Negotin 682 Reviewer-Digests

8/21/2019 Negotin 682 Reviewer-Digests

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NEGOTIABLE INSTRUMENTS ATTY. F. AMPIL

TRADERS ROYAL BANK v CA

• In 1979, Filriters Guaranty Assurance Corporation [Filriters] executed a“Detached Assignent! "here#y as registered o"ner, it sold, trans$erred,assigned and deli%ered unto &hilippine 'nder"riters Finance Corporation[&hil$inance] all its rights and title to Central (an) Certi$icates o$ Inde#tedness[C(CI] "orth *++ each, aounting to an aggregate %alue o$ &-.*/.

• In Fe# 1901, &hil$inance, through a epurchase Agreeent, sold, trans$erredand deli%ered one o$ the C(CIs "ith a $ace %alue o$ *++ to 2rader3s oyal(an) [2(] $or the price o$ &*19,-41.11.

• In April 1901, &hil$inance agreed to repurchase the C(CI pursuant to theagreeent. 5o"e%er, it $ailed to do so "hen the chec)s it issued $or 2( "asdishonored due to insu$$icient $unds.

• &hil$inance then executed a “Detached Assignent! in $a%or o$ 2( to ena#lethe latter to ha%e its title copleted and registered. (ut "hen 2( presented theC(CI to the Central (an) $or registration, the latter re$used to do so. 2( then$iled a case to copel the Central (an) to register the C(CI in its nae.

• 6hen ipleaded in the case, Filriters claied that the detached assignent

$ors "ere executed #y its enior 8ice&residentCoptroller and 8ice&resident2reasury "ithout the )no"ledge and consent o$ its directors and ":o

"ritten authori;ation $ro its (oard. As such, Filriters claied that theassignent o$ the C(CI to &hil$inance "as a personal act o$ its < o$$icers andnot its corporate act. (eing so, the assignent "as null and %oid. It also claiedthat the C(CI "as not a negotiable instrument and as a certi$icate o$ inde#tedness "as not paya#le to #earer #ut "as speci$ically registered in thenae o$ Filriters.

• 2he 2C declared the assignent null and %oid.

• 2he CA ruled that the C(CI "as not a negotia#le instruent since theinstruent clearly stated that it "as paya#le to Filriters, the registered o"ner,"hose nae "as inscri#ed thereon and that the certi$icate lac)ed the "ords o$ negotia#ility "hich ser%e as an expression o$ consent that the instruent ay #etrans$erred #y negotiation. 2he CA also $ound that &hil$ inance ac=uired the C(CI$ro Filriters $ictitiously #ecause there "as really no consideration or %alue

recei%ed in the trans$er. 6hat happened "as &hil$inance erely #orro"ed theC(CI $ro Filriters, a sister corporation.

I'>? 6:@ 25> C>@2A (A@ C>2IFICA2> BF I@D>(2>D@> 6A A@>GB2IA(> I@2'/>@2

5>D? @B.2he court held that the su#ect C(CI "as not a negotia#le instruent in the

a#sence o$ "ords o$ negotia#ility "ithin the eaning o$ the negotia#le instruents

la". 2he C(CI reads that “the Central (an) proises to pay #earer, or if thisCertificate of Indebtedness be registered, to Filriters Guaranty AssuranceCorporation, the registered o"ner hereo$, the principal su o$ *++).! A reading o$ the C(CI indicates that it is paya#le to Filriters, and to no one else, thus discounting2(3s su#ission that it is a negotia#le instruent.

2he language o$ negotia#ility "hich characteri;es a negotia#le paper as a creditinstruent is its $reedo to circulate as a su#stitute $or oney. 5ence, $reedo o$ negotia#ility is the touchstone relating to the protection o$ holders in due course, andthe $reedo o$ negotia#ility is the $oundation $or the protection "hich the la" thro"saround a holder in due course. 2his $reedo in negotia#ility is totally a#sent in aC(CI as it erely ac)no"ledges to pay a su o$ oney to a specified person or entity $or a period o$ tie. A certi$icate o$ inde#tedness then pertains to certi$icates$or the creation and aintenance o$ a peranent ipro%eent re%ol%ing $und and issiilar to a “#ond!. (eing e=ui%alent to a #ond, it is properly understood as anac)no"ledgeent o$ an o#ligation to pay a $ixed su o$ oney.

Citing Caltex % CA, the court ruled that the accepted rule is that the negotia#ility or nonnegotia#ility o$ an instruent is deterined $ro the "riting, or $ro the $ace o$ the instruent itsel$. As it lac)ed the "ords o$ negotia#ility, the C(CI is nonnegotia#le. 2hus, the trans$er o$ the instruent $ro &hil$inance to 2( "as erelyan assignent, and is not go%erned #y the @egotia#le Instruents a".

Conse=uently, the title o$ Filriters o%er the su#ect C(CI "as upheld o%er theclaied interest o$ 2(.

Jen Laygo 2D ’05 1


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CALTEX PHILS v CA and Se!"#$y Ban%

• ecurity (an) E 2rust Copany issued stoppel,and adission is rendered conclusi%e upon the person a)ing it and cannot #edenied as against the person relying thereon. I$ it "ere true that the C2Ds "eredeli%ered as payent and not as security, Aranas could ha%e easily said so, insteado$ using the "ords “to guarantee.!

'nder the @I, an instruent is negotiated "hen it is trans$erred $ro one personto another in such a anner as to constitute the trans$eree the holder thereo$, and aholder ay #e the payee or indorsee o$ a #ill or note, "ho is in possession o$ it, or the #earer thereo$. In the present case, ho"e%er, there "as no negotiation in thesense o$ a trans$er o$ legal title, in "hich case deli%er "ould ha%e su$$iced. 5ere, thedeli%ery o$ the C2Ds "as only as security $or the purchases o$ Dela Cru;. 2here$ore,Caltex could only ha%e #een a holder for value by reason of lien. Accordingly, anegotiation $or such purpose cannot #e e$$ected #y ere deli%ery o$ the instruent#ecause the ters thereo$ and the su#se=uent disposition o$ such security, in thee%ent o$ nonpayent o$ the principal o#ligation, ust #e contractually pro%ided $or.



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I& PINEDA v DELA RA'A Presumption that a negotiable instrument is issued for a valuable

consideration is only prima facie

• ose Dela aa "as a practicing la"yer "ho "as retained #y petitioner esus

&ineda in order to a)e representations "ith the chairan E gen. anager o$ the @at3l ice E Corn Adin3n [@AIC] regarding the alleged institution o$ criinal charges against &ineda $or isappropriation o$ 11,+++ ca%ans o$ palay.2he @AIC gen. anager "as supposedly an intiate $riend o$ Dela aa.

• Accdg to Dela aa, &ineda #orro"ed &9,-+++ $ro hi as e%idenced #y aproissory note signed #y the latter. Dela aa then sued $or collection o$ theaount, including &*) in attorney3s $ees $or ser%ices in the case o$ @AIC.

• In his de$ense, &ineda clais he only signed the note #ecause he "as ade to#elie%e that Dela aa had already ad%anced the aount to #ri#e the @AICo$$icials in order to suspend &ineda3s prosecution.

• In the course o$ the case, it "as pro%en that the %alue o$ the proissory note

"as not the only aount recei%ed #y Dela aa, as &ineda had earlier gi%enhi &-) %ia chec) to ser%e as grease oney. An airconditioner #ought #y

&ineda3s son supposedly to gi%e to the @AIC o$$icials also "ent to Dela aaand "as ne%er gi%en to the o$$icials. 4 sac)s o$ rice "ere also pro%en to #erecei%ed #y Dela aa. It "as later $ound out that none o$ the authorities hadrecei%ed any o$ the aounts, and that there "ere no criinal chargesconteplated to #e $iled against the petitioner #y @AIC to #egin "ith.

