COMMERCIAL LAW MIDTERM REVIEWER the transfer of the goods from the carrier to the arrastre is

documented in a tally sheet after an ocular inspection by

Under Dean Abella the arrastre operator. When the arrastre receives the
goods, it inspects the goods and lists the defects in the
tally sheet. If there are defects found, they are formalized
in the Bad Order Form.
COVERAGE
Q: Is the filing of a claim with the common carrier a
condition precedent to recover from the carrier by
1. COGSA- CARRIAGE OF GOODS SEA ACT
complaint in court?
2. LETTERS OF CREDIT A: Under COGSA, no, it is not required. But under the
3. WARSAW CONVENTION Code of Commerce, it is a condition precedent and thus
4. NEGO. INST. constitutes the cause of action.
5. WAREHOUSE
6. TRUST RECEIPT Q: When goods are insured and turned over to the
7. COMMON DOC. OF TITLE INSTRUMENT. arrestre operator and loss or damage is determined,
where and when should the claim by the insurer be
8. CARRIER
filed?
9. BILL OF LADING
A: Claim of the consignee must be filed with the insurer
also within one year from delivery to the arrestre operator.
The insurer merely subrogates and steps into the rights of
the insured.

Q: If the insurer did not act on the claim of the insured

1.COGSA- CARRIAGE OF GOODS SEA ACT
DISCUSSION
Background
The COGSA is a law of American origin; it was made part
of our laws during the American occupation.
In case of conflict between the Code of Commerce and
the COGSA, the former prevails due to specific provision
in the COGSA.
Scope of COGSA
It covers the shipment of goods by sea coming from
another country into the Philippines. The shipment of
goods must be covered by a B/L.
It is not applicable to:
1.) Inter-island or coast-wise shipping
2.) Shipment of livestock
3.) Those not covered by BL
4.) Before, COGSA does not apply also to shipment
of goods on deck. But NOW, there is no more
transportation on deck because goods are
transported only via containers.
Salient Features
Time of filing claims:
 Apparent Loss or Damage: File it right away,
immediately with the carrier
 Not Apparent: 3 days from delivery
Note: Under general law (Civil Code and Code of
Commerce), the claim must be filed right away if the
damage is apparent; if it is not apparent, it must be filed
within 24h from delivery (Code of Commerce).
Actions of the Carrier on the Claim
 Settle it right away
 Not to act on it
 Reject the claim.
What is the remedy of the consignee in case of
rejection?: If the claim is denied, the claim should be filed
in court within 1 year from the delivery of the goods by the
common carrier to the arrastre operator. This is because
until after 1y, can it involve prescription?
A: No. Prescription between the insurer and the insured is
as stated in the insurance policy or Insurance Code.
Q: What if the goods are not annotated as damaged in
the tally sheet or bad order form upon turnover to the
arratre, but the goods are damaged upon turnover by
the arrastre to the consignee?
A: The suit should be against the arrastre on the basis of
quasi-delict since there is no pre-existing contractual
relation between the arrastre and the consignee.
Q: If the goods are insured but no claim is made by
the insured against the insurer within 1 year from
delivery of goods, is the claim against the insurer
barred after one year?
A: No.
Q: What if there is no damage annotation on the tally
sheet, and the customs broker received the goods
from the arrastre, but upon delivery by the customs
broker to the consigee, there is damage which is not
annotated on the delivery receipt?
A: Sue the broker on the basis of breach of contract of
carriage, because the customs broker is a common
carrier. The ruling is that a customs broker who offers to
transport goods to client as part of services qualifies as a
common carrier.
Q: In case of missing goods, or, if the vessel arrives
but the goods are not off-loaded, when should the
claim be filed?
A: Within one year from the last day when the carrier had
the last chance to deliver the goods to the arrastre
operator, e.g. before the ship sails to another port.
Q: If the prescriptive period is about to expire, can the
consignee extend it by sending a Demand Letter to
the carrier?
A: No.

