1.

       Yeti Export Corporation (YEC), thru its President, negotiated for Yahoo
Bank of Manila (YBM) to issue a letter of credit to course the importation of
electronic parts from China to be sold and distributed to various electronic
manufacturing companies in Manila.  YBM issued the letter of credit and
forwarded it to its correspondent bank, Yunan Bank (YB) of Beijing, to notify
the Chinese exporters to submit the bill of lading in the name of YBM covering
the goods to be exported to Manila and to pay the Chinese exporters the
purchase price upon verification of the authenticity of the shipping
documents.  The electronic parts arrived in the Port of Manila, and YBM
released them to the custody of YEC as an entrustee under a trust receipt. 
When YEC unpacked the imported parts in its warehouse, it found that they
were not only of inferior quality but also did not fit the descriptions contained
in the bill of lading.  YEC refused to pay YBM the amount owed under the trust
receipt.  YBM thereafter commenced the following: 

(a) Civil suit to hold YB liable for failure to ensure that the electronic
parts loaded for exportation in China corresponded with those
described in the bill of lading.  Is there any merit in the case
against YB? Explain your answer. (5 pts.) 

The Civil Suit is without merit.

Yuan Bank (YB) only acted as an Advising Bank. It is neither a

confirming bank since it did not assume direct obligation to the beneficiary and
its liability is a primary one as if the correspondent bank itself had issued the
letter of credit, nor a negotiating bank because it did not buy the draft of the
beneficiary of the letter of credit.
The law on letters of credit provides that an advising bank’s liability and
obligation are limited only to the determination of the authenticity of the letter
of credit and to notify and/transmit to the beneficiary the existence of the letter
of credit.
Thus, YB being an advising bank has no liability or obligation to ensure
that the electronic parts loaded for exportation in China corresponded with
those described in the bill of lading.

(b) Criminal suit against YEC and its President for estafa, and sought
the payment of the amount covered in the trust receipt.  The
defense of the YEC President is that he cannot be held liable for a
transaction of the corporation, of which he only acted as an officer,
and that it is YEC as the principal that should be held liable under
the trust receipt, which was entered into in the name of YEC and
 pursuant to YEC’s corporate purposes.  He cited as his legal
ground the “Doctrine of Separate Juridical Personality.”  Is the
President's contention meritorious? Explain your answer. (5 pts.)  

The President’s contention is without merit.

Under the doctrine of separate juridical personality, the law specifically

provides that if the entrustee is a corporation, the law makes the director,
officer or any person responsible for the violation of the Trust Receipt
agreement criminally liable precisely for the reason that a Corporation, being a
juridical entity, cannot be the subject of the penalty of imprisonment.
Nevertheless, following the same doctrine of separate legal personality,
he cannot be civilly liable there being no showing that he binds himself with
YEC to pay the loan. Only YEC is liable to pay the loan covered by the letter of
credit/trust receipt. He may, however, be personally liable if he bound himself
to pay the debt of the corporation under a separate contract of surety or
guaranty as the case may be.

  
2.       Yolanda executed and signed a promissory note with all the requisites
for negotiability being present, except for the amount which was left blank. 
She kept the promissory note in her desk and decided to place the amount at a
later date.  The indicated payee, Yohann, managed to obtain the promissory
note from Yolanda’s desk and filled out the amount for the sum of
Php10Million, which was the amount actually lent by him to Yolanda, but
excluding the agreed interest.  Yohann later indorsed and delivered the check
to Yvette, under circumstances that would constitute the latter to be a holder
in due course. 
(a)      May Yvette hold Yolanda liable on the note? (5 pts.)
Yvette cannot hold Yolanda liable on the promisory note. The promisory note is
incomplete and undelivered. Yohann, the payee, has no authority to complete
the amount and negotiate the instrument since it was not delivered unto him.
It does not constitute a valid contract in the hands of any holder including
holder in due course. Therefore, Yvette even she is a holder in due course
cannot enforce payment of the instrument from Yolanda.