• 2he 2C ruled $or &ineda, declaring that the &9-++ in the note "as not recei%ed#y &ineda nor gi%en to any party $or his #ene$it. It also ruled that the &-) #ereturned to petitioner, su#tracting &++ as legal $ees $or the @AIC case,considering Dela aa already recei%ed an airconditioner and 4 sac)s o$ rice.

• CA re%ersed, claiing that &ineda should ha%e )no"n #etter than to sign adocuent or paper ":o #eing a"are o$ its contents E iportance. 2he CA citedec.


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II& PHIL& BANK O* CO''ERCE v AR+E,O Definition, rights and liabilities of an Accommodation Party

• ose /. Aruego "as the president o$ the &hilippine >ducation Foundation

Copany "hich pu#lished a periodical, “6orld Current >%ents.! 2he Copany

%ia Aruego o#tained a credit accoodation $ro the (an) o$ Coerce inorder to $acilitate the printing o$ the periodical. 2hus, $or e%ery printing, theprinter [>ncal &ress E &hoto>ngra%ing] collected the cost #y dra"ing a dra$tagainst the #an) then sent it to Aruego $or acceptance. As added security, the(an) re=uired Aruego to execute a trust receipt "here the latter undertoo) tohold in trust $or the (an) the periodicals and sell the sae "ith the proise toturn o%er the proceeds as payent o$ all o#ligations arising $ro the dra$t.

• 2he (an) then instituted a case against Aruego $or reco%ery o$ the total susdue.

• Aruego claied that "hen the %arious #ills o$ exchange "ere presented to hi$or acceptance, the aounts "ere already paid #y the (an) to >ncal ":o his)no"ledge or consent. 5e also clais to #e an accoodating party only $or >ncal and "ill #e lia#le only in the e%ent that >ncal $ails to pay the (an).

• 2he 2C disissed $or lac) o$ cause o$ action. 'pon appeal in the CA, he $ailedto $ile his ans"er on the last day $or pleading, #ut "as excused #y the C.

I((!e? 1. 6:@ A'>GB B@H IG@>D A A@ AG>@2 BF 25> &5II&&I@>>D'CA2IB@ FB'@DA2IB@ CB/&A@H

. Aruego clais that the dra$ts signed #y hi "ere not really #ills o$ exchange#ut ere pieces o$ e%idence o$ inde#tedness #ecause payents "ere alreadyade #e$ore acceptance. 'nder @I, a #ill o$ exchange is an unconditional order in

"riting addressed #y 1 person to another, signed #y the person gi%ing it, re=uiring theperson to "ho it is addressed to pay on deand or at a $ixed or deterina#le $uturetie a su certain in oney to order or to #earer. As long as coercial paper con$ors ": the de$inition o$ a #ill o$ exchange, that paper is considered a #ill o$

exchange. 2he nature o$ acceptance is iportant only in the deterination o$ the )indo$ lia#ilities o$ the parties in%ol%ed, #ut not in the deterination o$ "hether acoercial paper is a #ill o$ exchange or not.

A@@B2A2IB@? An accoodation party is a party to the instruent as a)er, dra"er.

Acceptor or indorserL he has not recei%ed any %alue there$or and he ust sign$or the purpose o$ lending his nae or credit. I$, on the other hand, anindorseent is ade as a favor to the indorsee, "ho re=uests it, not to securepayent #ut to relie%e hisel$ $ro a distaste$ul situation, the act o$ theindorseent $ord not a)e the indorser an accoodation party.

2he receipt #y the accoodation part o$ an aount in consideration $or

lending his nae does not a$$ect his act as an accoodation. An accoodation party is lia#le on the instruent under ec


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III& CLARK v SELLNER $oint %urety, not Accommodation Party

• ellner, in conunction "ith < other persons signed a note in $a%or o$ Clar),

pro%iding that “4 onths a$ter date, $or %alue recei%ed, "e ointly and se%erallyproise to pay to the order o$ Clar)Mthe su o$ 1< thousand pesos.! 2he noteatured #ut its aount "as not paid.

• ellner clais he did not recei%e in that transaction either the "hole or any parto$ the aount o$ the de#t, and that he only signed as an accoodation partyand is there$ore not lia#le unless the note is negotiated , "hich "as not done.

I((!e?1. 6:@ >@> I 2I IA(> A25B'G5 5> DID @B2 >C>I8> A@H

&A2 BF 25> A/B'@2 BF D>(2@> 6A A@ ACCB/BDA2IB@ &A2H

He)d?

1. H>. 2he lia#ility o$ the de$endant, as one o$ the signers o$ the note, is notdependent on "hether he has, or has not, recei%ed any part o$ the aounto$ the de#t. 2he de$endant is really and expressly one o$ the oint andse%eral de#tors on the note and as such he is lia#le under the pro%isions o$ section 4+ o$ @I.

chaus ightnegotiate the "ith the &@( in case o$ need. 2hey also clai that they ha%e notnegotiated the notes "ith the #an) nor ha%e they recei%ed the %alue thereo$ or deli%ered the to the #an) in payent o$ any preexisting de#t.

• 2he 2C rendered udgent in $a%or o$ the #an) and ordered de$endants ointlyand se%erally to pay the aount due.

I((!e? 6:@ /ANA A@D />C>@A 5B'D (> 5>D IA(> B@ 25>I@2'/>@2

He)d? H>. 2he ost plausi#le and reasona#le stand $or the de$endants is that theyare accommodation parties. (ut as accoodation parties, although thede$endants ha%e signed the instruents ":o recei%ing %alue there$or and $or thepurpose o$ lending their naes to soe other person, they are still lia#le on theinstruents. 2he la" no" is that the accoodation party can clai no #ene$it assuch, #ut he is lia#le according to the $ace o$ his underta)ing, the sae as i$ he"ere hisel$ $inancially interested in the transaction.

>%en though ordinarily, lac) o$ consideration does not create any o#ligation atla", $or an accoodation a)er to #e lia#le, it is not necessary that anyconsideration o%e to hi. 2he consideration "hich supports the proise o$ theaccoodation a)er is that parted "ith #y the person ta)ing the note andrecei%ed #y the person accoodated.

It "as also noted #y the court that "hen the accoodation parties a)epayent to the holder o$ the notes, they ha%e the right to sue the accoodatedparty $or rei#urseent, since the relation #et"een the is in e$$ect that o$ principal and sureties, the accoodation parties #eing the sureties.



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-& SADAYA v SE-ILLA &e'uisites for direct reimbursement from co(accommodation ma#er

• 8ictor e%illa, Bscar 8erona and ieon adaya executed, ointly and se%erally,in $a%or o$ (&I or its order, a proissory note $or &1*), paya#le on deand.5o"e%er, the entire aount "as recei%ed $ro the #an) #y Bscar 8arona alone.e%illa and adaya signed the proissory note as coa)ers only as a $a%or to8arona.

• A$ter payents "ere not ade, the #an) collected the #alance $ro adaya.8arona $ailed to rei#urse adaya despite repeated deands. 2herea$ter,e%illa died and Francisco e%illa "as naed adinistrator o$ his estate.adaya no" $iled a creditor3s clai against e%illa3s estate, $or the latter3s shareo$ the su adaya paid to (&I.