2. LETTERS OF CREDIT
Governing law: Code of Commerce, which deals with
merchants.
Definition: L/C
- It is a letter addressed by a merchant to another
merchant to enable the person names in the letter to
attend to a commercial transaction.
- A form of bank facility or accommodation to enable
persons to have a commercial transaction where the
buyer is assured of the delivery of the goods he is buying
and the seller is assured of payment.
What is a COMMERCIAL TRANSACTION
It is buy and sell.
Who is a MERCHANT
He is a person, natural or juridical, having the capacity to
engage in commerce and regularly engages in it
“Regularly engages” means habitual, not necessarily a
big volume of transaction
If a natural person:
1.) At least 18 years of age
2.) With the capacity to enter into contracts of sale
If a juridical person – partnerships and stock
corporations
1.) Organized according to law
2.) SEC Certificate of Registration (corporations)
Persons Involved
1. The sender or maker, who is a merchant
2. The addressee who is also a merchant, and
3. The beneficiary or person name in the letter who may
or may not be a merchant.
Requirements for a Letter of Credit
1.) The person to whom credit is extended is stated. It
must not be a bearer instrument.
2.) The amount or maximum amount of credit to be
extended to that person shall be stated. It must not be an
open L/C. Addressee must not have the discretion as to
how much is to be given under the L/C.
If the requirements are not met, it is called a Letter of
Recommendation. A letter of credit cannot be in
negotiable form.
Q: Why is there a need to specificy the beneficiary? Why
not just bearer or order?
A: Because of obligations to each other.
Kinds:
1.) Domestic – all parties in the same country; good for 6
months
2.) Foreign – different countries; good for 12 months
Who issues L/Cs: Commercial banks as a general rule
are allowed to issue letters of credit, but Monetary Board
may allow other banks to issue Letters of Credit.
How do L/Cs work
1. Buyer and seller are insecure
2. Buyer goes to the full service branch of a bank to open
a L/C in favor of the seller
3. Bank requires a marginal deposit, the amount required
by banks of the purpose of opening L/C
4. Bank remits the amount to the seller only after the seller
presents proof of delivery
Example
BPI QC requests BPI Cebu to open a L/C in favor of a
seller in Cebu.
BPI Cebu communicates to the Cebuano seller to ship the
goods and upon proof of such delivery, BPI Cebu will pay
him. Shipper thus ships the goods and the shipping
company issues a bill of lading. If the goods are delivered
to the common carrier and it issues a B/L, it is considered
as delivery to the buyer.
BPI Cebu gets the B/L from the seller, pays the seller,
forwards the B/L to BPI Manila.
Buyer pays BPI Manila, claims the B/L, and receives the
goods under the B/L from the carrier.
What is the benefit of L/Cs to banks
Service fees and interest on advance.
Example: Purchase price is P200k. The marginal deposit
required is P120k, from which the bank advances P80k to
the seller. Interest on the P80k advanced by the bank is
payable by the buyer to the bank.
What is a Letter of Credit – Trust Receipt Line
A trust receipt is a receipt with undertakings. In lieu of a
100% marginal deposit, the buyer has the option to
execute a Trust Receipt in addition to the marginal
deposit. Under the Trust Receipt, the bank releases the
B/L to enable the buyer to acquire the goods which he
would sell and either (a) use the proceeds thereof in
paying the bank within a stipulated period, and/or (b)
return the goods unsold.
What are TRUST RECEIPTS
- A trust receipt is a receipt with undertakings.
- In a trust receipt transaction, the entruster, who has
security interests over the goods, entrusts those goods to
the entrustee so that the entrustee may sell those goods
and remit the proceeds of the sale within the stipulated
period. If the amount owing to the entruster has not been
met within the period, the entrustee is to return the goods
not sold.
- Trust receipts are issued to guarantee debts due to
failure to pay the amount bank advanced in the Letter of
Credit.
Undertakings of the Entrustee
1. To sell the goods and from the proceeds of the sale,
remit the amount owing to the entruster within the period
stipulated. The proceeds mentioned include the profits as
long as there is still an amount owing to the entrustee.
2. If the amount owed cannot be remitted, to return the
goods within the period.
Parties to a T/R
- Entrustee
- Entruster, who has security interests over the goods, e.g.
holder of a B/L which is a document of title
SC: In a TR, the entruster is the theoretical owner of the
goods as he advanced the full payment of the goods.
Note: Trust receipts may be between individuals