No. Yvette cannot hold Yolanda liable on the note.

The law on Negotiable instruments provides that an incomplete

instrument not delivered is a total defense there being the instrument cannot
be enforced. No instrument has been issued. Where an incomplete instrument
has not been delivered, it will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
 Thus, Yohann, the payee, has no authority to complete the amount and
negotiate the instrument since it was not delivered unto him. It does not
constitute a valid contract in the hands of any holder including holder in due
course.

 
(b.) Would your answer be the same if the promissory note was
actually completed by Yolanda (including the amount of PhP 10
million), but stolen from her desk by Yohann?  Can Yvette enforce
the note against Yolanda? (5 pts.)  

No. My answer will not be the same. In this case, Yvette can enforce the
instrument against Yolanda.
The law on Negotiable instruments provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate
parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority
of the party making it and in such a case the delivery may be shown to have
been conditional, or for a special purpose only and not for the purpose of
transferring the property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all parties prior to
him/her so as to make them liable to him/her is conclusively presumed. And
where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him/her is presumed until
the contrary is proved.
Thus, now that the instrument is complete but undelivered and in the
hands of Yvette, a holder in due course, Yvette can hold Yolanda, a prior party,
liable. A complete but undelivered instrument is only a personal defense not
available against a holder in due course.

  
3.       Magdalo Savings Bank, Inc. sold a one-hectare lot to Sonya Alejano, its
former President and Chairman of the Board, for a price of Php2Million.  The
lot was acquired by the Bank through extra-judicial foreclosure sale in
satisfaction of a mortgage debt for Php1.5Million.  The market value of the lot
stands now at Php2.75Million.  The Bank’s Board of Directors approved and
confirmed the sale of the lot on the ground that it had remained undisposed for
a period of about 10 years already and booked at the same value of
Php2Million.  After a month from the sale, the Bank is placed under
conservatorship.  Garrie Billones, the conservator, deemed the sale of the lot
unconscionable and too prejudicial to the interest of the Bank.  Citing his
statutory power to overrule or revoke the actions of the Board of Directors of
the Bank, he decided to repudiate the sale of the lot to Sonya.  As a
conservator, is Garrie correct?  Explain your answer. (5 pts.) 
 No. Garrie’s contention is incorrect.
In a similar case decided by the Supreme Court, the court held that, the
conservator’s power is not unilateral and cannot simply repudiate valid
obligations of the bank. His/her authority would be to only bring court actions
to assail such contracts. To rule otherwise would enable a failing bank to
become solvent, at the expense of third parties, by simply getting the
conservator to unilaterally revoke all previous dealings which come to be
considered unfavorable to the bank, yielding nothing to perfected contractual
rights nor vested interests of third parties who had dealt with the bank.
Moreover, the exercise of conservatory powers must be related to (1)
preservation of assets, (2) reorganization of management and (3) the restoration
of viability. Such power to revoke cannot extend to post-facto repudiation of
perfected transactions; otherwise, they would infringe the non-impairment
clause of the Constitution.
Thus, Garrie cannot repudiate the sale of lot to Sonya.

  
4.       Eleven months after the sale of the lot, Garrie eventually determined
that the continuance in business of Magdalo Savings Bank, Inc. would involve
probable loss to its depositors and creditors.  On the basis of her report, the
Monetary Board prohibited the Bank from doing business and placed it under
receivership.  Lenny Lu Gaw, the Head of the Bank’s Corporate Banking
Division, who happened to be a lawyer, opined that the Bank could not be
validly closed on the basis of a report from Garrie, even if she is the
conservator, that such report should have instead come from the head of an
examining or supervising department of the Bangko Sentral ng Pilipinas. 

