Beruflich Dokumente
Kultur Dokumente
Saturday,
before
12nn or
Monday at
the option
of the
holder
Bill of
exchange
Within a
reasonable
time after
last
negotiation
3. Where presentment is made
Place of presentment: (Sec. 73)
a. Where a place of payment is specified in the instrument, and it is thee presented
b. Where no place of payment is specified but the address of the person to make payment is given in
the instrument and it is there presented
c. Where no place of payment is specified and no address is given, and the instrument is presented
at the usual place of business or residence of the person to make payment
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d. In any other case if presented to the person to make payment wherever he can be found, or if
presented at his last known place of business or residence
Payable at a special place (Sec.70)
".if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it
there at maturity, such ability and willingness are equivalent to a tender of payment
maker/acceptor is still liable to pay
presentment for payment for person primarily liable is NOT necessary
effect: if holder will not present the instrument at the special place, he loses his right to the
payment of interest
"place of payment a house, bank, counting room, store or place of business, where the holder can
present a note, where the maker can deposit or provide funds to meet it, and where a legal offer to pay
can be made
4. To whom presentment for payment is made:
a. To the person primarily liable on the instrument or if he is absent or inaccessible to any person
found at the place where presentment is made
b. Person primarily liable is dead and no place of payment is specified: personal representative, if
such there be and if with the exercise of due diligence, he can be found
c. Persons primarily liable are partners and no place of payment is specified, presentment may be
made to any one of them
d. There are several persons primarily liable and are not partners and no place of payment is
specified, presentment must be made to them all
Notes:
Letters b-d are not applicable if place is specified. In such case, presentment must be made to any
person found in the specified place.
Although the indorser himself be the personal representative of the deceased person primarily
liable, presentment for payment is still necessary.
Exhibition of the instrument (Sec.74)
- The instrument must be exhibited to the person from whom payment is demanded, and when it is
paid, must be delivered up to the party paying it.
- Purpose:
a. To determine the genuineness of the instrument and the right of the holder to receive
payment
b. To enable him to reclaim possession upon payment
- When excused:
a. When the debtor does not demand to see the instrument but refuses payment on some other
grounds
b. When the instrument is lost or destroyed
- When unnecessary:
a. Omission to contest it
b. Admission of the authenticity of the note implicit from the averment that substantial payments
were made thereon
c. Express waiver of demand, presentment, protest, and notice of protest and non-payment in
the note
Note: Demand by telephone is NOT sufficient because exhibition of the instrument is NOT possible.
When delay of presentment for payment is excused: (Art. 81)
- When delay is caused by circumstances beyond the control of the holder and not imputable to his
default, misconduct or negligence.
- Note: When the cause of delay ceases to operate, presentment must be made with reasonable
diligence.
Dishonor by non-payment of instrument:
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1. It is duly presented for payment and payment is refused or cannot be obtained
2. Presentment is excused and the instrument is overdue and unpaid
Effect of dishonor by non-payment: An immediate right of recourse to all parties secondarily liable
thereon accrues to the holder (necessary condition: notice of dishonor was given to them)
Summary of Rules as to presentment for Payment
General Rules:
1. Presentment for payment is NOT necessary to charge persons primarily liable.
2. Presentment for payment is necessary in order to charge the drawer and indorsers (Sec.70)
Exceptions:
a. When drawer need not be given notice (Sec.79)
where drawer has NO right to expect or require that the drawee or acceptor will pay the instrument
examples:
Drawer ordered stop payment of a check
Drawers balance is less than the amount of the check
b. When indorser need not be given notice (Sec.80)
where the instrument was made or accepted for his accommodation and he has no reason to expect
that the instrument will be paid if presented
c. When presentment for payment is excused (Sec.82)
Where after the exercise of reasonable diligence, presentment cannot be made
Where drawee is a fictitious person
By waiver of presentment, express or implied
d. When the instrument has been dishonored by non-acceptance (Sec.151)
NOTICE OF DISHONOR
bringing either verbally or by writing to the knowledge of the drawer or indorser of an instrument, the
fact that a specified negotiable instrument upon proper proceedings taken, has not been accepted or has
not been paid, and that the party notified is expected to pay it.
purpose: to charge persons secondarily liable
burden of proof: holder must prove notice was given to drawer or indorser as the case may be
Form of Notice (Secs. 95&96)
may be verbal or in writing
contents:
a. Sufficient description of the bill or note
b. Statement that the instrument has been dishonored upon presentment for acceptance for
payment
c. Statement that the instrument has been protested if protest is required
d. An announcement of the intention to look to the party addressed for payment
Notes:
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If the written notice lacks any of the aforementioned matters that should be stipulated in the
contents, the person given notice may orally state that there was dishonor to complete or validate the
notice of dishonor.
If there is misdescription, the notice is still valid and effective except if a party was in fact misled.
For purposes of BP 22, notice of dishonor must be in writing; verbal notice is not enough.
If notice of dishonor is in writing, it can be delivered personally to the person to whom notice
should be given or it may be sent to him by mail. (Sec.96)
1. Who gives notice of dishonor
a. Principal
b. Agent, either in his own name or in the name of any party entitled to give notice, whether that
party be his principal or not.
2. When is notice of dishonor given
Rule: Notice may be given AS SOON AS the instrument is dishonored
Where parties
(person giving and
person to receive
notice) reside in
same place
(Sec.103)
Where parties
reside in different
places
If given at the place
of business of the
person to receive
notice, it must be
given before the
close of business
hours on the day
following
Within the time that
notice would have
been received in
due course of mail,
if it had been
deposited in the
post office within
the time specified in
the last subdivision.
If given at his
residence, it must
be given before the
usual hours of rest
4
on the day
following.