Effect of Returning Goods to Entruster
- The entrustee has the option of returning all of the goods
to the entruster if the due date is near and he has not sold
the goods to avoid a prosecution for estafa. In this event,
the bank would be the one to sell the goods and deduct
the proceeds from the debt of the entrustee.
- Returning the goods does not extinguish the obligation to
pay the amount advanced by the bank.
Why is there a need for the Trust Receipts Law:
The bankruptcy of bank became rampant from their failure
to collect from borrowing importers who did not remit any
amount to the banks after they have claimed the goods.
The P.D. regulating trust receipts was made to protect the
banking system. The PD requires the entrustee to insure
the goods against all risks.
Consequences of the Entrustee’s Failure:
- Before, there are two views
1. Violation of a TR is a criminal act under Art. 315 of the
RPC.
2. Violation of a TR only leads to civil liability.
- NOW, the TR Law explicitly provides for criminal liability
and requires the entrustee to insure the goods against all
risks.
When a document has the same stipulations as a
promissory note along with undertakings present in a trust
receipt, then it is still considered a trust receipt.
In banks, the transaction is often called an L/C-T/R line
because of the interrelation of the 2 transactions.
CREDIT INSTALLMENT SALES
- It is the use of TR but is not a trust receipt by provision of
law because the buyer did not intend to sell the goods
sold but to use it.
3. WARSAW CONVENTION
What: It is an agreement among sovereign nations for:
1.) Having uniform documents in international air
transportation,
2.) Fixing the liabilities for international air carriers.
Who are the parties:
The signatories are referred to as HIGH CONTRACTING
PARTIES.
The Philippines was not an original party because at the
time, it was not yet a state and it had no aircraft. Ph was a
party by accession to the US.
What is an INTERNATIONAL AIR TRANSPORTATION:
- One where the port of origin is in one country and the
port of destination is in another
- One where the port of origin is in one country and the
port of destination is in the same country but the agreed
stopping place is in another country. This often occurred
when there were multiple colonies, e.g. LA (US) – Tokyo
(Japan) – Guam (US).
- Movement of goods by land or water to the aircraft
What documents must be uniform:
1.) Passenger Ticket, issued by the carrier
2.) Baggage Check, the white strip of long sticker with a
bar code
3.) Airwaybill, it is a B/L
Currency of Indemnity: Before, original indemnity used
to be fixed in Swiss Francs; now, this was changed to US
Dollars.
What are the fixed liabilities of the carrier
1.) Death of a passenger: $100k, no question asked.
2.) Physical injuries: $100k maximum, depending on the
severity of the injury.
3.) Checked-in articles: $1k per kilo UNLESS a greater
value is declared and the fare corresponding to the bigger
value is paid
The value must be proven to be at least $1/kilogram;
otherwise it is only value you can prove.
4.) Hand-carried articles: $1k maximum regardless of
weight and actual value
Why are liabilities fixed: Because of the different ways
to assess damages for injuries or loss of goods
What to do to claim the full amount:
1.) Declare the value
2.) Pay fare according to the value
4. NEGOTIABLE INSTRUMENTS
Applicability of the Law:
It is an obsolete law but there are still provisions which are
still in practice. Thus, it must be read it with the Civil Code.
What are INSTRUMENTS
These are instruments of credit which involve money
except when the instrument gives the holder the right to
deliver another thing. They could be either a promissory
note or a bill of exchange, known as money substitutes.
They can be assigned or negotiated.
When negotiated: If the instrument qualifies as negotiable
under section 1.
When assigned: If it does not qualify under sec. 1
What are PROMISSORY NOTES
These instruments of credit where the obligor who
borrows money from another or incurs the obligation to
another, binds himself to pay.
What is a BILL OF EXCHANGE
It involves obligations but instead of the obligor binding
himself to pay, he orders another person to pay.
What are the REQUIREMENTS FOR NEGOTIABILITY
a. PROMISSORY NOTE
1. It must be in writing and signed by the maker
2. It must contain an unconditional promise to pay a sum
certain in money
3. It must be payable on demand, or at a fixed, or
determinable future time
4. It must be payable to order or bearer
b. BILLS OF EXCHANGE
1. It must be in writing and signed by the drawer
2. It must contain an unconditional order to pay a sum
certain in money
3. It must be payable on demand, or at a fixed, or
determinable future time
4. It must be payable to order or bearer
5. The drawee must be named or indicated therein with
reasonable certainty
Who are the parties in a Promissory Note?
1. MAKER of the promise
2. PAYEE, to whom the promise is made
Who are the parties in a B/E: There are two original
parties
1. DRAWER, who signs the B/E
2. PAYEE
3. DRAWEE who is ordered to pay the instrument BUT
who does not become a party EVEN IF his name appears
on the instrument UNTIL he accepts the B/E and becomes
a party as ACCEPTOR.
1st Requirement:
IN WRITING AND SIGNED
2ND: A. UNCONDITIONAL PROMISE OR ORDER
What is a CONDITION
Under the Civil Code, it is a future or uncertain event, or
past event unknown to the parties. It may either be
Suspensive or Resolutory, which are valid, or Potestative,
which is void.
SUSPENSIVE CONDITION: It holds in abeyance the
demandability of the obligation. As long as it is not fulfilled,
the creditor cannt demand the fulfillment of the obligation.
RESOLUTORY CONDITION: One which puts an end to
an obligation.
What is required in the NIL:
There must be no suspensive or resolutory condition.
It is also invalid to stipulate that the amount would be
paid from a particular fund. BUT in a B/E ONLY, IF
payment is not from a particular fund, but its
reimbursement is from a particular fund, the instrument is
still negotiable.
Why is it required to be unconditional:
To serve the purpose of negotiable instruments, which is
to facilitate commercial transactions where one can
transact without having cash on hand.
Q: If the instrument does not meet the requirements of
sec.1, or it is non-negotiable, is it valid?
A: YES, negotiability is different from validity. It is also
transferrable but by assignment.
2nd: B. PAY A SUM CERTAIN IN MONEY
What does it mean: What is to be paid is sure to be
money.
GR: Instruments involve money
E: The instrument is still negotiable if it gives the holder
the right to demand the delivery of another thing. The right
must be given to the holder, and NOT the drawer, maker,
or drawee. Otherwise, the instrument is only non-
negotiable; it is still valid. eg “I promise to pay P20k on or
before April 2, 1992, or at the option of the holder, I agree
to deliver a pig instead.”
Example: Promise to pay bearer one thousand is INVALID
because it stated no currency.
Example: A provision for payment of interest at an agreed
rate is valid. “I promise to pay bearer P30k on or before
December 31, 2012, together with interest of 2% per
month.” This is valid. If the date of reckoning of the
interest does not appear, then it is the date of issue. If the
date of issue is not stated, then the holder may insert the
true date of issue.
DATE OF ISSUE is not required in Sec. 1 but it is not
totally irrelevant. It is merely not required for negotiability
but it is important in relation to the obligation to pay
interests.
POSTDATED: Date of issue is stated in the future
ANTEDATED: Date of issue is stated in the past
NOTE: Ante- and post-dating do not affect negotiability
but could affect rights of holder and liabilities of maker or
drawer.
Example: “I promise to pay bearer P30k on or before April
2, 2012, with interest.” This is valid because the interest
rate would then be the legal rate of 12% pa, if no rate is
stated.
Example: “I promise to pay bearer P30k on or before April
2, 2012, with interest of 30%.” This is valid even if there is
no indication as to the frequency of interest payment. In
such case, payment would only be once.
What if the instrument is payable in installments
In case of stated installments, there must be certainty in
the amount of every installment and date of payment or
when every installment is payable.
Example: “I promise to pay B, P10k in two equal monthly
installments.” This is NOT NEGOTIABLE. Though the
amount is determinable, there is no indication as to when
it is payable.
What is a DIVISIBLE OBLIGATION: When the amount of
the obligation is payable in stated installments, it is a
divisible obligation that may be performed in parts.
What is the Effect of a Divisible Obligation: If the
obligor defaults on the first installment, the creditor cannot
sue yet for the entire obligation because the period had
not yet lapsed, as provided under the Civil Code. The
creditor’s remedy is to put an acceleration clause.
NOTE: It is also a sum certain even if there is a proviso for
compounded interests, the payment of attorney’s fees,
costs of suit and expenses of litigation. Negotiability is
also not affected by a statement of the transaction that
gave rise to the issuance of an instrument.
3rd: PAYABLE ON DEMAND, AT A FIXED TIME,
OR AT A DETERMINABLE FUTURE TIME
When is the instrument PAYABLE ON DEMAND
When it is so stated to be payable on demand or
When no date is mentioned as to payment (pure
obligation), or
When it is payable on sight.
eg When the creditor demands payment, literally, and no
period is involved. The creditor, upon handing the money
to the debtor, collects the same two minutes later.
When is it PAYABLE AT A FIXED TIME
When the obligor is to pay ON a particular date
or ON OR BEFORE a particular date.
“On or before” is construed favorably to the debtor. Under
the Civil Code, when the period is fixed, the creditor
cannot demand payment, and neither can the debtor
demand acceptance earlier than the period. But under the
NIL, the creditor must accept the amount even if it is
tendered before the expiration of the period.
When is it PAYABLE AT A DETERMINABLE FUTURE
TIME
If, for example, it is payable within 15d from the
proclamation of the 2013 elected senators. It not valid if
the period states “on or after April 12, 2012” because it is
not determinable.
2. BILL OF EXCHANGE: Drawer and the Drawee Who
Accepts
3. PN/BE: Endorsers
4. Forgers
Who are Endorsers
Endorsers are persons who sign the instrument. Only
those whose signature appears in the instrument are
liable thereon. In cases of negotiation by delivery, they are
liable only to the immediate transferee.