(a) Is Atty. Lenny correct?  Explain your answer.  (5 pts.)  Atty. Lenny
further argued that such irregularity amounted to deprivation of the
right of the Bank to be heard especially considering that the report
came from Garrie.  The latter countered that the closure of the Bank
should really be summary and hearing is not required. 

No. Atty. Lenny’s opinion is incorrect.

The Central Bank Act provides that The report of conservator regarding the
status of the bank is sufficient basis for the Monetary Board to put the bank
under receivership. The Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business in the Philippines and
designate the person or entity authorized by law to act as receiver of a banking
institution.
Moreover, in a case decided by the Supreme Court, the court held that
Prior notice and hearing is not required before a bank may be directed to stop
operations and placed under receivership. When the law provided for the filing
of a case within 10 days after the receiver takes charge of the assets of the
bank, it is unmistakable that the closure should precede the filing of the case.
Thus, the Monetary Board has the authority to close a banking
institution and place it under receivership without need for prior hearing,
which is contrary to the opinion of Atty. Lenny.

(b) Is Garrie correct?  Explain your answer. (5 pts.) 

Yes. Garrie’s determination and recommendation is correct.

One of the duties of a conservator as provided for by the Central Bank
Act is to make a report to the Monetary Board. It is within the purview of the
conservator to report that the continuance in business of the bank would
involve probable loss to its depositors, or creditors, in which case receivership
and liquidation shall be pursued.
Thus, Garrie’s assessment and reporting to the Monetary Board is in
accordance with his duty as a conservator.

5.       Safe Warehouse, Inc. (Safe) issued on various dates negotiable

warehouse receipts to Peter, Paul and Mary covering certain goods deposited by
the latter with the former.  Peter, Paul and Mary then negotiated and endorsed
the warehouse receipts to Cyrus, Magnus and Charles upon payment by the
latter of valuable consideration for the warehouse receipts.  Cyrus, Magnus
and Charles were not aware of, nor were they parties to any irregularity or
infirmity affecting the title or the face of the warehouse receipts.  On due dates
of the warehouse receipts, Cyrus, Magnus and Charles demanded that Safe
surrender the goods to them.  Safe refused because its warehouseman's claim
must first be paid. Cyrus, Magnus and Charles refused to pay, and insisted
that such claim was the liability of Peter, Paul and Mary.  Is Safe’s refusal to
surrender the goods to Cyrus, Magnus and Charles legally justified?  Explain
your answer. (5 pts.) [2017 Bar] 

The refusal of Safe to surrender the goods is justified.

The Warehouse Receipts Law provides that, the warehouseman may
legally refuse to deliver goods such as but not limited to, in the valid exercise of
the warehouseman’s lien for all the lawful charges for storage and preservation
of the goods and all lawful claims for money advances interest, insurance,
transportation, labor, weighing, coopering, and other charges and expenses in
relation to such goods and All reasonable charges and expenses for Notice and
advertisement of sale of goods.
Thus, Safe’s refusal to surrender is justified sine the law provides for a
legal excuse to do so.

  
6.       Alfred issued a check for Php1,000.00 to Benjamin, his friend, as
payment for an electronic gadget.  The check was drawn against Alfred’s
account with Good Bank.  Benjamin then indorsed the check specially in favor
of Cesar.  However, Cesar misplaced the check.  Dexter, a dormmate of Cesar,
found the check, altered its amount to Php91,000.00, and forged Cesar’s
indorsement by way of a blank indorsement in favor of Felix, a known jeweler. 
Felix then caused the deposit of the check in his account with Solar Bank.  As
collecting bank, Solar Bank stamped “all previous indorsements guaranteed”
on the check.  Seeing such stamp of the collecting bank, Good Bank paid the
amount of Php91,000.00 on the check.  May Good Bank claim reimbursement
from Alfred?  Explain your answer. (5 pts.) 