• 2C aditted adaya3s clai and directed the adinistrator to pay the sae.5o"e%er, it "as re%ersed upon appeal.

I((!e? 6:@ I/>B@ ADAHA CA@ CAI/ *+J BF 25> A/B'@2 5> &AID 2B

&@( FB/ 25> >2A2> BF >8IA A 5I CBACCB//BDA2IB@ /A>He)d? @B. As oint and se%eral accoodation a)ers, e%illa and adaya3sindi%idual o#ligation to the #an) is no di$$erent $ro, and no greater and no less than,that contracted #y Bscar 8arona. In $act, as #et"een adaya and 8arona, there "asan iplied contract o$ indenity and the latter is #ound #y the o#ligation to rei#ursethe $orer.

Bn principle, a solidary accoodation a)er K "ho ade payent K has theright to contri#ution, $ro his coaccoodation a)er, in the a#sence o$ agreeentto the contrary #et"een the and su#ect to conditions iposed #y la". 2his rightsprings $ro an iplied proise #et"een the accoodation a)ers to sharee'ually the #urden that ay ensue $ro their ha%ing consented to stap their signatures on the proissory note. For ha%ing lent their signatures to the principalde#tor, they clearly placed thesel%es K in so $ar as payent ade #y one ay

create lia#ility on the other K in the category o$ mere "oint guarantors o$ the $orer.2he court also held that as to the re=uisites o$ rei#urseent $ro a coaccoodation a)er, the @I is silent and so Article #rada "as duty#ound to ascertain "hether the chec) in =uestion "as genuine#e$ore presenting it to the #an) $or payent.

>%en considering the $act that she turned o%er the proceeds to other partiesright a$ter recei%ing the cash $ro the #an), and although it ay #e said that she



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acted as an accoodation party in the chec), ecD I@CB@ID>A2IB@ FB 25> CB/&B'@DI@G BF A CI/>

He)d? @B. In Arroyo % (er"in, it "as held that an agreeent to sti$le the prosecutiono$ a crie is ani$estly contrary to pu#lic policy and due adinistration o$ usticeand "ill not #e en$orced in a court o$ la", 'nder the la" and urisprudence, therecan #e no reco%ery against ose De a aa "ho incidentally appears to ha%e#een an accommodation signer only o$ the proissory note "hich is %itiated #ythe illegality o$ the cause.

(ut it is di$$erent "ith ose &aler "ho #ought a tele%ision set $ro 'nitedGeneral Industries, did not pay $or it and e%en sold the set ":o "ritten consent o$ the ortgagee "hich accordingly #rought a#out the $iling o$ the >sta$a case. 5ehas an o#ligation to 'nited Industries independently o$ the proissory note. For &aler to escape payent o$ a ust o#ligation "ill result in unust enrichent atthe expense o$ another and this cannot #e allo"ed.

2he court a$$ired the udgent o$ the 2C.



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II& PEOPLE v 'ANIE,O

• t. i;alino '#ay "as an o$$icer in the AF& and "as Dis#ursing Director in theB$$ice o$ the Chie$ o$ Finance. As such, he "as entrusted "ith and had custodyand control o$ pu#lic $unds. A case $or /al%ersation "as $iled against hi "henhe conspired "ith and accepted personal chec)s issued #y /ilagros &aintuanthen indorsed #y her sister ulia /aniego, in exchange $or cash #elonging to thego%ernent. 2he chec)s "ere su#se=uently dishonored.

• Bnly t. '#ay and /rs. /aniego "ere arraigned, /rs. &aintuan ha%ing $led tothe '. 2he CFI con%icted t. '#ay and iposed a $ine o$ *7). 5o"e%er,/aniego "as ac=uitted $or a#sence o$ e%idence #ut also ordered to pay ointlyand se%erally "ith '#ay, the aount o$ *7) to the go%ernent.

ISS+E? 6:@ /A@I>GB 6A IA(> A />> I@DB> BF 25> C5>C

HELD? H>. First o$ all, the CFI "as right in iposing the ci%il lia#ility e%en i$ /aniego "as ac=uitted #ased on reasona#le dou#t. 5er lia#ility "as esta#lished#y e%idence pro%ing she "as an indorser o$ se%eral chec)s dra"n #y her sister,"hich "ere dishonored a$ter they had #een exchanged "ith cash o$ pu#lic $unds.

/aniego3s contention that as ere indorser, she is not lia#le, is untena#le.'nder the la" , the holder or last indorsee o$ a negotia#le instruent has the rightto en$orce payent o$ the instruent against all parties lia#le thereon. Aong theparties lia#le thereon is an indorser o$ the instruent, i.e., “a person placing hissignature upon an instruent other"ise than as a)er, dra"er or acceptor xxxunless he clearly indicates #y appropriate "ords his intention to #e #ound in soeother capacity.

uch an indorser "ho indorses ":o =uali$ication “engages that on due

presentent, the instruent shall #e accepted or paid, or #oth, as the case ay#e, and the necessary proceedings on dishonor #e duly ta)en, he "ill pay theaount thereo$ to the holder, or to any su#se=uent indorser "ho ay #ecopelled to pay it. /aniego ay also #e deeed an “accoodation party!in light o$ the $acts. As such, she is still under the la", lia#le on the instruent to aholder $or %alue, not"ithstanding such holder at the tie o$ ta)ing the instruent)ne" her only as an accoodating party. 5o"e%er, she has the right to o#tainrei#urseent $ro the party accoodated a$ter she pays the holder. ince therelation #et"een the accoodated party and the accoodating party is one o$ principal and surety, the accoodation party #eing the surety, /aniego has theright to reco%er the aount $ro her sister, &aintuan, "hich "as theaccoodated party.

III& AN, TION, v TIN,

• oren;o 2ing issued a &hil. (an) o$ Counications [&(C] chec) $or &) paya#leto cash or #earer, "ith Felipe Ang3s signature [an indorseent in #lan)] at the#ac) thereo$. 2he instruent "as recei%ed #y plainti$$ Ang 2iong "ho thenpresented it to &(C $or payent. 5o"e%er, &(C dishonored the chec). Ang 2iongthen ade "ritten deands on 2ing E Ang $or payent #ut "as unheeded #y thet"o.

• Ang 2iong then $iled a case $or collection o$ the su and the /2C granted hispetition and ruled against the t"o de$endants. Felipe Ang then appealed to theCFI "hich a$$ired the /2C. 2he CA then certi$ied the case to the C $or in%ol%ingpurely =uestions o$ la".

ISS+E? 6:@ F>I&> A@G I A G>@>A I@DB> 6I25I@ 25> &'8I>6 BF>C. 4- I@ 25> @I

HELD? H>. 5a%ing arisen $ro a #an) chec) "hich is indisputa#ly a negotia#leinstruent, the present case is go%erned #y the @I and not Art.


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For the sa)e o$ arguent, granting that Felipe Ang stands only a surety $or 2ing,as he clais to #e, is iaterial to the clai o$ Ang 2iong #ecause the lia#ility o$ appellant reains priary and unconditional as surety.

I-& BANCO DE ORO SA-IN,S 'ORT,A,E BANK v E1+ITABLE

• >=uita#le (an) [>(C], through its 8isa Card Dept. dre" 4 crossed /anager3schec)s totaling 4) and paya#le to certain e#er esta#lishents o$ 8isa Card.2he Chec)s "ere deposited "ith (anco De Bro [as collecting #an)] to the credito$ its depositor, a certain Aida 2rencio.