What is the remedy in case of uncertainty in period? What is the liability of Endorsers?
Ask the court to fix the period. Their liability may either be general or irregular, as when
they sign the instrument but they have no concern therein.
4th: PAYABLE TO ORDER OR TO BEARER
What is “payable to order or to bearer”
These are the WORDS OR PHRASES OF May they sign through agents? YES, as long as the
NEGOTIABILITY. The instrument can also use “holder” or agent discloses the principal and acts within the scope of
“possessor”. It is important to know the presence of these his authority.
words to determine the manner of negotiation.
When is it an ORDER INSTRUMENT
A stipulation that an instrument is “NON-NEGOTIABLE” is
What is NEGOTIATION
immaterial because it is always payable to order in the
Negotiation is the transfer of an instrument as to constitute
following cases:
the transferee the holder thereof.
Pay to Jose Cruz or order
What are the MODES OF NEGOTIATING AN
Pay to the order of Jose Cruz
INSTRUMENT
Pay to the order of Jose Cruz and Pedro (joint where
1. ORDER: Indorsement and Deliver
there are two payees)
2. BEARER: Delivery
Pay to the order of Jose Cruz or Pedro Cruz (several)
Pay to the order of the holder of office for the time being
What is an INDORSEMENT
It is negotiation through the signature of the person who
How is an order instrument negotiated?
has the right over the instrument or document.
By Indorsement of the holder, followed by delivery.
Where is the indorsement placed? The law is silent.
Otherwise, the negotiation would be ineffective/
- It is customary to be made at the back so as not to
confuse the endorser’s signature with that of the maker or
When is it a BEARER INSTRUMENT
drawer, especially in cases of PNs stating “I promise to
Pay to bearer
pay” and there are two signatures appear, the result being
Pay to Jose Cruz or bearer (NOT “to bearer Jose Cruz”
the two signatures treated as co-makers.
where the designation of “bearer” is only descriptive and
- It may also be made in an ALLONGE, or a separate
thus the instrument is non-negotiable)
sheet of paper attached to the instrument where the
Pay to order of Batman (to the order of a fictitious
indorsements can be made.
person and such fact must be known to the person
Are there limits on the number of indorsements?
making it so payable)
Under the NIL, there are none. BUT under a Circular of
Pay to the order of Adolf Hitler (to the order of a non-
the Monetary Board, banks are prohibited from accepting
existing person and such fact must be known to the
any check with more than one endorsement to avoid
person making it so payable)
forgeries against banks.
Pay to the order of cash (to the order of a payee who
What are the KINDS OF INDORSEMENT
does not purport to be a name of any person)
1. IN BLANK, when the holder merely signs his name
When the last indorsement is in blank
2. SPECIAL, when the transferee is named and the holder
signs the same. The indorsement need not contain the
How is a bearer instrument negotiated?
words of negotiability, eg “Pay to Jose Cruz”. Such words
By mere delivery. Any indorsement is a mere surplusage.
are required only on the face of the instrument and not on
specific endorsements.
What are the EFFECTS OF DELIVERY
1. If the instrument is signed and delivered but there are
eg “Pay to order of Jose Cruz only” is a special and
blanks therein, then the holder-deliveree has the implied
restrictive endorsement.
authority to fill in the blanks according to the true
3. CONDITIONAL, as when it states “Pay to X only if he
agreement of the parties
graduates on March 2013”. This is also a special
2. If the instrument is not yet delivered, then it cannot be
indorsement and which does not affect negotiability.
enforced against the maker or drawer. It is unenforceable. 4. QUALIFIED, if the holder adds “without recourse” to his
3. If the instrument is already completed but not yet signature. There is no recourse to him if the instrument is
delivered, and it falls into the hands of a holder in due dishonored.
course, then the HDC is protected and his rights are not 5. RESTRICTIVE, as when the endorser states “Pay to
subject to personal defenses EXCEPT Forgery.
Jose Cruz only” or “Pay to trustee only for the purpose of
collection without authority to enter into subsequent
Who are LIABLE UNDER A NEGOTIABLE
contracts”. This affects and ends the negotiability of the
INSTRUMENT
instrument.
1. PROMISSORY NOTE: Maker