If sent by mail, it
must be deposited
in the post office in
time to reach him in
usual course on the
day following
If sent by mail, it
must be deposited
in the post office in
time to go by mail
the day following
the day of dishonor
or if there be no
mail at a convenient
hour on last day, by
the next mail
thereafter
3. Where notice of dishonor is given
Rules: (Sec.108)
4
"Usual hours of rest any of the hours when the member of the household are attending their ordinary affairs
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a. Where a party has added an address to his signature, notice of dishonor must be sent to that
address
b. If no address, either to the post office nearest to his place of residence or to the post-office where
he is accustomed to receive his letters
c. If he lives in one place and has his place of business in another, notice may be sent to either place
d. If he is sojourning in another place, notice may be sent to the place where he is so sojourning
4. To whom notice of dishonor is given
a. The indorsers or drawers themselves; or
b. Agent of the indorsers or drawer
c. With respect to corporations, notice should be given to those who are duly authorized by the
board to bind the corporation.
Special circumstances:
a. Where party (drawer/indorser) is dead
Rule: Notice should be given to the partys personal representative
Requisites:
- Person who should give notice knows that the person to receive notice is dead
- Person who is supposed to receive notice has a personal representative
- Personal representative could be found after the exercise of reasonable diligence
b. Notice to partners
Rule: Notice to one partner will bind the partnership
c. Notice to persons jointly liable
Rule: Notice should be given to each of them unless one has authority to receive such notice for the
others
d. Notice to bankrupt
Rule: Notice may be given either to the party himself or to his trustee or assignee
Waiver of Notice of Dishonor
Waiver means the person who is making the waiver renounces the benefit of the act or matter in his
favor
When done: either before the time of giving notice has arrived or after the omission to give due notice
(Sec.109)
To whom binding: Where the waiver is embodied in the instrument itself, it is binding upon all parties, but
where it is written above the signature of an indorser, it binds him only. (Sec.110)
Summary of Rules as to notice of dishonor:
General Rules:
1. Notice of dishonor need NOT be given to persons primarily liable
2. Notice of dishonor is necessary to charge drawers or indorsers
Exceptions:
a. When notice is waived
Sec. 109: Notice of dishonor may be waived either before the time of giving notice has arrived or after
the omission to give due notice and the waiver may be express or implied.
b. When dispensed with
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Sec.112: Notice of dishonor is dispensed with when after the exercise of reasonable diligence, it
cannot be given to or does not reach the parties sought to be charged.
c. When notice need not be given to drawer
Sec. 114: Notice of dishonor is NOT required to be given to the drawer in either of the following cases:
Where the drawer and drawee are the same person
When the drawee is a fictitious person or a person not having capacity contract
When the drawer is the person to whom the instrument for payment is made
Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument
Where the drawer has countermanded payment
d. When notice need not be given to indorser
Sec.115: Notice of dishonor is NOT required to be given to an indorser in either of the following cases:
When the drawee is a fictitious person or person not having capacity to contract and the
indorser was aware of that fact at the time he indorsed the instrument
Where the indorser is the person to whom the instrument is presented for payment
Where the instrument was made or accepted for his accommodation
e. Where due notice of dishonor by non-acceptance has been given
Sec. 116: Where due notice of dishonor by non-acceptance has been given, notice of a subsequent
dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted.
f. As to a holder in due course without notice
Sec. 117: An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a
holder in due course subsequent to the omission.
PRESENTMENT FOR ACCEPTANCE
production of a bill of exchange to the drawee for his acceptance
General Rule: Presentment for acceptance is NOT necessary in order to render any party to the bill liable.
Exceptions: (Sec.143)
1. Where the bill is payable after sight or in any other case where presentment for acceptance is
necessary in order to fix maturity of the instrument
2. Where the bill expressly stipulates that it shall be presented for acceptance
3. Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee.
In the above 3 circumstances where presentment for acceptance is necessary, the following are the
requisites to charge persons secondarily liable:
1. Make presentment for acceptance
2. Negotiate the bill within a reasonable time
Presentment for acceptance, how made
1. Who makes presentment for acceptance
a. Holder
b. Any person in his behalf
2. When presentment for acceptance is made
a. At a reasonable hour on a business day; and
b. Before the bill is overdue
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Days presentment may be made:
Payable at a fixed date on the day of maturity
Day of maturity is Sunday next succeeding business day
Day of maturity is Saturday or payable at Saturday before 12nn provided it is not
holiday
3. Where presentment for acceptance is made
4. To whom presentment for acceptance is made
a. Drawee or some person authorized to accept or refuse in his behalf
b. 2 or more drawees, not partners all of them unless one has authority to accept or refuse for all
c. Drawee is dead personal representative
d. Drawee is bankrupt, insolvent or made an assignment for the benefit of his creditors drawee
himself or his trustee or assignee
Where presentment for acceptance is excused: (Sec.148)
1. Where the drawee is dead, or has absconded or is a fictitious person or a person not having
capacity to contract by bill
2. Where after the exercise of reasonable diligence, presentment cannot be made
3. Where although presentment has been irregular, acceptance has been refused on some other
ground (example: presentment is made on a Sunday but acceptance is refused on the ground that
drawer has no funds in the hands of the drawee)
Dishonor by non-acceptance (Sec.149)
1. When it is duly presented for acceptance and such an acceptance is refused or cannot be obtained
2. When presentment for acceptance is excused and bill is not accepted
Notes:
If bill is dishonored by non-acceptance, holder must give: (1) notice of dishonor by non-
acceptance; and (2) protest (in case of foreign bill). Otherwise, drawers and indorsers are discharged.
(Sec.150)
If bill is dishonored by non-acceptance, no presentment for payment is necessary to hold drawers
and indorsers liable. (Sec. 151) But if after previous non-acceptance, bill is subsequently accepted,
presentment for payment is necessary.
If bill is accepted for honor, presentment for payment is necessary to charge acceptor for honor.