• Follo"ing noral procedures, and a$ter staping at the #ac) o$ the chec)s theusual indorseents? “All prior and:or lac) o$ endorseent guaranteed,! (DBsent the chec)s $or clearing through the &hilippine Clearing 5ouse Corp.[&C5C]. Accordingly, >(C [as dra"er] paid the chec)s.

• 2herea$ter, >(C disco%ered that the indorseents appearing at the #ac) o$ the

chec)s "ere $orged and:or unauthori;ed. >(C then presented the chec)sdirectly to (DB, claiing rei#urseent. (DB re$used. >(C $iled a case $or

collection.• 2he dispute "as presented $or Ar#itration and the Ar#iter decided in $a%or o$

>(C, ordering the &C5C to de#it the clearing account o$ (DB then credit theclearing account o$ >(C "ith the 4). 'pon reconsideration, &C5C a$$ired.&etition $or re%ie" "as $iled "ith the PC 2C "hich a$$ired the &C5C ruling.

ISS+E? 1. 6:@ &C5C 5AD 'IDIC2IB@ GIG>@2, 25' IA(> FB '@D'> &AH/>@2

HELD?1. H>. (DB argues that the ter chec) should #e interpreted as a negotia#le

instruent, citing the de$inition o$ a “chec)! as #asically a #ill o$ exchange under ec1


10/26


-& ASSOCIATED BANK v CA

•

2he &ro%ince o$ 2arlac had an account "ith &@( "here the pro%incial $unds aredeposited. A portion o$ the pro%incial $unds is allocated to the Concepcion>ergency 5ospital. 2he allotent chec)s $or the hospital are dra"n to theorder o$ “Concepcion >ergency 5ospital! or “the Chie$, Concepcion>ergency 5ospital.! 2he chec)s are released #y the B$$ice o$ the &ro%incial2reasurer and recei%ed $or the hospital #y its adinistrati%e o$$icer and cashier.

• It "as then disco%ered that the hospital did not recei%e se%eral allotent chec)sdra"n #y the &ro%ince. -+ chec)s aounting to &


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. @B. &@(3 duty "as only to %eri$y the genuineness o$ the dra"er3s signature, andnot the genuineness o$ the payee3s indorseent. &@( ay still reco%er although ithad already paid the aounts.

-I& PHIL& CO''ERCIAL AND INTERNATIONAL BANK v CA

• In 1977, Ford &hilippines dre" and issued a crossed Citi#an) Chec) “$or payee3s account only! in $a%or o$ the Coissioner o$ Internal e%enue aspayent o$ sales taxes. 2he chec) "as deposited "ith the &CI(an) "hich thenendorsed it and "as cleared #y the Central (an). 'pon presentent "ithCiti#an), the proceeds o$ the chec) "ere paid #y Citi#an) to &CI(. 5o"e%er, theproceeds "ere ne%er paid to the (I. Ford "as copelled to a)e a CB8> FB/ &CI( [CB>C2I@G (A@] A@DCI2I(A@ [DA6>> (A@] 25> 8A'> BF 25> C5>C I@2>@D>D A&AH/>@2 2B 25> CI

HELD? H>. 2he perpetrators no" #eing $ugiti%es $ro ustice, the court sought toresol%e the =uestion o$ lia#ility #ased on the degree o$ negligence aong the partiesconcerned.

It appears that although the eployees o$ Ford initiated the transactionsattri#uta#le to an organi;ed syndicate, the C held that their actions "ere not theproxiate cause o$ encashing the chec)s paya#le to CI. 2he degree o$ Ford3s@egligence, i$ any, could not #e characteri;ed as the proxiate cause o$ the inury tothe parties. 2he court noted that the (oard o$ Directors o$ Ford did not con$ir there=uest o$ i%era to recall the chec)s and i%era3s instruction to replace the chec)"as not in the ordinary course o$ #usiness "hich could ha%e propted &CI( to%alidate the sae.

It also appears that &CI( $ailed to %eri$y the authority o$ i%era to negotiate thechec)s. 2he neglect o$ the &CI( eployees to %eri$y "hether his letter re=uestingreplaceent o$ the chec)s "as duly authori;ed, sho"ed lac) o$ care and prudencere=uired in the circustances. Also, &CI( acted as an agent o$ the (I in collecting taxpayents and "as there$ore #ound to consult its principal regarding the un"arrantedinstructions gi%en #y i%era, this it $ailed to do so. astly, the chec) "as crossed andshould ha%e ser%ed as a "arning that it should #e deposited only to the account o$ the

CI. It "as pro%en in the in%estigation that the chec)s "ere encashed under a $ictitiousnae o$ “eynaldo eyes.! It is the duty o$ the collecting #an) &CI( to ascertain thatthe chec) #e deposited in payee3s account only.

5a%ing esta#lished that the collecting #an)3s negligence is the proxiate cause o$ the loss, the C concluded that &CI( is lia#le in the aount corresponding to theproceeds o$ the Citi#an) chec)s.

5o"e%er, the court also held that although a #an) is lia#le $or the "rong$ul acts o$ its o$$icers "ithin the course o$ their eployent, &CI( appears also to #e the %icti o$ the schee hatched #y the syndicate. 2here$ore, the responsi#ility $or negligence doesnot lie on &CI( alone.

2he e%idence sho"ed that Citi#an) as dra"ee #an) "as li)e"ise negligent in$ailing to esta#lish that its payent o$ Ford3s chec)s "ere adie in due course andlegally in order. As ruled #y the CA, Citi#an) ust li)e"ise ans"er $or the daages#ecause o$ the contractual relationship it #reached "ith Ford in $ailing to scrutini;e the

chec)s #e$ore paying to &CI(. Citi#an) had $ailed to ensure that the aount o$ thechec)s #e paid only to its designated payee, the CI. 2he $act that the dra"ee #an)did not disco%er the irregularity seasona#ly, constitutes negligence in carrying out the#an)3s duty to its depositors.

2he court ruled that &CI( and Citi#an) ust share the loss on a *+*+ ratio.



12/26


I& 'ORAN v CA

George and i#rada /oran are the o"ners o$ the 6ac)6ac) &etron gasoline

station at ha" #oule%ard. 2hey regularly purchased #ul) $uel and other relatedproducts $ro &etrophil Corporation on cash on deli%ery #asis. Brders "ereade #y telephone E payents "ere e$$ected #y personal chec)s upon deli%ery.

2he /orans aintained < sa%ings accounts and 1 current account "ith Citytrust

(an)ing Corporation ha" (oule%ard (ranch. As an accoodation to a %alued client, the #an) allo"ed the to aintain a

;ero #alance in their current account and pursuant to &reAuthori;ed trans$er Agreeent [&A2], trans$ers ay #e ade $ro one sa%ings account to thecurrent account "hen the $unds o$ the latter "ere insu$$icient $or "ithdra"als.

Bn Dece#er 1


13/26


held responsi#le $or such daages in the a#sence o$ $raud, #ad $aith, alice or "anton attitude.

II& REP+BLIC v E1+ITABLE BANKIN, CORPORATION

2he epu#lic o$ the &hilippines see)s to reco%er aounts it paid to >=uita#le

(an)ing Corporation and &I (an) $or the %alue o$ =uita#le o$ the alleged de$ect o$ said"arrants and deanded rei#urseent, #ut "as reected #y the #an),

I'>? 6:@ 25> 2>A'H B GB8>@/>@2 I IA(> B@ 25> FBG>D6AA@2

5>D? H>. ec. o$ the Central (an) Circular @o.9 pro%ides that all ites clearedat 11a shall #e returned not later than


14/26


III& PNB v 1+I'PO

Francisco Go;on II "as a depositor o$ &@( Caloocan City (ranch. 5e "ent to

the #an) in his car, accopanied #y his $riend >rnesto antos, "ho he le$t in thecar "hile he transacted #usiness in the #an).