What is the EFFECT OF THE SEQUENCE OF
ENDORSEMENTS
The first in the list is presumed to be the first endorser. As
such, subsequent transferees can run after prior
endorsers. Thus, in practice, endorsers first sign at the
bottom, or sign with a date.
eg Pedro Cruz first signed the instrument. Jose Santos
then endorsed it to Juan Reyes. Juan Reyes can then run
after Pedro and Jose should the instrument be
dishonored.
What is the EFFECT OF A MARKED-OFF
ENDORSEMENT
When a name is stricken off, the holder cannot run after
the stricken off endorser and all the endorsers subsequent
to such name because they are relieved from liability as
there are no more indorsements in their favor.
Who are the HOLDERS OF AN INSTRUMENT
1. Holder for value
2. Holder in due course
Who is a HOLDER IN DUE COURSE
A holder in due course is one who acquired the instrument
under the following conditions (Sec. 52)
a. That it is complete and regular upon its face;
b. That he took it in good faith and for value;
c. That he became the holder of it before it was overdue,
and without notice that it has been previously dishonored,
if such was the fact;
d. That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title
of the person negotiating it.
1st: COMPLETE AND REGULAR
When is an instrument complete? No blanks
When is it NOT REGULAR?
RE: CROSSED CHECKS: Crossing of checks, or the
placing of two parallel lines on the upper left corner of a
check, makes the instrument no longer regular on its face
(SIHI Case). This is because such crossing indicates that
the check is not intended for encashment but only for
deposit to the bank account of the payee. It may thus be
endorsed only once, ie for deposit to the payee’s account.
La Suerte Cigarette Company v. SIHI: The cigarette
company sold its products through agents. The clients
deposited post-dated checks with the agents who
rediscounted the same with SIHI but appropriated the
proceeds. The clients refused to pay the checks because
the products were not delivered to them. SIHI thus failed
to collect. It was not considered as a HDC.
If there are alterations it might not appear regular upon
its face, it might be considered irregular.
2nd: IN GOOD FAITH AND FOR VALUE
When is it acquired IN GOOD FAITH: When the
transaction is above fraud.
When it is acquired FOR VALUE
 When the acquisitions is for a valuable
consideration under the law on contracts, and
 When the consideration is not contrary to law,
morals, good customs, public order and public
policy
Example: Law endorses the check he obtained from his
client to a prostitute. The prostitute is not a holder in due
course because her services do not constitute a valuable
consideration under the contract law. BUT IF the check is
endorsed to a massage lady or house cleaner, then the
latter is a HDC because the check was acquired
legitimately.
3rd: BEFORE OVERDUE
When is an instrument overdue?
-When the date of payment has passed.
Example: If a PN shows that it is payable today and it is
negotiated to you today, you are a HDC because the date
of payment, which is today, has not yet passed.
Example: If a check is dated 25 December 2012, but it is
negotiated to you only today, 3 February 2013, you are
still a HDC.
CHECKS NEVER BECOME OVERDUE AS THEY ARE
ALWAYS PAYABLE ON DEMAND. But under
jurisprudence, the demand for payment must be made
within a reasonable period determined on a case-to-case
basis, eg six months.
REMEDY OF THE HOLDER: Ask the drawer to re-date it
with his counter-signature.
4th: NO NOTICE OF INFIRMITY OR DEFECT OF TITLE
Can the PAYEE be a HDC
 As a general rule, NO because the fourth
requirement contemplates a transfer, “at the time
it was negotiated to him”. And between
immediate and direct parties (payee and
maker/drawer), personal defenses are available.
The purpose of the principle of HDC is to build
confidence in instruments of credit as a money
substitute.
 An exception is provided by the SC where the
payee is treated as a HDC because of the
peculiar circumstances of the case. A owed B,
and B owed C. B requested A to make A’s check
payable directly to C. C thus sued A for
collection, and C was treated as a HDC.
What are the advantages of being a HDC?
1. He is not subject to personal defenses, EXCEPT
Forgery, EXCEPT EXCEPT The maker can still be liable if
the forgery is ratified or due to estoppel.
2. Prior parties are liable to him
3. Subsequent transferees acquire the rights of a HDC
NOTE: While a person does not qualify as a HDC but
derives his right from a HDC, then he will have the same
rights as the HDC.
Example: Client issued a check to his lawyer. Lawyer
indorsed it to the store owner in payment of his overdue
account. The store owner is thus a HDC. If the store
owner indorses it to a prostitute, the latter is not a HDC
but acquires the rights of the store owner who is a HDC.
Who are the PARTIES IN A NI
A person is liable on an instrument only if his/her
signature appears on it (maker, drawer, acceptor,
general indorser, irregular indorser, forger).
Irregular indorser: Person is not a party to the
instrument but indorses the instrument
Per Procuration: Signing authority but with limitation.
Exceptions:
a. Person negotiating by mere delivery
The person who negotiated by mere delivery is liable
to the person to whom he negotiated the instrument
(the immediate transferee)
b. Person who was duly represented by his/her agent,
subject to two conditions: that the agent discloses his
principal and the agent acts within his authority.
What are the OBLIGATIONS OF THE PARTIES IN
A NI
1. MAKER: To pay and to warrant the existence and
capacity of the payee because he borrowed from the
payee himself
2. DRAWER: To warrant the existence and capacity
of the payee; that upon presentment, the drawee shall
honor the check; if it is dishonored, then he will pay
after notice
What are the STAGES OF LIFE OF A PN
1. Making
2. Negotiation
3. Payment
Q: In case of promissory notes, do they need to be
presented for acceptance?
A: No, they are presented for payment.
What are the STAGES OF LIFE OF B/E
1. Drawing/Issue