ACCEPTANCE
signification by the drawee of his assent to the order of the drawer (Sec.132)
Kinds of acceptance:
1. Actual acceptance
Requisites:
a. In writing
b. Signed by the drawee
c. Must not express that drawee will perform his promise by any other means than the payment of
money
d. Must be communicated or delivered to holder
Notes:
An oral acceptance is not binding on the drawee.
Acceptance by telegram has been held sufficient.
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Acceptance is not required for checks for they are payable on demand.
Without signature of drawee, he would not be bound.
Acceptance must be expressed to be payable in money only.
Acceptance is incomplete until delivery or notification.
The acceptor or drawee who has not communicated his acceptance or transmitted the
accepted bill to the holder, may revoke an acceptance before delivery and cancel the written
acceptance.
Is payment equivalent to acceptance? NO.
acceptance a promise to perform an act
payment actual performance
Where acceptance may be written
a.On the bill itself
b.On a separate paper
i. Acceptance as to an existing bill
ii.Acceptance as to a non-existing bill
requisites:
The contemplated drawee shall describe the bill to be drawn and promise to accept it
Bill shall be drawn within a reasonable time after such promise is written
Holder shall take the bill upon the credit of the promise
2. Constructive acceptance (Sec.137)
a. Where the drawee to whom the bill is delivered destroys it
b. Where the drawee refuses, within 24 hours
c. After such delivery, or within such time as is given him, to return the bill accepted or not
accepted
Notes:
The bill is at all times the property of the holder and he is entitled to have it when he
wants it.
Mere failure to return the bill within 24 hours is an acceptance.
When acceptance may be made:
a.Before the bill has been signed by the drawer
b.Even when the bill is otherwise incomplete
c. Even when the bill is overdue
d.Even after it has been dishonored by non-acceptance or non-payment
3. General acceptance
one that assents without qualification to the order of the drawer (Sec.139)
acceptance to pay at a particular place
4. Qualified acceptance (Sec.141)
a. Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of
a condition stated therein
Example: "Accepted, if Y marries Z. Sgd. X
b. Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn
Example: Bill is for P1000. "Accepted for P500 only.
c. Local; that is to say, an acceptance to pay only at a particular place
Example: "Accepted. Payable at PNB only.
d. Qualified as to time
Example: Bill is payable 30 days after sight. "Accepted, payable 60 days after sight.
e. Acceptance of some, one or more of the drawees but not all
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Example: The drawees of a bill are X and Y and it is accepted only by X.
Effect of taking a qualified acceptance
drawer and indorsers are discharged
Why? Drawers and indorsers warrant tht the bill would be paid as drawn, or as indorsed by them, and
a qualified acceptance would vary their contract without their consent.
Exception: If the drawers and indorsers expressly or impliedly gave their consent to the qualified
acceptance.
PROTEST
a formal statement in writing made by a notary under his seal of office at the request of a holder of a
bill or note, in which it is addressed that the same was on a certain day presented for payment (or
acceptance), and such payment (or acceptance) was refused, whereupon the notary protests against all
parties to such instrument and declares that they will be held responsible for all loss or damage arising
from its dishonor.
all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser.
necessary only for foreign bills.
Foreign bill - a bill of exchange that is not drawn and/or payable in the Philippines
When protest is required:
1. Where the foreign bill is dishonored by non-acceptance
2. Where the foreign bill is dishonored by non-payment
3. Where the bill has been accepted for honor, it must be protested for non-payment before it is
presented for payment to the acceptor for honor
4. Where the bill contains a referee in case of need, it must be protested for non-payment before it is
protested for payment to the referee in case of need
5. When the bill is dishonored by acceptor for honor
Protest in case of inland bills
- Protest is NOT necessary in inland bills. But, it is not prohibited and is discretionary on the part of
the holder.
- Advantage of protest in inland bills: The certificate of the notary public is generally made prima
facie evidence of the facts relating to presentment, demand, non-payment, and notice of dishonor,
which are set forth in the certificate.
Main purpose of protest: to furnish to the holder legal testimony of presentment, demand, and
notice of dishonor to be used in an action against the drawer and indorsers.
Reasons for requiring protest:
1. For uniformity in international transactions because most countries require it
2. In order to furnish authentic and satisfactory evidence of the dishonor to the drawer, who from his
residence abroad, may experience difficulty in verifying the matter and may be forced to rely on
the representation of the holder.
Procedure for protest
1. How protest is made
Sec. 153. The protest must be annexed to the bill or must contain a copy thereof, and must be under
the hand and seal of the notary making it and must specify:
a. The time and place of presentment
b. The fact that presentment was made and the manner thereof
c. The cause or reason for protesting the bill
d. The demand made and the answer given, if any, or the fact that the drawee or acceptor could not
be found
2. Who makes protest
Sec. 154: Protest may be made by:
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a. Notary public; or
b. Any respectable resident of the place where the bill is dishonored in the presence of two or more
credible witnesses
3. When protest is made
Sec. 155: When a bill is protested, such protest must be made on the day of its dishonor unless delay
is excused as herein provided. When a bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.
"duly noted - notary public jots down a note on the bill, or a paper attached thereto, or in his registry
book, consisting of his initials or signature and those matters required to be stated in Sec.153. the
noting must be made on the day of dishonor but it may be extended into a formal protest afterwards.
4. Where protest is made
Sec. 156:
General Rule: A bill must be protested at the place where it is dishonored
Exception: except that when a bill drawn payable at the place of business or residence of some person
other than the drawee has been dishonored by non-acceptance, it must be protested for non-payment
at the place where it is expressed to be payable, and no further presentment for payment to ro
demand on the drawee is necessary.
Note: Where a bill has already been protested for non-acceptance, protest for non-payment is merely
optional.