6hen antos sa" that Go;on le$t his chec)#oo) in the car, he too) a chec) and

$illed it up $or the aount o$ *), $orged the signature o$ Go;on and encashed thechec) in the #an) on the sae day. 2he account o$ Go;on "as de#ited the saidaount. 'pon receipt o$ the tateent o$ Account $ro the (an), Go;on as)edthat the *) #e returned to his account as his signature on the chec) "as $orged.2he #an) re$used to do so.

'pon coplaint o$ Go;on, antos "as apprehended #y the police and the latter

aditted he stole the chec), $orged the signature and encashed the sae. 5ence, Go;on $iled a coplaint $or reco%ery o$ the aount against the #an).

2he CFI ruled in $a%or o$ Go;on. 2he (an) clais it "as the act o$ Go;on in putting his chec)#oo) into the hands

o$ antos "hich "as the proxiate cause o$ the loss, there#y precluding hi$ro setting up the de$ense or $orgery or "ant o$ authority under section


15/26


5(C "ould ha%e lies against the party responsi#le $or changing the nae o$ the payee. Its $ailure to call the attention o$ &eoples (an) to such alteration untilthe lapse o$ ? 65IC5 (A@ I IA(> FB 25> &AH/>@2 BF 25> A2>>D C5>C,

DA6>> (A@ [F@C(] B CB>C2I@G (A@ [/>2B (A@]

5>D? F@C(, the dra"ee #an) is lia#le $or payent o$ the altered chec). /etro (an)in%o)es the


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control o$ the dra"er3s account aid it is supposed to #e $ailiar "ith the dra"er3ssignature. It should possess appropriate detecting de%ices $or unco%ering$orgeries and:or alterations on these instruents. 'nless an alteration isattri#uta#le to the $ault or negligence o$ the dra"er hisel$, such as "hen helea%es spaces on the chec) "hich "ould allo" the $raudulent insertion o$ additional nuerals in the aount appearing thereon, the reedy o$ the dra"ee#an) $or payent is against the party responsi#le $or the $orgery or alteration,

other"ise, it #ears the loss. It ay not charge the aount so paid to the accounto$ the dra"er, i$ the latter "as $ree $ro #lae, nor reco%er it $ro the collecting#an) i$ the latter ade payent a$ter proper clearance $ro the dra"ee.

-II& BPI v CA

Bn Bcto#er 9, 1901, a phone call "as ade to (&I3s /oney /ar)et Departent

#y a "oan "ho identi$ied hersel$ as >ligia Fernando "ho had a oney ar)etplaceent as e%idenced #y a proissory note "ith a %alue o$ sta=uio, a

2rainee in (&I, told her that trading tie "as o%er and suggested she call the$ollo"ing "ee). >sta=uio ad%ised &enelope (ulan "ho handled Fernando3saccount, #ut >sta=uio "as le$t to attend the preterination process.

2he next /onday, the caller once again $ollo"ed up the preterination "ith>sta=uio. Although not $ailiar "ith the %oice o$ Fernando, >sta=uio adecertain that the caller "as really Fernando #y %eri$ying that details the caller ga%e a#out the placeent, "hich tallied "ith the details in the ledger:$older o$ the account. (ut neither >sta=uio nor (ulan "ho originally handled Fernando3saccount, nor any #ody else in (&I #othered to call up Fernando at her &hilali$eo$$ice to %eri$y the re=uest.

2he caller as)ed that < chec)s #e issued $or the proceeds o$ the preterination,

one $or 1.0 illion and the second $or the #alance, and that the chec)s #edeli%ered to her &hilali$e o$$ice.

ater in the sae orning, ho"e%er, the sae caller changed the deli%ery

instructions and said her niece, osearie Fernando, "ould pic) up the chec)s.>sta=uio in$ored her that a "ritten authori;ation "as needed.

A osearie Fernando signed the deli%ery receipt #ut the dispatcher $ailed tore=uire the surrender o$ the proissory note e%idencing the placeent. 2here"as also no sho"ing that >ligia Fernando3s purported signature on the letter re=uesting the preterination and the letter authori;ing osearie Fernando topic) up the < chec)s, "as copared or %eri$ied "ith >ligia Fernando3s realsignature in (&I3s $ile. uch purported signature has #een esta#lished to #e$orged although it has a close siilarity to the real signature o$ Fernando.

2herea$ter, a "oan "ho represented hersel$ to #e >ligia Fernando, applied at

China (an)ing Corporation3s [C(C] head o$$ice $or the opening o$ a currentaccount. he "as introduced to >ily Cuaso, Cash uper%isor, #y AntonioConcepcion "ho Cuaso )ne" to ha%e opened an account upon theintroduction o$ 8alentin Co, a longstanding %alued client o$ C(C. 6hat Cuasoindicated on the application $or, ho"e%er "as that the ne" client "as

introduced #y 8alentin Co. 2he current account "as appro%ed #y egina Dy,cashier, "ho did not inter%ie" the ne" client #ut a$$ixed her initials on theapplication $or a$ter re%ie"ing it.

2he $ollo"ing day, the "oan purporting to #e >ligia Fernando deposited the <

chec)s $ro (&I to the current account "ith C(C. C(C endorsed the chec)s,"hich it sent $or clearing and "hich (&I cleared on the sae day.

< days a$ter, "ithdra"als #egan on the current account, the last o$ "hich "as 19

days a$ter the opening o$ the account., or on @o%e#er .

2he day o$ rec)oning cae "hen the aturity date o$ Fernando3s oney ar)et

placeent "ith (&I cae and the real Fernando "ent to (&I $or the rollo%er o$ her placeent. he denied ha%ing preterinated her placeent and (&I issued her ane" proissory note to e%idence a roll o%er o$ the placeent.

(&I returned the < chec)s to C(C $or the reason R&ayee3s endorseent $orged.3 A

pingpong then started "hen C@C returned the chec)s $or the reason R(eyondClearing 2ie.3

Cases o$ >sta$a thru $alsi$ication o$ Coercial Docuents against eployees

o$ (&I and usan ope; an uan, the ipersonator, "ere $iled. 'pon su#ission $or Ar#itration, the coittee ruled in $a%or o$ (&I. 'pon otion

$or reconsideration, the (oard o$ Directors o$ &C5C re%ersed and ruled that (&Ishould #ear the loss. (&I then $iled this petition $or re%ie".