2. Presentment for Acceptance By the Drawee
Two possibilities:
- Drawee accepts
- Drawee dishonors the check by non-acceptance.
REMEMBER: The drawee is not an original party and
only becomes a party as an acceptor upon his
acceptance. And in case he accepts, he is bound only
by the terms of his acceptance, and not by the terms
of the b/e.
NOTE: Holder goes to the drawee, bringing the bill of
exchange. There must be presentment of instrument
for acceptance.
When drawee refuses to return or destroys the bill of
exchange when presented for acceptance, it is
deemed accepted.
If the bill is dishonored, the holder should give notice
of dishonor to all prior parties within a reasonable
period. A party not notified shall be discharged.
3. Negotiation
4. Presentment for Payment
Why: Presentment of acceptance is not an assurance
of payment. Thus, there are also two possibilities
here.
- Payment by the drawee
- Dishonor by non-payment
5. Payment/Discharge
How is PAYMENT OR DISCHARGE EFFECTED?
1. Payment in due course by the person primarily
liable, to the person entitled to receive the
payment, at the place agreed upon
What is PAYMENT IN DUE COURSE?
When it is made at or after the maturity date. If
payment is made before the maturity date, then there
is no discharge yet because the payor can still further
negotiate the instrument. But in practice, a fresh PN is
requested after payment is already made.
Who is the person primarily liable:
For PN, maker. For B/E, acceptor. The
accommodated party is also primarily liable.
Who is an ACCOMMODATION PARTY
He who signs the instrument as a maker, drawer,
acceptor, or endorser but without receiving anything
of value therefor and only for the purpose of lending
his name. He is liable under the instrument even if the
payee knows that he is signing only as an
accommodation party.
NOTE: For one to be an accommodation party, he
must have CLEAR INTENTION TO SIGN AND TO
BE BOUND AS AN ACCOMMODATION PARTY.
Who is the ACCOMMODATED PARTY
Person in whose favor it is signed.
Dean Eduardo Abella 43 What if the
accommodation party pays the instrument?
It is not yet discharged because he can still run after
the accommodated party.
2. Intentional cancellation of the instrument by the
holder
Effect: The obligation is NOT extinguished.
Condonation of a debt requires the acceptance of the
debtor.
3. Any other mode of existing an obligation to pay
a sum of money
Example: Compensation; Confusion of the rights of
the debtor and creditor
4. Discharge of the primary party
Q: How may a party secondarily liable be relieved
from liability?
a. Payment in due course by the person primarily
liable
b. By discharge of a prior party
c. By striking out indorsement (this relieves not only
the person whose name was stricken out but all those
after him/her)
d. Valid tender of payment by a prior party.
How to Discharge of Foreign Bills of Exchange
A domestic bill of exchange is also called an inland
bill of exchange.
A bill of exchange is foreign when the parties are in
different countries. If a foreign bill of exchange is
dishonored you make a protest.
Q: Who makes a protest?
A: It is made either by a notary public or a reputable
member of the community in the presence of 2 or
more persons.
What are BILLS IN SET
They are usually used in importation to facilitate
payment of obligations between persons in distant
places.
How do they work
The drawer prepares the B/E in two copies, the
original and the duplicate indicated as such. He
makes an instruction as follows: Pay this bill (Bill 1) if
the other bill (Bill 2) is not paid. The contents are the
same. The payee then presents both bills to the
drawee.
If the payee negotiates both bills to different persons
with different interests, the drawer is liable only to the
one whose bill is first accepted by the drawee. The
remedy of the other holder is against the payee.
What are CERTIFIED CHECKS
These are checks certified by banks to be credit-
worthy, where the debtor is certified as having enough
money for the same. It is no longer used today
because of the inconvenience to the banks.
Now, banks issues manager’s checks. The
advantages are its convenience and the fact that the
obligation of the bank to pay is not affected by any
garnishment of the drawer’s account. Its disadvantage
is the effect of the bank’s insolvency, making the
holder an unsecured creditor of the bank.
Certified Check
It is an ordinary check that has already been accepted
by a bank with money set aside for it.
Eventually, banks stopped the practice of certifying
checks and just issued manager’s checks. The
managers check is disadvantageous because in case
of insolvency of the bank, the holder is considered an
unsecured creditor.
Bills in Set
A bill of exchange prepared with more than one copy.
It facilitates payment between persons on distant
places. When one bill is lost, the other bills may take
its place.
24-Hour Clearing Process
A clearinghouse is a facility of the BSP for the
convenient collection of checks drawn on different
banks but deposited in another bank.
At an agreed time, representatives of banks convene
in a particular place in order to swap checks. The
banks process the checks. Within 24 hours from
receipt, the drawee bank must return these checks to
clearing house if it intends to dishonor them.
A BSP Circular provides that when a check is
received from the clearinghouse and the check should
be returned due to insufficiency of funds, the banks
should dishonor the checks. This is the reason why
overdrafts no longer occur.
SUPREME COURT RULINGS ON FORGERY
1. As a general rule, the bank suffers the loss
ultimately if what is forged is the drawer’s signature,
and the check is presented for over-the-counter
encashment or deposit with the drawee or collecting
bank who pays.
EXCEPTIONS: The drawer is made solely or
solidarily liable in some cases.
Why is the bank ultimately liable:
- The bank ought to know the genuine signature of its
depositors and
- There is breach of contract by the bank, ie the
specimen signature card, where it undertook to pay