Protest for better security
one made by the holder against the drawer and indorsers where the acceptor has been adjudged a
bankrupt or insolvent or has made an assignment for the benefit of creditors before the bill matures.
merely optional on the part of the holder
when made:
a. After acceptance
b. Before the date of maturity
c. When the acceptor has been adjudged bankrupt or insolvent or has made an assignment for the
benefit of creditors
purpose: to inform drawer and indorsers of the fact that acceptor is insolvent and may not pay the
bill, and to enable them to make necessary arrangements so that they will not be held liable thereon
and prevent loss of re-exchange.
CHAPTER 9 DISCHARGE OF NEGOTIABLE INSTRUMENTS
CONCEPT
Discharge release from further liability, obligation or from the binding effect of the negotiable
instrument
As to paper: puts an end to it as a contractual obligation
As to the parties: Operates as a release of some or all of them from further obligation and liability under
the instrument.
INSTRUMENT, HOW DISCHARGED.
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Sec. 119: A negotiable instrument is discharged:
1. By payment in due course by or on behalf of the principal debtor
"payment in due course"
5
requisites:
a. Must be made by or on behalf of the principal debtor/accommodated party
b. Payment must be made to the holder
c. Payor must be in good faith and without notice that holders title is defective
d. Payment is made at or after the maturity date of the instrument
"principal debtor" person ultimately bound to pay the debt
Payment by a third person
General Rule: Instrument is NOT discharged.
Exception: Payment for honor.
Note: If a person paid the holder with the intention of acquiring title over the instrument, payor is
NOT a third person.
2. By payment in due course by the party accommodated where the instrument is made or accepted
for his accommodation
As between the accommodation party and the accommodated party, the latter is the one ultimately
liable, hence a principal debtor.
3. By the intentional cancellation by the holder thereof
how made:
a. Tearing the instrument
b. Burning the instrument
c. Writing across the instrument the word "cancelled
If cancellation is unintentional, made under a mistake, or without the authority of holder,
cancellation is inoperative (instrument is NOT discharged).
"cancellation" signifies not only the drawing of criss-cross lines but also tearing, obliterations,
erasures or burning.
Burden of proof: lies on the party who alleges that the cancellation was made unintentionally, under
a mistake, or without authority.
4. By any other act which will discharge a simple contract for the payment of money
Art. 1231: Extinguishment of obligations
a. Payment
b. Loss of the thing due
c. Condonation or remission of the debt
d. Confusion or merger of rights
e. Compensation
f. Novation
g. Annulment/rescission
h. Fulfillment of resolutory condition
i. Prescription
5. When the principal debtor becomes the holder of the instrument at or after maturity in his own
right
requisites:
a. Reacquisition must be made by principal debtor
5
Sec.88:
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b. In his own right
c. At or after the date of maturity
"in his own right not in a representative capacity (e.g. maker is agent or maker is holder as
executor or administrator)
When instrument is reacquired before maturity
Instrument is NOT discharged
Merely constitutes a negotiation back to principal debtor who may in turn renegotiate the
instrument (Sec.50)
Persons secondarily liable on the instrument, how discharged
Sec. 120: A person secondarily liable on the instrument is discharged:
a. By any act which discharges the instrument
b. By the intentional cancellation of his signature by the holder
c. By the discharge of a prior party
d. By a valid tender of payment made by a prior party
e. By a release of the principal debtor unless the holders right of recourse against the party
secondarily liable is expressly reserved
f. By any agreement binding upon the holder to extend the time of payment or to postpone the
holders right to enforce the instrument unless made with the assent of the party secondarily liable
or unless the right of recourse against such party is expressly reserved.
Notes:
No consideration is necessary to support a discharge by intentional cancellation of an indorsers
signature by the holder.
Discharge of prior party discharges party subsequent thereto.
reason: subsequent parties cannot exercise their right of recourse against discharged prior party.
application: discharge of prior party must arise from the acts of holder; it does NOT cover discharge
by operation of law like discharge by reason of bankruptcy, discharge of party not given due notice of
dishonor, discharge by statute of limitations.
"valid tender of payment" act by which one produces and offers to a person holding a claim or
demand against him the amount of money which he considers and admits to be due in satisfaction of
such claim or demand without any stipulation or condition.
"release of principal debtor"
General Rule: Discharges the instrument and parties secondarily liable are deprives of their right of
recourse
Exception: When the holders right of recourse against party secondarily liable is expressly reserved.
Reason: the effect of such reservation is the implied reservation of their right of recourse against
person primarily liable
Note: The release must be a voluntary act of holder, not by operation of law and is for value.
As to effect of release to accommodation maker/acceptor:
Rule: He is NOT discharged by the release of the principal debtor
Extension of time
General Rule: Persons secondarily liable are discharged
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reason: an agreement to extend time of payment varies the original undertaking of the parties
secondarily liable. Assurance of drawer and indorsers is payment according to the tenor of the
instruments.
Exceptions:
1. extension is consented to the by the party secondarily liable
2. where holder expressly reserves his right of recourse against person secondarily liable
Requisites:
1. it must be a binding contract, supported by valuable consideration and for a definite period
2. must be made with the principal debtor not with a third party
Effects of payment by indorser (Sec.121)
1. Instrument is NOT discharged but indorser who paid is discharged
2. Indorser is remitted to his former rights against parties prior to him
3. Indorser can strike out his indorement and all subsequent indorsements
rationale: indorsement of paying party subsequent indorsements are NOT necessary for
his title
4. indorser can renegotiate the instrument
exceptions:
a. where it is payable to the order of a 3
rd
person and has been paid by the drawer
b. when it is made or accepted for accommodation and has been paid by the party
accommodated
Renunciation by holder (Sec.122)
"renunciation" act of surrendering a right or claim without recompense but it can be applied with
equal propriety to the relinquishing of a demand upon an agreement supported by consideration.