I'>? A (>26>>@ (&I A@D C(C, 65B I IA(> FB 25> C5>C

5>D? (oth are lia#le, as #oth #an)s "ere negligent.(&I contends that C(C3s clear "arranty "as an unrestricti%e clearing guaranty that

all prior indorseents in the chec)s are genuine. (&I theori;es that ecligia Fernando due to the negligence o$ >ily Cuaso, its cash super%isor.Cuaso e%en isrepresented in the application $or as to "ho introduced the ne"



17/26


depositor, a)ing it appear the introduction "as ade #y 8alentin Co instead o$ Antonio Concepcion. 2his clearly sho"s that Cuaso "as unco$orta#le "ith theintroduction ade. econd, the depositor o$ C(C deposited < chec)s "ith anaggregate %alue o$ A C5A@C> enunciated in &icart %

ith should #e applied, and on the #asis thereo$, C(C should #e ade lia#le.5o"e%er, the court ruled against such contention, stating that C(C had no prior notice o$ the $raud perpetrated #y (&I3s eployees. In the sae anner, (&I insiststhat e%en i$ the doctrine o$ &BI/A2> CA'> is applied, C(C should still #e heldlia#le. It argues that the acts and oissions o$ C(C are the cause that set into otionthe actual and continuous se=uence o$ e%ents that produced the inury and "ithout"hich the result "ould not ha%e occurred. (&I clais that there "as a gap o$ 1 day#et"een the issuance and deli%ery o$ the chec)s, and at this stage, there "as yet noloss and the ipostor could ha%e decided to desist $ro copleting the sae plan,and there$ore, the acts and oissions o$ (&I did not end in a loss.

5o"e%er the court ruled that (&I3s contentions are untena#le. It "as natural and

expected $or one "ho too) the ris) o$ ipersonating a person and conni%ing "ith#an) eployees, to encash the chec) to coplete her deception. 2here is there$oregreater reason to rule that the proxiate cause o$ the payent o$ the chec)s #y anipostor "as due to the negligence o$ (&I, ho"e%er it ust not #ear the loss solely.Due care on the part o$ C(C could ha%e pre%ented any loss.

2he court $inally ruled that #oth #an)s "ere negligent in the selection andsuper%ision o$ their eployees resulting in the encashent o$ the chec)s.Considering the coparati%e negligence o$ the < #an)s, the C ruled that the


18/26


doctrine o$ last clear chance "hich pro%ides that "here #oth parties are negligent,#ut the negligent act o$ one cae later in tie, or "hen it is ipossi#le to deterine"hose $ault or negligence should #e attri#uted to the incident, the one "ho had thelast clear opportunity to a%oid the ipending har and $ailed to do so is chargea#le"ith the conse=uences thereo$. It cannot #e denied that the petitioner #an), thru itsteller, had the last clear opportunity to a%ert the inury incurred #y its client. 5o"e%er,/C "as li)e"ise negligent in not chec)ing its onthly stateents o$ account. 5ad itdone so, the copany "ould ha%e #een alerted to the series o$ $rauds coitted #yits secretary. 2he court there$ore ruled that &(C should #ear 4+J o$ the daage"hile /C "ill #ear +J o$ the daage.

IX& 'ANILA LI,HTER TRANSPORTATION v CA

For o%er a period o$ 10 onths, $ro an?

1. 6:@ Bng has a cause o$ action against 6estont (an)D?1. H>, Bng has a cause o$ action against 6estont (an). 2he coplaint $iled

expressly alleged Bng3s right as payee o$ the anager3s chec)s to recei%e theaount in%ol%ed, petitioner3s correlati%e duty as collecting #an) to ensure thatthe aount gets to the right$ul payee or his order, and a #reach o$ that duty#ecause o$ a #latant act o$ negligence on the part o$ the petitioner.ec


19/26


payee3s endorseent "as genuine #e$ore cashing the chec). In this case, 6("as grossly negligent in per$oring its duties and ust #ear the loss.

? 6:@ ABCIA2>D (A@ I IA(> FB DA/AG>

5>D? H>. 'nder accepted #an)ing practice, crossing a chec) is done #y "riting <parallel lines diagonally on the le$t top portion o$ the chec)s. In tate In%estent5ouse % IAC, the court held that the e$$ects o$ crossing a chec) are? [1] that thechec) ay not #e encashed #ut only deposited on the #an), [ddie eyes didendorse the crossed chec)s, the (an) "ould still #e lia#le #ecause he "as not



20/26


authori;ed to a)e the endorseents. It "as the responsi#ility o$ the (an) toin=uire as to the authority o$ a$ael ayson to deposit crossed chec)s paya#le to/elissa3s 26 upon prior endorseent #y >ddie eyes. 2he (an) "as #y reasono$ the nature o$ the chec)s, put on notice that they "ere issued $or deposit only tothe pri%ate respondent3s account. Its $ailure to in=uire into ayson3s authority "as a#reach o$ duty it o"ed to /erle eyes. 2he court also held that it is perissi#lethat the payee o$ illegally encashed chec)s #e allo"ed to reco%er directly $ro the#an) responsi#le $or the encashent, regardless o$ "hether or not the chec)s"ere actually deli%ered to the payee. 2he court there$ore ruled that /erle eyeshad a %alid cause o$ action against Associated (an) and that the latter is lia#le toher $or unauthori;ed encashent o$ the su#ect chec)s.

I& KEN, H+A PAPER PROD+CTS v CA SEA3LAND SER-ICE INC&

%hipper* o 0ee 1aste Paper2 Consignee* 0eng ua Paper Products, Co, IncCarrier* %ea(3and %ervice Inc

Conflict is between Consignee and Carrier regarding -ill of 3ading

eaand er%ice Inc is a $oreign shipping copany licensed to do #usiness in

the &hilippines. It recei%ed at its 5ong ong 2erinal a sealed container o$ 74

#ales o$ “unsorted "aste paper! $or shipent to eng 5ua &aper &roducts, Co.in /anila. A (ill o$ ading "as issued to eaand to co%er the shipent. 2he shipent "as discharged at the /anila International Container &ort and

corresponding @otices o$ Arri%al "ere transitted to eng 5ua #ut the latter $ailed to discharge the shipent $ro the container during the “$ree tie! periodor grace period. 5ence, the shipent reained inside eaand3s container $ro the oent the $ree tie period expired until the tie "hen the shipent"as unloaded $ro the container, totaling a period o$ 01 days.

During the period, Deurrage charges o$ &47,-+ accrued and letters

deanding payent $or such "ere sent #y eaand to eng 5ua. 6henunheeded, eaand coenced a ci%il action $or collection and daages.

eng 5ua clais that it purchased *+ tons o$ "aste paper $ro the shipper in

5ong ong, 5o ee 6aste &aper, as sho"n #y a etter B$ Credit issued #y

>=uita#le (an)ing Corporation, "ith partial shipent peritted. i)e"ise, theetter o$ Credit stated that the reaining #alance o$ shipent "as only 1+ etrictons. It then aintained that i$ it "as to accept the shipent, the copany "ould#e %iolating Central (an) rules and regulations and Custo and 2ari$$ la"s.eng 5ua also a%erred that the cause o$ action should #e against the shipper [5o ee] "hich contracted eaand3s ser%ices and not against eng 5ua, "hoalready noti$ied the $oreign shipping copany o$ the "rong shipent %ia letter.

2C $ound eng 5ua lia#le $or deurrage. CA a$$ired.

I'>? 6:@ >@G 5'A I (B'@D (H 25> (I BF ADI@G5>D? H>, petitioner eng 5ua is lia#le $or deurrage. A -ill of 3ading serves 4

functions* [1] as a receipt $or the goods shipped, and [


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expected to loo) #eyond the docuents presented to it, and neither can the carrier #e expected to go #eyond the representations o$ the shipper in the #ill o$ lading.&etitioner3s reedy in case o$ o%ershipent lies against the seller:shipper, notagainst the carrier. 2he case in%ol%ing an o#ligation not arising $ro a loan or $ore#earance, the applica#le interest rate is 4J per annu. ince the #ill o$ ladingdid not speci$y the aount o$ deurrage, the total aount deanded cannot #edeeed to ha%e #een esta#lished "ith reasona#le certainty until the trial courtrendered udgent. 5ence, the legal interest o$ 4J $ro the date o$ the trial court3sdecision, "ith the rate o$ 1sta$a "as disissed. CA a$$ired.