only on the basis of any of the signatures therein.
2. If what is forged is the payee’s signature:
a. Drawee ultimately suffers the loss if the check is
presented for over-the-counter encashment because
it failed to properly identify the payee and thus the
drawee bank paid the wrong person due to
negligence.
b. Collecting bank ultimately suffers the loss if the
check (of another bank) is presented for deposit
because of its failure to properly identify the payee
and because of its breach of warranty, that “All prior
endorsers guaranteed”, before it presented the check
in the clearing house.
What is a CLEARING HOUSE
It is a facility of the BSP for convenient collection by
banks of the checks drawn on other banks but
deposited with them.
What is the TWENTY-FOUR HOUR CLEARING
RULE
Within 24h from receiving checks from the clearing
house, a bank must return the checks un-cleared.
Otherwise, they would be cleared.
When are checks not cleared:
DAIF: Drawn against insufficient funds.
DAUD: Drawn against uncollected deposits.
Are banks required to accept any check
NO. There is a MB Rule that banks should not accept
checks presented for deposit or encashment by
anyone other than the payee.
5. WAREHOUSE RECEIPT
Governing Law: GENERAL BONDED
WAREHOUSE ACT governs the conduct and
business of warehousing
Who issues WR: Warehouseman.
Requirements for Issuance
1. Annual license from DTI Director.
2. Bond must be posted before the issuance of a
license, to answer for damages to goods suffered
while the goods are in storage. The bond is
coterminous with the license.
3. Insurance against fire over all the goods stored in
the warehouse.
Is there a prescribed minimum area for warehouses?
NONE.
What is its difference with a Customs-Bonded
Warehouse: WH is licensed and bonded, while a
customs-bonded WH is a facility by importers of raw
materials.
What if a warehouseman issues more copies of WH
receipts: He must indicate that it is only a copy and
not the original. Otherwise, he is liable to a TP who
receive it in GF and for value
If a warehouseman issues more than one copy of a
warehouse receipt, he should indicate on copies that
they are merely copies and not the original. If he fails
to indicate it as a copy and a person in good faith
received the receipt for value, he would be entitled to
the goods as if his warehouse receipt were original.
Negotiability of WH Receipts
A warehouse receipt is negotiable or non-negotiable.
Effect of Negotiation: Transferee acquires the direct
right to receive goods from the warehouseman.
However, the right is conditioned upon the following:
1.) Person claiming the goods must first satisfy the
liens of the warehouseman.
2.) He must surrender the original to the
warehouseman.
3.) He must express his willingness to sign the receipt
upon delivery of the goods to him.
Liens of the Warehouseman
Nature: Possessory and Waivable by parting with the
goods
1.) Storage fees
2.) Other arrangements with the depositor, e.g.
premium and interest for additional insurance
coverage
3.) Cost of packaging and repackaging (though the
latter is illegal)
Q: What should warehouseman do with the original
receipt?
A: Cancel it. If he fails to cancel it and the receipt falls
into the hands of someone in good faith and who got
it for value, warehouseman is liable to the person.
Q: May goods covered by a document of title be
levied upon on attachment for execution?
A: Yes.
Effect of Loss of Original Receipt
- The claimant must file an action in court to prove his
ownership or right over the goods. In practice, the
claimant merely posts a bond with the
warehouseman.
- It would be the claimant’s problem because he
cannot oblige the warehouseman to deliver the goods
without the original receipt
- To protect the warehouseman, the claimant must
post a bond for the value of the goods.
6. COMMON CARRIERS
Definition: A common carrier is a person natural or
juridical who is regularly engaged in the transportation
of goods, passengers or both, offering its services to
the public for a fee.
Elements
1.) Transporting goods, passengers or both.
2.) Offering service to the public
3.) For a fee
The common carrier is at liberty to transport what they
want.
Q: What is the “public”?
A: It is not necessarily the general public; it may
merely be a narrow segment of the public, e.g. school
bus operator is a common carrier; pipeline is also
considered a common carrier, transporting fuel, and
its clients are Shell and Caltex.
Q: Do you need a motor vehicle?
A: No.
Importance of Classification: The diligence required
of a common carrier is extraordinary diligence.
CARRIAGE OF GOODS
When to exercise ED:
General Rule: Extraordinary diligence is to be
exercised when
the goods are unconditionally placed at the disposal
of the common carrier,
until the goods shall have been delivered to the
consignee or
until consignee has been informed of arrival of the
goods and given a reasonable opportunity to claim
the goods.
Reasonable opportunity is dependent upon the
circumstances.
Exception: When the shipper exercises the right of
stoppage in transitu.
Q: In case of stoppage in transit, what is the
relationship of the common carrier to the shipper?
A: The common carrier is merely a bailee, where the
diligence required is only that of a good father of a
family.
Exception to the exception: Eordinary Diligence if the
shipper asks for delivery back to himself.
Q: Is the common carrier an insurer of the goods?
A: No, the common carrier is not an insurer against all
risks related to transportation.
When may the CC avoid liability for loss or
damage to goods:
1.) When the proximate and only cause is a storm,
earthquake, lightning, or other natural calamity.
2.) When the proximate and only cause is an act of a
public enemy in times of war, whether civil or
international.
3.) When the proximate and only cause is the
character of goods or a defect in the container or
packaging.
4.) When the proximate and only cause is the act or
omission of the shipper himself.
5.) When the proximate and only cause is the order of
a competent public authority.