Form:
1. Must be express
2. In writing
Time of making renunciation by holder:
1. Before maturity
2. At maturity
3. After maturity
When it discharges instrument:
1. When it is absolute and unconditional
2. When it is made in favor of the person primarily liable
3. When it is made at or after maturity
CHAPTER 10 CHECKS
Check a bill of exchange payable on demand drawn on a bank (Sec.185)
essence: payable on demand (because the contract between the banker and the customer is that the
money is needed on demand)
KINDS OF CHECKS:
1. Cashier's check
one drawn by the cashier of a bank in the name of the bank against the bank itself payable to a
third person or order
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Demand draft does not operate as an assignment of funds in the hands of the drawee who is not
liable on the instrument until he accepts it.
Cashiers check is a primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand
a bill of exchange drawn by a bank on itself and accepted in advance by the act of its issuance
Nature and use: By its very nature, a cashiers check is the banks order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the check. A cashiers check by
its peculiar character and general use in the commercial world is regarded substantially to be as
good as the money which it represents (Tan vs. CA)
2. Manager's check
a check drawn by the manager of a bank in the name of the bank against the bank itself payable to
a third person
similar to cashiers check as to effect and use
3. Memorandum check
a check on which is written the word "memorandum, "memo, and "mem signifying that the
drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon
presentment and non-payment
a check given by a borrower to a lender for the amount of a shot loan with the understanding that it
is not to be presented at the bank but will be redeemed by the maker himself when the loan falls due
and which understanding is evidence by writing the word "memorandum, "memo or "mem on the
check
given by the drawer to the payee more in the nature of a memorandum of indebtedness than as
payment
drawer may be sued the same as upon a promissory note
4. Traveler's check
instrument purchased from banks, express companies, or the like, in various denominations which
can be used like cash upon second signature by the purchaser
has the characteristics of a cashiers check of the issuer
requires the signature of the purchaser at the time he buys it and also at the time he uses it
5. Certified check
one drawn by a depositor upon funds to his credit in a bank which a proper officer of the bank
certifies will be paid when duly presented for payment
Certification almost similar to acceptance
discharges at the instance of the holder
an agreement whereby the bank against whom a check is drawn, undertakes to pay it at any future
time when presented for payment
bank debits the drawers account at the time of certification and sets aside funds out of the
drawers control
effect: same as though the money had been paid by the bank to the holder and redeposited by him
in his own credit (payee/holder becomes the depositor of the bank)
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Notes:
Bank is not obligated to the depositor to certify checks.
Drawee is not liable to the holder for the refusal of the bank to certify a check
The refusal of a bank does not dispense with the requirement of presentment for payment since a
check is of right presentable only for payment at the bank on which it is drawn
"certification is equivalent to acceptance"
drawee bank is bound on the instrument upon certification
drawee bank incurs liabilities under Sec. 62 (liability of acceptor)
RELATED PROVISIONS: (AGBAYANI COMMENTARY)
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
PAYMENT BY PRINCIPAL DEBTOR
- In order to discharge the instrument, the payment must be a payment in due course, and second, a payment
made by the principal debtor
- If payment is made before the date of maturity, the instrument is not discharged as the payment is not in
due course
+ Where payment is made by a party who is not a primary obligor or an accommodation party, his
payment only conceals his own liability and those who are obligated after him. All prior parties primarily or
secondarily liable on the bill, are liable to such a payer, and the payer may cancel indorsements subsequent to his
own and reissue the paper, and it will be valid as against the prior parties
PAYMENT BY THIRD PERSONS
- If payment is made by a third person, the instrument is not discharged because payment is not made by the
person principally liable
- Not any one who desires may pay the instrument and then recover of the maker. He must be a person who has in
some way made himself liable for the payment of the instrument.
- Exception: where an instrument has been protested and someone voluntarily makes payment supra
protest or for honor. And if the instrument was to give money in payment, the instrument is
discharged.
SUMMARY OF DISCHARGE BY PAYMENT
1. Payment by a person ultimately liable, whatever his position in the paper, is a discharge of the instrument
2. Payment by an accommodation party isnt a discharge of the instrument, whatever his position
thereon and whether the indorsement be regular or anomalous
3. Payment by the drawer or indorser is not a discharge of the instrument
**PRINCIPAL DEBTOR
- Person ultimately bound to pay the debt
PAYMENT BY CHECK OR OTHER NEGOTIABLE PAPER
1. When they actually have been cashed or
2. When, through the fault of the creditor, they have been impaired
- A creditor isnt bound to accept a check in satisfaction of his demand because a check, even if good when
offered, doesnt meet the requirements of legal tender
WAIVER OF OBJECTION TO TENDER OF PAYMENT BY CHECK
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- It is the general rule that an object to a tender must, to be available to the creditor, be made in good time and
that the grounds for objection must be specified; and that an objection to tender on one ground is a waiver of all other
objections which could have been made at that time
- It is ordinarily required of one to whom payment is offered in the form of a check, that he makes his objection at
the time of the offer of by check instead of an offer of payment in money
- Payment by check has become so generally recognized as acceptable in business transactions that it has been held
that omission to make objection to a check as tender payment is regarded as a waiver of the right to demand payment
in money
- Reason for the rule-to afford the debtor the opportunity to secure the specific money which the law prescribes
shall be accepted in payment of debts
PAYMENT BY ACCOMMODATED PARTY
- The one ultimately liable on the accommodation instrument is the latter
- Hence, his payment in due course discharges the instrument as if payment was made by the principal
debtor under paragraph (a).
INTENTIONAL CANCELLATION
- The cancellation must be intentional and made by the holder
- There must be an intention to cancel a negotiable instrument by the holder thereof as such intention is
an essential element of discharge on a negotiable instrument and a negotiable note in a torn condition is presumed
cancelled by the holder thereof
WILL AN EXTENSION OF TIME GRANTED BY THE HOLDER TO THE DEBTOR DISCHARGE THE INSTRUMENT?