No. Good Bank may not claim reimbursement against the drawer Alfred.
The law on negotiable instruments provides that, 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. Further the NIL provides that a material alteration can be constituted
that which changes, but not limited to, the sum payable.
In the given case, it falls within the purview of material alteration. The
check was altered so that the amount was increased from P 1,000.00 to
P91,000.00.
Thus, Good Bank should not be made liable for the P91,000.00 but only
up to the extent of the original tenor of the check.

  
7.       Mocha Binay and Choco Uson dined in a posh Japanese restaurant. 
Their bill reached a total of Php1,000.99.  Choco offered to pay the bill by
tendering to Mercedes Brazo, the waitress, a check for Php1,000.00 payable to
cash.  Realizing the balance of Php0.99, Mocha gave Mercedes a 10-piso coin
telling her with a smile – “Keep the change.”  However, Mercedes refused to
accept the check and the 10-piso coin in payment of the bill, and further
retorted that she is a law student and stressed that the check is not legal
tender.  Deeply embarrassed, Choco brought out from her purse the additional
100 newly-minted 10-piso coins.  May Choco now compel Mercedes to accept
her payment?  Explain your answer.  (5 pts.) 

Yes. Choco may now compel Mercedes to accept the 100 newly-minted
10-piso coins.
The New Central Bank Act provides all notes and coins issued by the
Bangko Sentral ng Pilipinas (BSP) are fully guaranteed by the Republic of the
Philippines and shall have legal tender power in the Philippines for all debts,
both public and private. However, sa same act provides that there is a limit in
value to regard coins to be considered legal tender. For 10-Peso coins, it is in
the amounts not exceeding P1,000.00 only.
Thus, the 100 pieces of 10-Piso amounting to P1000.00 have legal tender
power and can be used as payment.
  
8.       Laila D. Quattro issued this order of withdrawal -- 
  
Acct. No. 12345       No. 67890 
  
21 January 2017 
  
Pay to Ronn E.      
Dian the amount of
PESOS: One Hundred
Thousand only
(P100,000.00). 
  
Sabah Banking        
Corporation    
Pulong Saging Branch  (signed) 
88 Banana Laila D. Quattro 
St., Maruya Village 
Davao City 
       
  
At the back of the order of withdrawal, there is printed the following: 
  
Important 
  
1.    This order of withdrawal shall be payable only to a specific person,
natural or juridical, and not to bearer nor to the order of a specific person. 
  
2.    Only the payee can encash this order of withdrawal with the drawee
bank, or deposit it in his account with the drawee bank or with any other
bank. 
  
Section X223 of the Manual of Regulations for Banks defines Negotiable Order
of Withdrawal (NOW) Accounts as interest-bearing deposit accounts that
combine the payable on demand feature of checks and the investment feature
of savings accounts.  Is the order of withdrawal issued by Laila negotiable
under Act No. 2031?  Explain your answer.  (5 pts.) 

No. The order or withdrawal is not a negotiable instrument under the

Negotiable Instruments Law.
 It is not payable to “or order” of Ronn E. Dian. If it is not made payable
to the order, no one could indorse the instrument. Without the said words of
negotiability which is an expression of consent of the maker/drawer to
unconditionally pay the person to whom the payee orders to the payment to be
made or whoever subsequently comes to hold the instrument, it cannot be
passed as freely as money free from any personal defense of prior parties.
Thus, it is merely a simple contract in writing and evidence of such
intangible rights as may have been created by the assent of the parties.
  
  
9.       F Corp., a corporation engaged in the export of fertilizers, entered into a
sale of its products with Mr. P. In this relation, Bank C, F Corp.’s bank,
received an irrevocable letter of credit, payable on sight, issued by Bank I for
the account of its client, Mr. P, in the amount of Phpl,000,000.00 to cover the
purchase price of the sale. In the letter of credit, Bank C was designated as the
confirming bank.  After being presented with the required documents under
the letter of credit, Bank C issued in favor of F Corp. a cashier's check in the
amount of Pl,000,000.00.  Bank C then informed Bank I of the payment made
pursuant to the letter of credit.  Thereafter, Bank C transmitted the documents
presented by F Corp. to Bank I and sought to be reimbursed for the amount it
paid to F Corp.  Bank I, however, refused to reimburse Bank C for the reason
that it received an e-mail coming from Mr. P that the latter will not make any
payment to Bank I in relation to the letter of credit because the products
shipped to him by F Corp. were of substandard quality.