REQD: There must be no unnecessary delay in the
prosecution of the voyage. The carrier should not
have committed an improper deviation. The diligence
required is still extraordinary diligence (BUT,
according to NCC 1739, it is only Due Diligence).
Q: If not one of these five occurred, might the carrier
excuse itself from liability?
A: Yes it may, but it is the obligation of the Common
Carrier to prove that under the circumstances, it
exercised extraordinary diligence. The burden of proof
is on the common carrier.
Q: If one of these five occurred, is there a chance to
recover from the common carrier?
A: Yes, but the burden of proof is on the shipper to
prove that there is failure to exercise the required
standard of care, still extraordinary diligence.
Q: May a common carrier and shipper validly stipulate
on a standard of care less than extraordinary?
A: Yes, but it must conform to the following
requirements:
1.) Must be in writing and signed by both parties
2.) It must be supported by consideration other
than to transport (ex. Discount)
3.) The stipulated standard of care must not be
less than that of a good father of a family.
4.) If there are other stipulations, they must be
fair and reasonable.
There are 2 prestations in a bilateral contract to
transport. With respect to the carrier its prestation is
the promise of the shipper to pay the fare. With
respect of the shipper, it is the promise of the carrier
to transport the goods.
Standards of Care:
1.) Utmost diligence of a very cautious person
(transportation of person)
2.) Extraordinary diligence (transportation of goods)
3.) Good father of a family.
Note: There is no name for the standard of care in
between extraordinary diligence and that of a good
father of family.
The shipper also has the obligation to minimize
damage to itself.
CARRIAGE OF PASSENGERS
Q: When should diligence start?
A: When the carrier agrees to take in the person as a
passenger.
Q: May the passenger and the carrier stipulate a
lower standard of care?
A: No
Q: Is a common carrier insurer against all risks?
A: No, it is not, BUT in case of mechanical defects or
when a common carrier violates a traffic rule, the
common carrier is always liable.
Employees’ Negligence: The common carrier shall
be liable for acts or omission of its employees
although said employees may have acted without or
in excess of their authority
Stranger’s Negligence: For acts or omissions of
other passengers or third persons, if the common
carrier could have prevent death or injury by merely
exercising the diligence of a good father of a family
and it failed to do so, the carrier is liable.
Q: When may a common carrier be liable for moral
damages?
A: In the following instances:
1.) Death of passengers –in favor of the heirs
2.) When passenger suffers physical injuries
3.) When the common carrier acts in bad faith
A common carrier is liable for moral damages against
a waitlisted passenger whose number is called, given
a boarding pass, allowed to proceed to the pre-
departure area but not allowed to board.
7. DOCUMENT OF TITLE
Governing Laws:
NCC (Sales)
Code of Commerce
Warehouse Receipts Act
Definition
It is an instrument or document where the bailee
acknowledges goods and contains an undertaking to
deliver the goods
- DIFF with Instrument under the Negotiable
Instruments Law
1) Coverage: NCC covers GOODS to be transported
or safely kept. NIL covers sums certain in money,
except other properties that may also be covered.
2) Modes of Endorsement
- In DTs, endorsements must be IN BLACK or
ESPECIALLY
- In NIs, it may be blank, especially, conditional,
qualified, or restrictive
Examples of Documents of Title
- Bill of Lading, issued by common carriers (Code of
Commerce)
- Warehouse Receipt, issue by warehousemen (under
the Warehouse Receipts Act and the General Bonded
Warehouse Act).
- Quedan, a warehouse receipt that covers rice,
sugar, or tobacco
Who issues DTs:
Common carriers
Warehousemen
Forms of DTs – to facilitate trade
1. Negotiable IF it contains words of negotiability, i.e.
to order, to bearer, or those with equivalent words or
phrases (e.g. holder, possessor)
2. Non-Negotiable
3.) Complete name and address of the carrier/shipee
(NCC).
4.) Complete description of goods including marks
and markings, e.g. Numbers on crates, Names in
pomelo crate from Davao
5.) Amount of fare
6.) Stipulations on limited liability
- Nature: Contract of Adhesion but it is not prohibited;
it is only interpreted against the party who cause the
ambiguity
Q: Are printed stipulations on Bill of Lading binding on
the shipper even if the shipper does not sign?
A: GR: Yes, a contract is perfected by mere consent.
Here, consent is implied even if it is signed only by
the carrier’s representative.
EXCEPTION: There is no consent if print is too small
that the shipper could not have read it as in the
Shewaram Case.

What if it contains “deliver to bearer” with a red stamp

in big font of “NON-NEGOTIABLE”: It is negotiable
even if the bailee intends it to be non-negotiable, as
long as it contains words of negotiability.
How to Negotiate Documents of Title
1. To Order Instruments: Indorsement (Blank or
Special) and Delivery
2. To Bearer: Delivery

If Originally To Bearer, then specially endorsed and

delivered, the transferee must also negotiate by
endorsment and delivery.
NOTE: Once it has been especially endorsed,
negotiate by endorsement and delivery all the time
thereafter
EXCEPT IF the last endorsement is in blank, then just
deliver it subsequently
DIFFERENCE WITH NI: Endorsement in a bearer NI
has no effect.

8. BILL OF LADING

Governing Law: Code of Commerce

Kinds:
1.) Bill of Lading – Common carrier of goods
by water
2.) Waybill – by trucks on land
3.) Airwaybill – by aircrafts, airlines

Formal Requirements
1. It must be printed
2. It must contain the complete name and address of
the printer
3. It must contain the telephone number of the printer.
4. It must contain the TIN Number of the printer.

Content of B/L (Code of Commerce)

1.) Complete name and address of consignor/shipper.
2.) Complete name and address of consignee.