- No, according to the majority view
- Because while it isnt omitted in Section 120, it is omitted in Section 119
- Shows the legislative intent to that an extension of time by the holder will not discharge the instrument
PRINCIPAL DEBTOR ACQUIRES INSTRUMENT
- Reacquisition must be by the principal debtor and in his own right at or after the date of maturity
- In his own right-not in a representative capacity
WHEN INSTRUMENT REACQUIRED BEFORE MATURITY
- A reacquisition by the principal debtor in his own right but before maturity will not discharge the
instrument
- It will merely be a negotiation back to the principal debtor
DISCHAGE BY OPERATION OF LAW
- If a judgment is obtained on a bill or note, the bill or note is thereby extinguished and merged in the judgment.
- But the judgment alone, without actual satisfaction, is not extinguishment as between plaintiff and other parties
not jointly liable with the original defendant, whether those parties be prior or subsequent to the defendant
- A discharge in bankruptcy, unless otherwise provided by statute, releases a bankrupt from all his provable debts,
and therefore will discharge the bankrupt on all bills accepted, or notes made by him but will not discharge the other
parties
Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on
the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is
expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to
enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse
against such party is expressly reserved.
EFFECT OF SECTION 120 IS A SURETYSHIP
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- Generally the courts regard this provision as exclusive, as a complete codification of the law of discharge of
secondary parties by the six methods therein set forth
ACTS THAT DISCHARGE INSTRUMENT
- Any of the acts that will discharge an instrument under Section 119 will discharge a party secondarily
liable thereon, such as payment in due course by the maker. This will discharge the indorsers in the note.
DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED
1. Discharge by reason of bankruptcy
2. Discharge of a party not given due notice of dishonor
3. Discharge by the statute of limitations
VALID TENDER OF PAYMENT
- If D an indorser validly tenders payment and F unjustifiably refuses to do accept, D is discharged
- Tender of payment: act by which one produces and offers to a person holding a claim or demand
against him the amount of money which he considers and admits to be due, in satisfaction of such claim or demand
without any stipulation or condition
**RELEASE MUST BE ACT OF HOLDER
**RELEASE MUST BE FOR VALUE
EFFECT OF RELEASE ON ACCOMMODATION MAKER OR ACCEPTOR
- General rule is that he is not discharged by the holders release of the principal debtor even if the release be
made with knowledge of the true relation of the parties and, conversely, the release of the
accommodation maker or acceptor does not discharge the principal debtor through the latter occupies the position
of a party secondarily liable on the instrument
EXTENSION OF TIME
- If the holder agrees to extend the time of payment, the indorsers are discharged
- Exceptions- (1) where the extension of time is consented to by the party secondarily liable, he is not
discharged;
(2) where the holder expressly reserves his right of recourse against the party secondarily liable, the latter is not
discharged.
REQUISITES OF AGREEMENT FOR EXTENSION OF TIME
1. It must be a binding contract, supported by valuable consideration and for a definite period
2. It must be made with the principal debtor and not with a third par
Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable
thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and
he may strike out his own and all subsequent indorsements and against negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by the party accommodated.
EXCEPTION TO THE RIGHT TO RENEGOTIATE
- Where a drawer of a certified check was required to take up the check because of the failure of the drawee bank,
the instrument is not discharged and he is subrogated to the rights of the payee.
Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the
instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the
principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation
does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the
instrument is delivered up to the person primarily liable thereon.
APPLICATION OF SECTION 122
1. Applies only to renunciation by the unilateral act of the holder without consideration and in cases where the
instrument is not delivered up to the person intended to be released
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2. Renunciation-act of surrendering a right or claim without recompense but it can be applied with equal
propriety to the relinquishing of a demand upon an agreement supported by a consideration
FORM OF RENUNCIATION
- It must be in writing and must be express
- However, if the instrument is delivered to the person primarily liable, the renunciation may be ORAL.
TIME FOR MAKING RENUNCIATION
1. Before maturity
2. At maturity
3. After maturity
WHEN RENUNCIATION DISCHARGES INSTRUMENT
1. When it is absolute and unconditional
2. When it is made in favor of the person primarily liable
3. Made at or after maturity
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a
mistake or without the authority of the holder, is inoperative but where an instrument or any signature thereon
appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without authority.
MEANING OF CANCELLATION
- Signifies not only the drawing of criss-cross lines but also tearing, obliterations, erasures or burning
- It may be made by any other means by which the intention to cancel the instrument may be evident
WHEN CANCELLATION IS INOPERATIVE
1. When made unintentionally
2. When made under mistake
3. When made without the authority of the holder
**BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS THAT THE CANCELLATION IS INOPERATIVE
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or
assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the
alteration, he may enforce payment thereof according to its original tenor.
RIGHTS OF ONE NOT HOLDER IN DUE COURSE
- Where an instrument has been materially altered, it is avoided in the hands of one who is not a holder in due
course as against a prior party who has not assented to the alteration
WHERE INSTRUMENT NOT AVOIDED AS TO HOLDER NOT IN DUE COURSE
1. A party who has made the material alteration
2. A party who has authorized the material alteration
3. A party who has assented to the material alteration
4. Any subsequent indorsers
RIGHTS OF HOLDER IN DUE COURSE NOT A PARTY TO THE ALTERATION
- He may enforce the instrument in its original tenor
- He could recover the altered tenor to any party who has made, authorized or assented the alteration,
or any subsequent indorser of the instrument
**NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION
RIGHT TO COLLECT ORIGINAL CONSIDERATION
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- When the alteration wasn't fraudulently done, the holder may recover the original consideration
**WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT TO HAVE HIS ACCOUNT DEBITED WITH
CORRECT AMOUNT ONLY
- As between the bank and its depositors, the payment of forged or altered checks by it is made at its peril and
cannot be charged against the depositors account UNLESS some negligent act or misconduct of his has contributed to
induce such payment, the bank itself being free from negligence.
**BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST NOTIFY THE COLLECTING BANKS
WITHIN 24 HOURS OF ALTERATION OF CHECKS
Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is a material alteration.
