generally pass liability back

through the collection chain to the party who

tookfromtheforgerand,ofcourse,totheforger

himself, if available. If the forgery is that of the

payee's or holder's indorsement, the collecting

bankisheldliable,withoutprejudicetothelatter

proceeding against the forger. Since a forged

indorsement is inoperative, the collecting bank

hadno

right

to

be

paid

by

the

drawee

bank.

The

former must necessarily return the money paid

by the latter because it was paid wrongfully.

(AssociatedBankv.CA,G.R.No.107382,Jan.31,

1996)

Q:What is the liabilityof thedraweebank and

thedrawer fortheamountpaidoncheckswith

forgedindorsements,ifthesamewasduetothe

negligence of both the drawee bank and the

drawer?

A:Thelossoccasionedbysuchnegligenceshould

bedividedequallybetweenthedrawer/depositor

andthe

drawee.

Q: Can a drawerdepositor who entrusted his

check books, credit cards, passbooks, bank

statementsandcancelledcheckstohissecretary

and who had introduced the secretary to the

bank for purposes of reconciliation of his

accounts hold the drawee bank liable for the


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22

amounts withdrawnbythesecretaryby forging

hissignatureonthechecks?

A: No, he is precluded from setting up theforgeryduetohisownnegligenceinentrustingtohis secretary his credit cards and check bookincluding the verification of his statements of

account.(Ilusorio

v.

CA,

G.R.

No.

139130,

Nov.

27,

2002)

Q:Canadrawer,fromwhomcheckswerestolen

but failed to reportthe same tothe authorities

or the drawee bank, recover the value of the

checks paid by the drawee bank on the forged

checkswhichwasstolenfromthedrawer?

A: No,thedrawercannotrecover.He istheonewhich stands to be blamed for itsnegligence/predicament.(SecurityBankandTrustCompany v. Triumph Lumber and Construction

Corp.,G.R.No.126696,Jan.21,1999)

Q: How is forgery proven and who has the

burdenofproof?

A:Forgery,asanyothermechanismoffraudmustbe proven clearly and convincingly, and theburden of proof lies on the party allegingforgery.(Chiang YiaMin v. CA,G.R.No. 137932,Mar.28,2001)

Q:Discuss the legal consequenceswhen abank

honorsaforgedcheck.

A: 1. When drawer's signature is forged

Draweebank by accepting the checkcannot set up the defense of forgery,because by accepting the instrument,the drawee bank admits thegenuinenessofsignatureofdrawer(BPIFamilyBank v.Buenaventura,G.R.No.

148196,Sept.30,2005;Sec.23,NIL).

Unless a forgery is attributable to thefault or negligence of the drawerhimself,theremedyofthedraweebankis against the party responsible for the

forgery.

Otherwise,

draweebank

bears

the loss. A draweebank paying on aforged check must be considered aspaying out of its funds and cannotcharge the amount to the drawer(SamsungConstructionCo.Phils,v. Far

East Bank, G.R. No. 129015, Aug. 13,

2004). If the draweebank has chargeddrawer'saccount,thelattercanrecoversuch amount from the draweebank

(Associated Bank v. CA, G.R. No.

107382, Jan. 31, 1996; BPI v. Case

Montessori Internationale, G.R. No.

149454,May28,2004).

However,thedrawermaybeprecludedor estopped from setting up the

defense

of

forgery

as

against

the

draweebank,whenitisshownthatthedrawerhimselfhadbeenguiltyofgrossnegligence as to have facilitated theforgery (Metropolitan Waterworks v.CA,G.R.No.L62943,July14,1986).

2. Drawee bank versus collecting bankWhen the signature of the drawer isforged, as between the draweebankand collecting bank, the draweebanksustains the loss, since the collectingbank does not guarantee the signatureof the drawer. The payment of the

check

by

the

drawee

bank

constitutes

the proximate negligence since it hasthe duty to know the signature of itsclientdrawer.(PhilippineNationalBankv.CA,G.R.No.L26001,Oct.29,1968).

3. Forged payee's signature Whendraweebank pays the forged check, itmustbeconsideredaspayingoutof itsfundsandcannotchargetheamountsopaidtotheaccountofthedepositor.Insuch case, the bank becomes liablesince its primary duty is to verify theauthenticity of the payee's signature(Traders

Royal

Bank

v.

Radio

Philippines

Network, G.R. No. 138510, Oct. 10,

2002;WestmontBankv.Ong,G.R.No.

132560,Jan.30,2002).

4. Forged endorsement Drawer'saccount cannot be charged, and ifcharged, he can recover from thedraweebank (Associated Bank v. CA,G.R.No.107382,Jan.31,1996).

Drawer has no cause of action againstcollecting bank, since the duty ofcollecting bank is only to the payee(Manila

Lighter

Transportation,

Inc.

v.

CA,G.R. No. L50373 Feb. 15, 1990).

Draweebank can recover from thecollecting bank (Great Eastern Life Ins.Co.v.Hongkong&ShanghaiBank,G.R.

No.18657,Aug.23,1922)becauseevenif the indorsement on the checkdepositedbythebank'sclientisforged,collecting bank is bound by its


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23

warranties as an indorser and cannot

set up defense of forgery as against

drawee bank (Associated Bank v. CA,

G.R.No.107382,Jan.31,1996).

Q: What are the kinds of fraud relating to a

negotiableinstrument?

A:

1. Fraud in the execution or fraud in

factumAperson,withoutnegligence,

has signed an instrument which was in

factanegotiableone,butwasdeceived

as to the character of the instrument

and without knowledge of it (real

defense).

2. Fraudintheinducementorsimplefraud

Relatestothequantity,quality,value

orcharacteroftheconsiderationofthe

instrument. Deceit is not in the

character

of

the

instrument

but

in

its

amountorterms(personaldefense).

Q: The drawers signature was forged. There is,

however, a provision in the monthly bank

statement that if the drawers signature was

forged, the drawer should report it within 10

days from receipt of the statement to the

drawee. The drawer, however failed to do so.

What will be its effect insofar as the drawers

rightisconcerned?

A:Thefailureofthedrawertoreporttheforgery

withintendaysfromreceiptofthemonthlybank

statement

from

the

drawee

bank

does

not

preclude the drawer from questioning the

mistakeofthedraweebankdespitetheprovision.

(BPIv.CASAMontessor,G.R.No.149454,May28,

2004)

Q: If forgerywascommittedbyanemployeeof

the drawer whose signature was forged, does

the relationship amount to estoppel such that

the drawer is precluded in recovering from the

draweebank?

A:Thebarefactthatthe forgerywascommitted

byanemployeeofthepartywhosesignaturewas

forgedcan

not

necessarily

imply

that

such

partys

negligence was the cause of the forgery in the

absence of some circumstances raising estoppel

againstthedrawer.(SamsungConstructionCo.v.

Far East Bank and Trust Company, G.R. No.

129015,Aug.13,2004)

V.CONSIDERATION

Q: Whatisconsideration?

A: It is an inducement to a contract that is the

cause,priceorimpellinginfluence,whichinduces

apartytoenterintoacontract.

Q:Whatisthepresumptionrecognizedbylawas

totheexistenceofconsideration?

A: Every negotiable instrument is deemedprima

facie to have been issued for a valuable

consideration.(Sec.24)

Q: Whatconstitutesvalue?

A: It is any consideration sufficient to suppo