I'>? 6:@ (A 6AA@2>D 25> G>@'I@>@> A@D A'25>@2ICI2H BF 25>C A@D 65>25> I2 AC2>D />>H A A@ AD8II@G B CB@FI/I@G(A@

5>D? (A "as erely an AD8II@G (A@, and not a con$iring #an), and so it ayreco%er. 6hat characteri;es letters o$ credit, as distinguished $ro other accessorycontracts, is the engageent o$ the issuing #an) to pay the seller once the dra$t andthe re=uired shipping docuents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach in the main salescontract . (y this socalled I@D>&>@D>@2 &I@CI&>, the #an) deterinescopliance "ith the C only #y exaining the shipping docuents presentedL it isprecluded $ro deterining "hether the ain contract is actually accoplished or not. 2here "ould #e at least - parties? [1] the #uyer "ho procures the C and o#ligeshisel$ to rei#urse the issuing #an) upon receipt o$ the docuents o$ title, [


22/26


$or Docuents o$ Credit ['C&] "hich pro%ides that #an)s assue no lia#ility $or the conse=uences arising out o$ delay or loss in transit o$ any essages, letters or docuents o$ $or delay, utilation or other errors arising in the transission o$ anytelecounication. As ad%ising #an), (A is #ound to chec) only the apparentauthenticity o$ the C, "hich it did.

(A ay reco%er the &1+.? 6:@ FAI'> BF A@ I/&B2> [>IA@C>] 2B B&>@ A@ C B@ 25>DA2> AG>>D '&B@ /A> 5I/ IA(> 2B 25> >&B2> [DA>6BB]FB DA/AG>

5>D? H>, $ailure o$ #uyer seasona#ly to $urnish an agreed C is a #reach o$ thecontract #et"een #uyer and seller.

A letter o$ Credit is one o$ the odes o$ payent set out in ec0 o$ Central

(an) Circular 1-09, #y "hich coercial #an)s sell $oreign exchange to ser%icepayents $or, ex. Coodity iports. 2he priary purpose o$ the C is tosu#stitute $or, and there$ore support, the agreeent o$ the #uyer:iporter to payoney under a contract or other arrangeent. It creates in the seller:exporter asecure expectation o$ payent.

A letter o$ credit transaction ay thus #e seen to #e a coposite o$ at least <distinct #ut intert"ined relationships, each relationship #eing concreti;ed in acontract? [1] (et"een the #uyer and he seller, [xaining the -rd

contract, the court held that under the instruent, the opening o$ an C uponapplication o$ eliance "as not a condition precedent $or the #irth o$ the o#ligation

o$ eliance to purchase the goods $ro Dae"oo #ecause there had already #eena “eeting o$ the inds! in respect to the su#ect atter o$ the contract, the pricethere$ore and other principal pro%isions, resulting to a per$ected contract. 2heopening o$ the C "as an o#ligation o$ eliance and "as a condition $or en$orceent o$ the reciprocal o#ligation o$ Dae"oo to ship the /. Failure toopen the C did not pre%ent the #irth o$ the contract neither did it extinguish suchcontract.

2he Central (an) has esta#lished the re=uireents $or opening a letter o$ credit as? [1] the duly accoplished C application, [ntryDeclaration $or as #asis $or duties. Further, the C is to #e opened on or #e$ore



23/26


date o$ shipent "ith ax %alidity o$ 1year and only 1 C is to #e opened $or each transaction.

For ha%ing exceeded its $oreign exchange allocation e%en #e$ore it enteredinto the -rd contract "ith Dae"oo, and $or ha%ing $ailed to secure endusers3purchase orders e=ui%alent to ? 6:@ CB@2AC2 BF A> 6A &>F>C2>D (>26>>@ &A2I>5>D? H>, there "as a per$ected contract. A contract o$ sale is per$ected at the

oent there is a eeting o$ the inds upon the thing "hich is the o#ect o$ thecontract and upon the price. Art1-19 o$ the CC states that Consent is ani$ested#y the eeting o$ the o$$er and acceptance upon the thing and the cause "hichare to constitute the contract. 2he o$$er ust #e certain and the acceptancea#solute. A =uali$ied acceptance constitutes a counter o$$er.

2he $acts in the present case indicate that consent on #oth sides has #eenani$ested. 2he o$$er "as ade #y petitioner on Dec17 and on Dec


24/26


the per$ection o$ the contract "ould arise uch later, or a$ter the end o$ the year or "hen he $inally opens the C.

-& *EATI BANK 6No7 C#$yT"!($ Ban%#ng Co"&8 v CA Be"na"do -#))a)!9

%eller/%hipper* -ernardo 9illalu2 Consignee* anmi )rade Development 3tdIssuing -an#* %ecurity Pacific :ational -an# of 3A2

Correspondent -an#* F.A)I -an# and )rust Company Conflict between %eller/%hipper and Correspondent -an# as to :on(Payment of 3C due to

insufficiency of documents presented by %eller

(ernardo 8illalu; agreed to sell to Axel Christiansen 25> CD>&I2> @B@CB/&IA@C> (H 25> (>@>FICIAH 6I25 25> 2>/

25>>BF

5>D? @B, #eing a ere noti$ying #an), Feati cannot #e held lia#le, a#sent anyde$initi%e proo$ that it has con$ired the C or has actually negotiated "ith thepri%ate respondent, the re$usal #y the petitioner to accept the tender o$ pri%aterespondent is usti$ied.

It is a settled rule in coercial transactions in%ol%ing Cs that thedocuents tendered ust strictly con$or to the ters o$ the C. 2he tender o$ docuents #y the #ene$iciary ust include all docuents re=uired #y the letter. Acorrespondent #an) "hich departs $ro "hat has #een stipulated in the C, as"hen it accepts a $aulty tender, acts on its o"n ris)s and it ay not therea$ter #ea#le to reco%er $ro the #uyer or the issuing #an), as the case ay #e, theoney thus paid to the #ene$iciary. 2his is the '> BF 2IC2 CB/&IA@C>.

/oreo%er, Art7 and 0 o$ the '&C pro%ide that the #an) ay only negotiate,accept or pay i$ the docuents tendered to it are on their $ace in accordance "iththe ters and conditions o$ the docuentary credit. And since a correspondent#an), li)e Feati, principally deals only "ith docuents, the a#sence o$ anydocuent re=uired in the C usti$ies the re$usal #y the correspondent #an) tonegotiate, accept or pay the #ene$iciary, as it is not its o#ligation to loo) #eyondthe docuents. It erely has to rely on the copleteness o$ the docuentstendered #y the #ene$iciary.

2he court also held that an irre%oca#le credit is not synonyous "ith acon$ired credit. A credit ay #e an irre%oca#le credit and at the sae tie acon$ired credit or %ice%ersa. An irre%oca#le credit re$ers to the duration o$ theC, eaning that the issuing #an) ay not ":o consent o$ the #ene$iciary [seller]and the applicant [#uyer] re%o)e his underta)ing under the letter. 2he issuing #an)



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does not reser%e the right to re%o)e the credit. Bn the other hand, a con$iredC pertains to the )ind o$ o#ligation assued #y the correspondent #an). In thiscase, the correspondent #an) gi%es an a#solute assurance to the #ene$iciarythat it "ill underta)e the issuing #an)3s o#ligation as its o"n according to theters E conditions o$ the credit. 5ence, the ere $act that an C is irre%oca#ledoes not necessarily iply that the correspondent #an) accepting theinstructions o$ the issuing #an) has also con$ired the C. In coercialtransactions in%ol%ing Cs, the $unctions assued #y a correspondent #an) areclassi$ied according to the o#ligations ta)en up #y it. )he correspondent ban# may be called a notifying ban#, a negotiating ban# or a confirming ban# .