WHEN ALTERATION IS MATERIAL
- If it alters the effect of the instrument
- Examples of MATERIAL ALTERATION: (1) substituting the words "or bearer for "order; (2) writing "protest
waived above blank indorsements; (3) a change in the date from which interest is to run; (4) adding the words "with
interest with or without a fixed rate; (5)an alteration in the maturity of a note, whether the time for payment is
thereby curtailed or extended; (6) An instrument is payable to "PNB, the plaintiff added the word "Marion; (7) striking
out the name of the payee and substituting that of the person who actually discounted the note
- Examples of IMMATERIAL ALTERATION: (1 )changing "I promise to pay to "we promise to pay where there are
two makers; (2) adding the word "annual after the interest clause; (3) adding the date of maturity as a marginal
notation; (4)filling in the date of actual delivery where the makers of a note gave it with the date in blank, "july..;
(5) where there is a blank for the place of payment, filling in the blank with the place desired
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CHAPTER 12 LETTERS OF CREDIT AND TRUST
RECEIPTS
LETTER OF CREDIT
Commerce - branch of human activity the purpose of which is to bring products to the
consumer by means of exchanges or operations which tend to supply and extend them to him,
habitually, with intent to gain, at the proper time and place, and in good quality and quantity.
Commercial transactions - those entered into by merchants to pursue activities as
merchants
Merchants - one whose business is buying and selling goods for profit; a person or entity
that holds itself out as having expertise peculiar to the goods in which it deals, and is
therefore held by the law to a higher standard than a consumer or other non-merchant is held
Who are merchants? (Art.1, Code of Commerce)
1. Those who having capacity to engage in commerce, habitually devote themselves to it
2. Commercial or industrial companies which may be created in accordance with existing
legislation
Essential requisites of a merchant:
Filipino individual
1. Legal capacity to engage in commerce
2. Habitually engages himself therein
A single act of a party or person may be considered a habitual act.
3. Must be at least 18 years old (RA 6809)
4. Must have free disposition of his property
Filipino association
1. Commercial or industrial company
2. Created in accordance with existing legislations
3. With legal capacity to engage in commerce
4. Habitually engaged therein
Rule on Minors
General Rule: Minors may not engage in commerce
Exceptions:
1. When the minor continues the business of his parents or predecessors through a
guardian
2. Investment in stocks of a corporation
A minor at least 7 years old may open a bank savings account or time deposit
and withdraw the same without assistance of his parent or guardian (PD 734)
Persons disqualified in engaging in commercial transactions
A. Absolutely Disqualified
1. Persons suffering the penalty of civil interdiction
2. Persons declared as bankrupt
3. Persons disqualified by special laws or provisions
B. Relatively Disqualified
1. Justices of the SC, judges, and officials of the department of public prosecutors in
actual service
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2. Administrative, economic or military heads of districts, provinces or posts
3. Employees engaged in the collection and administration of public funds of the State,
appointed by the government
4. Stock or brokers of any class
5. Those who by virtue of laws or special provisions, may engage in commerce in a
determinate territory
6. Members of Congress
7. President, Vice-President, members of Cabinet and their deputies or assistants
8. Members of Constitutional Commission
9. President, Vice-President, members of the Cabinet, Congress, Supreme Court and the
Constitutional Commission, Ombudsman with respect to any loan, guaranty or other
form of financial accommodation for any business purpose by any government-owned
or controlled bank to them
Commercial contract - an agreement between two or more merchants or non-
merchants binding themselves to give or to do something in commercial transactions
Macariola v. Asuncion: Art. 14 of the Code of Commerce (a Spanish law) providing for
the relative disqualification of judges is political in nature as it regulates the relationship
between the government and certain public officers and employees like justices and
judges. Upon the transfer of sovereignty from Spain to US and later on US to Philippines,
said provision must be deemed abrogated because where there is change of sovereignty,
political laws of the former sovereign, whether compatible or not with those of the new
sovereign are automatically abrogated. There being no explicit re-enactment by the new
sovereign, disqualification should be considered to have since lost its legal and binding
force on judges. Hence, the Court ruled in the said case that there was no violation of the
said rule when Asuncion associated himself with a company as a stockholder while being
concurrently a CFI judge.
Jose Berin v. Judge Felixberto Barte:
The Court ruled that Barte committed an impropriety in acting as a broker in the sale of a
real estate. This is so since while Sec. 14 of the Code of Commerce had already been
abrogated as ruled in Macariola v. Asuncion, the Code of Judicial Conduct which took effect
on October 20, 1989, refrained judges from entering into financial and business dealings
that tend to reflect adversity o the courts impartiality.
Letter of Credit
- a letter issued by one merchant to another for purpose of attending to a commercial
transaction (Art. 567, Code of Commerce)
6
Modern concepts:
- an engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with th
conditions specified in the credit (Prudential Bank v. IAC; Bank of Commerce v.