(a) Is Bank I's refusal to reimburse Bank C warranted? Explain your

answer. (5 pts.)  

Bank I’s refusal to reimburse Bank C s unwarranted.

In a similar case decided by the Supreme Court, the court held that
applying the Independence Principle, the bank determines compliance
with the letter of credit only by examining the shipping documents presented, it
is precluded from determining whether the main contract is actually
accomplished or not.
In this case, Bank C is the paying bank which undertook to encash the
drafts drawn by the beneficiary on behalf of the issuing bank, if the issuing
and paying bank are not the same.
Thus, in applying the Independence Principle as stated above, it liberates
the issuing bank, Bank C, from the duty of ascertaining compliance by the
parties in the main contract. The demands for reimbursement must not be
curtailed due to the circumstance arising from the main contract of the
beneficiary F Corp.
 (b) Assuming that the documents submitted by F Corp. were proven to
be actually forged but were nonetheless accepted by Bank C as
sufficient, may Bank I refuse Bank C's claim for reimbursement?
Explain your answer. (5 pts.)

No. Bank I cannot refuse Bank C from its claim for reimbursement.
In a similar case decided by the Supreme Court, the curt held that, the
Fraud exception rule exist when the beneficiary, for the purpose of drawing in
the credit, fraudulently presents to the confirming bank, documents that
contain, expressly or by implication, material representation of fact that to his
knowledge are untrue as in the circumstance of the case.
However, be that as it may, the beneficiary cannot raise the independence
rule principle as a defense in an action to enjoin payment to him on the LOC or
to recover what may have been wrongfully paid to him.
Thus, Bank C may claim for its reimbursement.

  
10.     Aishe Guerra issued a check payable to the order of Toti Tuozo.  She
crossed the check for “payee’s account only”.  Toti Tuozo is the sole proprietor
of Escalera Brothers Trading.  The check was deposited to the account of
Escalera Brothers Trading with Sensational Bank & Trust
Co.  Aishe demanded from Sensational Bank & Trust Co. reimbursement for
the amount of the crossed check.  Sensational Bank & Trust Co. countered
that Aishe should instead claim from Capote Banking Corporation as the
crossed check was drawn against it.  Aishe is relying on what she calls as the
“desirable short cut rule”.  

(a) Is Aishe correct in invoking said rule?  Explain your answer.  (5

pts.) 

No. Aishe is incorrect in invoking the desirable short cut rule.

In a similar case decided by the Supreme Court, the court held that, a
bank who has obtained possession of a check upon an unauthorized or forged
indorsement of the payee’s signature and who collects the amount of the check
from the drawee is liable for the proceeds thereof to the payee. The theory of
said rule is that the collecting bank’s possession of such check is wrongful.
Aishe erred in applying the said rule since it is an equitable remedy to a
person who is in good faith.

(b)     May Sensational Bank invoke the circuit of liability in Negotiable

Instruments Law?  Explain your answer.  (5 pts.) 

No. The Sensational Bank cannot invoke the circuit of liability in

negotiable instruments law.
 The law on negotiable instruments provides that the circuit of liability in
the Negotiable Instruments Law refers to the unpaid payee’s recourse to the
collecting bank. Moreover, in a case decided by the Supreme Court, the court
explained that it is made applicable only in instances the check was accepted
in honor and forgery lies in the drawer’s signature due to the gross negligence
of the said bank.
Thus, the said liability may not be invoked and the normal course of the
check should ensue.