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Commercial Law

Prof. Arturo M. de Castro

(Pre-Bar Reviewer, PCU, Global Best Practice, UP Law Center; Professor of Law, UP, Ateneo; MCLE Lecturer) Code of Commerce 1. a) Distinguish Letter of Credit from Contract of Guarantee. Ans: Letters of credit are in effect absolute undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. What distinguishes letters of credit from other accessory contracts is the engagement of the issuing bank to pay the seller once the draft and other required shipping documents are presented to it. They are definite undertakings to pay at sight once the documents stipulated therein are presented. Thus, except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents required therein. (MWSS vs. Hon. Reynaldo B. Daway, G.R. No. 160732, June 21, 2004) b) Who bears the risk of loss of the goods under a trust receipt transaction? Ans: Under the transaction envisaged by the Trust Receipts Law, the entruster bank does not become the owner of the goods covered by a trust receipt. The entruster bank merely acquires security interest as defined under Sec. 3 (h) of P.D. 155. (Rosario Textile Mills Corporation, et al. vs. Home Bankers Savings and Trust Co., G.R. No. 137232, June 29, 2005) Insurance 2. Does an unpaid vendor retain insurable interest in the property sold on credit? Ans: Yes. A vendor or seller retains an insurable interest in the property until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, ones interest is not determined by concept of title, but

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whether insured has substantial economic interest in the property. (Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No. 147839, June 8, 2006) 3. When is award of double interest legally allowed? Ans: An award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code. The term double interest can only be interpreted to mean twice the legal rate of interest of 12% per annum or 24% per annum interest. (Prudential Guarantee and Assurance, Inc. vs. Trans-Asia Shipping Lines, Inc., G.R. No. 151890, June 20, 2006) Transportation 4. Distinguish a voyage charter from contract of towage. Ans: In a voyage charter, the charterer leases only the vessel, excluding the crew. The shipowner remains a common carrier and is required to observe extra-ordinary diligence in the vigilance of the goods. On the other hand, in a contract of towage, the tugboat operator must exercise the due diligence of a good father of a family. 5. A voyage charter from a bareboat or demise charter. Ans: A bareboat or demise charter involves a lease of the entire vessel and its crew, and the common carrier is connected into a private carrier. (Loadstar Shipping Co., Inc. vs. Pioneer Asia Insurance Cop., G.R. No. 157481, January 24, 2006) 5.1. It is predicted that a case that was asked on the sinking of MV dela Paz may be repeated in the coming Bar examination because of the recent tragic event of exactly the same factual situation with greater tragic magnitude in the sinking of the Princess of the Stars. The in the previous Bar that the ship owner is not liable for the negligence for the ship caption as provided in the Code of Commerce has been rendered obsolete and wrong by subsequent developments in case law and jurisprudence on exactly the same facts obtaining in the tragic sinking of MV Princess of Stars in Romblon involving the real and hypothecary nature of maritime commerce, the Bar Question asked repeatedly in 1964, 1988, 1999 and 2000 has a different answer now after the clarification and apparent abandonment of the Monarch decision by the Supreme Court in the recent 2006 decision in the aboitiz case (see de Castro, Arturo, Recent Legislation and Jurisprudence on All Bar Subjects [Red Study Guide for the Bar], pp. 166-168, 2007 Edition). Now, under the aboitiz decision, the ship owner is liable for the negligence of the ship captain applying the Civil Code provision that a common carrier is presumed negligent. Also, under the principle of respondeat superior, the ship owner is bound by the negligence of its employee or agent. 5.2. When should notice of claims for damage to cargo be made? Ans: Upon delivery if the damage is visible or apparent in the outside of the package. If not, the notice of claim must be made within 24 hours from receipt of the cargo. However, notice after two (2)

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days from delivery was held substantial compliance in a recent considering that the necessary clearance had to be obtained before the package may be open and a report on any damage condition had to pass thru the proper channel before to finalize and indorsed to the department of the shipping company. Moreover, the goods must have not corroded instantly overnight such that it can only have sustained the damage during the transit. Furthermore, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case. Corporation Law 6. Who are authorized to act and bind a corporation? Ans: Only persons authorized by the resolutions of the Board of Directors. The affairs and properties of the corporation are managed and directed only by the Board of Directors except in fundamental changes in the corporate capital structure requiring affirmative action of the stockholders representing 2/3 of the subscribed and outstanding capital stock. (RYUICHI YAMAMOTO vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, G.R. No. 150283, April 16, 2008) 7. How is transfer of ownership of shares of stock effected? Delivery of indorsed stock certificate. Ans: The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient to transfer ownership of shares of stock in stock corporations. Such mode of transfer is valid between the parties. In order to bind third persons, however, the transfer must be recorded in the books of the corporation. The delivery of the stock certificate duly indorsed by the owner is the operative act that transfers the shares. The absence of delivery is a fatal defect which is not cured by mere execution of a deed of assignment. Consequently, the Republic and the PCGG, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. (Republic of the Philippines vs. Estate of Hans Menzi, et al., G.R. No. 152578, November 23, 2005) 8. May the By-Laws provide for election of directors in a stock corporation by districts or by regions? Ans: The stipulation in the By-Laws providing for the election of the Board of Directors by districts is a form of limitation on the voting rights of the members of a non-stock corporation as recognized under the Section 89 of the Corporation Code. Section 24 of the same Code requiring the presence of a majority of the members entitled to vote in the election of the board of directors, applies only when the directors are elected by the members at large, such as is