Serrano)
- one wherein the bank merely substitutes its own promise to pay for the promise to
pay of one of its customers who in return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit or commitment fees mutually agreed
upon
6
Not favored by Dean Sundang
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- one issued by a bank in order to aid a person who may not have a capital for the
importation of goods and merchandise
7
- a request by one bank (addressed usually to another bank) to advance money or
credit to a third person, upon fulfillment of certain conditions, usually by the latter on
the promise of the issuer bank to repay the same; issuer in turn look for the person
applying for the same for satisfaction
Conditions of a letter of credit: (Art. 568, Code of Commerce)
1. to be issued in favor of a definite person and not to order
2. to be limited to a fixed and specified amount or to one or more undetermined
amounts, but within a maximum the limits of which has to be stated exactly
When does the letter of credit become void (Art. 572, Code of Commerce)
if the bearer of a letter of credit does not make use of it within the period agreed upon
with the drawer
If there is no period stipulated,
within six months counted from the date - in any point in the Philippines
within 12 months - outside the Philippines
Basic parties to a letter of credit
1. Buyer - procures the letter of credit and obliges himself to reimburse the issuing bank
upon receipt of the documents of title
2. Bank (issuing/opening) - undertakes to pay the seller upon receipt of the draft and
proper documents of title and to surrender the documents to buyer upon reimbursement
3. Seller (payee/beneficiary) - who in compliance with the contract of sale ships the
goods to the buyer and delivers the documents of title and draft to the issuing bank to
recover payment
Other parties:
Paying bank - bank on which the drafts are to be drawn
Confirming bank - notifies the beneficiary, assumes the direct obligation to the seller;
has primary liability
Notifying bank - correspondent bank of the issuing bank, assumes no liability except
to notify and/or transmit to the beneficiary the existence of a letter of credit, check
authenticity of credit
8
Negotiating bank - correspondent bank which buys or discounts a draft under the
letter of credit; liability is dependent upon the stage of negotiation
Before negotiation - no liability to seller
After negotiation - has contractual relationship with seller
Three contracts in a letter of credit
1. Contract between buyer and seller
- governed by the contract of sale executed by them
2. Contract between issuing bank and buyer
- governed by the terms of application and agreement for the issuance of letter of
credit
7
Defnton of Dean
8
Reatonshp between notfyng bank and ssung bank: agency
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3. Contract between issuing bank and seller
- Governed by the terms of the letter of credit itself
Independence Principle
a bank, in determining compliance with the terms of a letter of credit is required to
examine only the shipping documents presented by the seller and is precluded from
determining whether the main contract is actually accomplished or not
assures the seller of prompt payment independent of any breach of the main sales
contract
the contract of sale between buyer and seller is independent from the letter of credit
itself; the issuing bank need only to determine the tender documents presented by seller
and has the obligation to pay upon compliance with the terms of the letter of credit
works to the benefit of both issuing bank and beneficiary/seller
Rule of strict compliance
the documents tendered by the seller or beneficiary must strictly conform to the terms
of the letter of credit, i.e. they must include all documents required by the letter of credit
Fraud exception:
exists when the beneficiary for the purpose of drawing on the credit, fraudulently
presents to the confirming bank documents that contain expressly or by implication
material representations of fact that to his knowledge are untrue
effect: court may issue injunction to bar payment by the issuing bank
requirements of injunction:
a. There is clear proof of fraud
b. Fraud constitutes fraudulent abuse of the independent purpose of the letter of credit
and not only fraud under the main agreement
c. Irreparable injury might follow if injunction is not granted or recovery of damages
would seriously be damaged
Kinds of Letter of Credit
1. Confirmed letter of credit - whenever beneficiary stipulates that the obligation of the
opening bank shall also be made the obligation of a bank to himself
2. Unconfirmed letter of credit - obligation only of the issuing bank
3. Irrevocable letter of credit - obligates the issuing bank to honor drafts drawn in
compliance with the credit and can neither be cancelled nor modified without the
consent of all parties including in particular the beneficiary/exporter
4. Revocable letter of credit - can be cancelled at anytime before payment; intended to
serve as a means of arranging payment but not as a guarantee of payment
5. Revolving letter of credit - valid for several transactions over a given period of time
such as a week or month
6. Non-revolving letter of credit - one that is valid for one transaction only
TRUST RECEIPTS LAW
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Trust Receipts Law (PD 115)
- Bank becomes entruster of the goods while the buyer-importer is the entrustee. The
goods will in effect be released by the bank to the buyer by the delivery of the
documents of title or bill of lading covering the goods. Buyer as entruster is obligated
to sell the goods and to apply the proceeds thereof to the payment of the loan
extended by the entruster-bank, buyer will only get the balance of the proceeds of the
sale after making such application.
Purposes: (Section 2)
1. To encourage and promote the use of trust receipts as an additional and convenient
aid to commerce and trade
2. To regulate trust receipt transactions in order to assure the protection of rights and
the enforcement of the obligations of the parties involved therein
3. To declare the misuse and/or misappropriation of goods or the proceeds realized from
the sale of goods, documents or instruments released under trust receipts as a
criminal offense punishable under Art.315 of the RPC
Trust receipt transaction
transaction between an entruster and entrustee whereby the entruster, who owns or
holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a trust receipt wherein the entrustee binds
himself to hold the specified goods, documents, or instruments with the obligation to turn
over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster or the goods, documents, or instruments themselves if they are unsold and not
otherwise disposed of.
Parties to a trust receipt transaction: (Sec.3, PD 115)
1. Entrustee - person having or taking possession of goods, documents, instruments
under a trust receipt transaction and any successor-in-interest of such person
2. Entruster - person holding title over the goods, documents, or instruments subject of
a trust receipt transaction and any successor-in-interest of such person
Rights of the entruster: (Sec.7)
1. To receive the proceeds of the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the amount owing to the entruster
2. To the return of the said goods, documents or instruments in case they could not be
sold
3. To cancel the trust in case the entrustee defaults, take possession of the goods,
documents or instruments and sell the same at public or private sale
Obligations of the entrustee (Sec.9)
1. To hold the goods, documents or instruments in trust for the entruster and to dispose
of them strictly in accordance with the terms of the trust receipt
Negotiable nstruments Law (Aquino and Agbayani Notes)
Abad.AviIa.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H.
(2S A.Y. 2010-2011)
75
2. To receive the proceeds of the sale of the goods, documents or instruments in trust
for the entruster and to turn over the same to the entruster to the extent of the
amount owing to the entruster
3. To insure the goods for their total value against loss from fire, theft, pilferage or other
casualties
4. To keep the goods, documents or instruments or the proceeds thereof whether in
money or whatever form, separate and capable of identification as property of the
entruster
5. To return the goods, documents, or instruments to the entruster in case they could
not be sold or upon demand of the entruster
6. To observe all other terms and conditions of the trust receipt