In this case, the letter erely pro%ided that Feati $or"ard the enclosedoriginal credit to #ene$iciary. It is indu#ita#le that petitioner is only a @B2IFHI@G#an), hence its responsi#ility "as solely to noti$y and transit the docuentarycredit to #ene$iciary. 2he noti$ying #an) ay suggest to the seller its "illingnessto negotiate, #ut this $act alone does not iply that the noti$ying #an) proisesto accept the dra$t dra"n under the C. A noti$ying #an) is not pri%y to thecontract o$ sale #et"een #uyer and seller, its relationship is only "ith the issuing#an) and not "ith the #ene$iciary. It $ollo"s there$ore that "hen Feati re$used tonegotiate "ith 8illalu;, the latter has no cause o$ action against petitioner $or theen$orceent o$ his rights under the letter. In order that Feati ay #e held lia#leunder the letter, there should #e proo$ that petitioner con$ired the C.

8illalu; relies on the &7*) loan extended #y Feati to hi, claiing that this"as an act o$ con$iration as the loan "as granted in anticipation o$ the C. 2hecourt held that the loan "as only an isolated transaction independent o$ thedocuentary credit $or "hich the C "as intended erely to ser%e as collateral. At ost, "hen petitioner extended the loan, it "as acting as a negotiating #an),#ut e%en then, a negotiating #an) has no contractual relationship "ith the seller.

2he ere opening o$ an C does not in%ol%e a speci$ic appropriation o$ asu o$ oney in $a%or o$ the #ene$iciary. It only signi$ies that the #ene$iciary ay#e a#le to dra" $unds upon the C up to the designated aount speci$ied in theletter. It does not con%ey the notion that a particular su o$ oney has #eenspeci$ically reser%ed or has #een held in trust.

As a ere noti$ying #an), not only does the petitioner not ha%e anycontractual relationship "ith the #uyer, it has also nothing to do "ith the contract

#et"een the issuing #an) and the #uyer regarding the issuance o$ the C. 2heconcept o$ guarantee %isT%is the concept o$ an irre%oca#le credit areinconsistent "ith each other. In contracts o$ guarantee, the guarantor3so#ligation is erely collateral and arises only upon de$ault o$ person priarilylia#le. Bn the other hand, in an irre%oca#le credit, the #an) underta)es a priaryo#ligation. 2he relationship #et"een the issuing #an) and the correspondent#an) is ore o$ an agency. As an agent o$ the issuing #an), it has only to $ollo"instructions o$ the latter and to it alone is it o#ligated and not to the #uyer "ith"ho it has no contractual relationship.

Finally, e%en i$ it #e assued that Feati "as a con$iring #an), thepetitioner cannot #e $orced to pay the aount under the C #ecause there "as a$ailure o$ the part o$ the pri%ate respondent to coply "ith the ters o$ the C.

2he Central (an) eorandu prohi#iting the th condition o$ certi$icationunder the C cannot retroact to the case at #ar $or the resolution did not exist atthe tie the C "as issued.



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I& -INTOLA v INS+LAR BANK O* ASIA AND A'ERICA 6IBAA8

pouses 2irso and oreta 8intola "ere doing #usiness under the nae and style

“Dax in International,! engaged in the anu$acture o$ ra" sea shells into$inished products.

2hey applied $or and "ere granted a doestic letter o$ credit #y the I(AA in the

aount o$ &+). 2he C authori;ed the #an) to negotiate $or their account,dra$ts dra"n #y their supplier, one talin 2an, on Dax in International $or thepurchase o$ pu#a and olive seashells.

In consideration thereo$, the 8intolas ointly and se%erally agreed to pay the

#an) “at aturity the e=ui%alent o$ the a$oreentioned aount or such portionthereo$ as ay #e dra"n or paid upon the $aith o$ the credit together "ith theusual charges.!

Bn the sae day, they recei%ed $ro talin 2an the shells "orth +) and the

8intolas executed a 2rust eceipt agreeent "ith I(AA. 'nder the 2, the8intolas agreed to hold the goods in trust $or I(AA as the “latter3s property "ithli#erty to sell the sae $or its account,! and in case o$ sale, to turn o%er theproceeds as soon as recei%ed to I(AA.

6hen the spouses de$aulted, I(AA deanded payent #ut the 8intolas, "ho

"ere una#le to dispose o$ the shells, responded #y o$$ering to return the goods.I(AA re$used and charged the spouses "ith >sta$a $or ha%ing isappropriated,isapplied and con%erted $or their o"n personal use and #ne$it the a$oresaidgoods.

2he lo"er court ac=uitted the 8intolas, ruling that the reedy o$ the #an) "as

ci%il and not criinal in nature. hortly therea$ter, I(AA instituted a ci%il action toreco%er the %alue o$ the goods.

2he o"er Court initially disissed #ut then ruled in $a%or o$ I(AA upon

reconsideration. 8intolas clai their ac=uittal in the >sta$a case #ars $iling o$ the ci%il action "hich

is deeed instituted "ith the criinal action.

I'>? 6:@ 25> 8I@2BA A> IA(>

5>D? H>. A letter o$ credit K trust receipt arrangeent is endo"ed "ith its o"ndistincti%e $eatures and characteristics. 'nder that setup, a #an) extends a loanco%ered #y the C, "ith the 2 as a security $or the loan. In other "ords, thetransaction in%ol%es a loan $eature represented #y the C and a security $eature"hich is in the co%ering 2.

A trust receipt is there$ore a security arrangeent, pursuant to "hich a #an)ac=uires a “security interest! in the goods. “it secures an inde#tedness and therecan #e no such thing as security interest that secures no o#ligation.!

Contrary to the allegation o$ the 8intolas, I(AA did not #ecoe the real o"ner o$ the goods. It "as erely the holder o$ a security title $or the ad%ances it hadade to the 8intolas. 2he goods the 8intolas had purchased through I(AA$inancing reain the $orer3s property and they hold it at their o"n ris). 2he t rust

receipt arrangeent did not con%ert I(AA into an in%estor, the latter reained alender and a creditor.

ince the I(AA is not the $actual o"ner o$ the goods, the 8intolas cannot usti$ia#ly clai that #ecause they ha%e surrendered the goods to I(AA andsu#se=uently deposited the in the custody o$ the court, they are a#solutelyrelie%ed o$ the o#ligation to pay their loan #ecause o$ their ina#ility to dispose o$

the goods. 2he $act that they "ere una#le to sell the seashells does not a$$ectI(AA3s right to reco%er the ad%ances it had ade under the C.

It $ollo"s that the ac=uittal o$ the 8intolas in the >sta$a case is no #ar to theinstitution o$ a ci%il action $or collected. 2he decision o$ the ac=uittal expresslypro%ided that the reedy o$ the (an) is ci%il and not criinal in nature. 2he8intolas are lia#le e+ contractu $or #reach o$ the etter o$ Credit. 2heir ci%il lia#ilitydoes not arise e+ delicto "hich is deeed instituted "ith the criinal action. 2heci%il action is there$ore distinct and independent $ro any criinal proceedingsand ay proceed regardless o$ the result o$ the latter.


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