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always the case in stock corporations by virtue of Section 6. (Luis Ao-As, et al. vs. Court of Appeals, et al., G.R. No. 128464, June 20, 2006) 9. What is the nature of a derivative suit? Who is the real party in interest in a derivative suit? Ans: One of the requisites of a derivative suit is that the party bringing the suit should be a stockholder/member at the time of the action or transaction complained of. The right to sue derivatively is an attribute of corporate ownership which, to be exercised, requires that the injury alleged be indirect as far as the stockholders/members are concerned, and direct only insofar as the corporation is concerned. The whole purpose of the law authorizing a derivative suit is to allow the stockholder/member to enforce rights which are derivative (secondary) in nature. A derivative action is a suit by a shareholder/member to enforce a corporate cause of action. It is enough that a member or a minority of such members file a derivative suit for and in behalf of the corporation. After all, the members/stockholders who filed a derivative suit are merely nominal parties, the real party-in-interest being the corporation itself for and in whose behalf the suit is filed. Any monetary benefits under the decision of the court shall pertain to the corporation. (R.N. Symaco Trading Corportion vs. Luisito T. Santos, G.R. No. 142474, August 18, 2005) 9.1. What are the two tests to establish intra-corporate controversy? Ans: Relationship test and Nature of the controversy test. In addition to the intra-corporate relationship, the incidents of that relationship must as well pertain to the enforcement of the parties correlative rights and obligations under the corporation code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. This two-tier test was adopted in the recent case of Speed Distribution, Inc. v. Court of Appeals To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which

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they are stockholders, members or associates; between any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy. (Oscar C. Reyes vs. RTC of Makati, Zenith Insurance Corporation, and Rodrigo C. Reyes, G.R. No. 165744, August 11, 2008) 9.2. What are the requisites of piercing the veil of corporate fiction? Ans: While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality. The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow: "1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the 'instrumentality' or 'alter ego' doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation." (Italics in the original; emphasis and underscoring supplied) In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiff's legal rights must be clearly and convincingly established; it cannot be presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does not apply. (RYUICHI YAMAMOTO vs.

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NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, G.R. No. 150283, April 16, 2008) Corporate Rehabilitation 10. What is the requirement for the issuance of stay order and appointment of a rehabilitation receiver in a corporate rehabilitation cases? Ans: A finding made by the commercial court within 5 days from the filing of the petition that the petition is in proper form and substance done ex-parte by the court upon examination of the petition and its annexes. The serious situation test requiring to establish first (1) that there is an imminent danger of dissipation, loss or wastage or destruction of assets or paralyzation of business operations of liquid corporations which may be prejudicial to the interest of the minority, parties litigant or to the general public or (2) that there is a necessity to preserve the rights and interests of the parties litigants, of the investing public and of creditors before receivers may be appointed apply to ordinary receivership or sequestration proceedings and not to corporate rehabilitation, where the only requirement for issuance of a stay Order and appointment of a rehabilitation receiver is a finding, to be determined ex-parte by the commercial court within 5 days from the filing of the petition for rehabilitation, that the petition is sufficient in form and substance. Professor Jack Gimenez and I believe that the decision of the Supreme Court in Pryce Corporation vs. Court of Appeals, G.R. No. 172302, February 4, 2008 requiring compliance with the serious situation test in rehabilitation cases as a condition precedent to the issuance of the stay Order and appointment of a rehabilitation receiver is a stray or erroneous decision that must be corrected. We both believe that the serious situation test applies only in ordinary non-rehabilitation receivership cases. Under the Rules of Corporation Rehabilitation, there is no room for a hearing to determine compliance with the serious situation test within the 5 day period to determine sufficiency of form and substance by the mere examination of the petition and its required annexes. Securities Regulation Code 11. a) What is the mandatory close out rule in margin trading? Ans: The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. Sections 23 & 25 and Rule 25-1, otherwise known as the mandatory close-out rule, clearly vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a customers order, if payment is not received within three days from the date of purchase. For transactions subsequent to an unpaid order, the broker should require its customers to deposit funds into the account sufficient to cover each purchase transaction prior to its execution. These duties are imposed upon the broker to ensure faithful compliance with the

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margin requirements of the law, which forbids a broker from extending undue credit to a customer. (Abacus Securities Corp. vs. Ampil, G.R. No. 160016, February 27, 2006) (b) What is the macroeconomic purpose of the margin trading rule? Ans: The margin requirements set out in the RSA are primarily intended to achieve a macroeconomic purpose- the protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors. (Ibid) 11.1. What is an investment contract? Is the conduct of the seminar training participants to recruit potential investors in an investment contract in a common enterprise on the expectation of profits from the efforts of others considered a security that must be registered under the Securities Regulation Code? Ans: Power Homes was engaged in the sale or distribution of an investment contract. Clearly, the trainings or seminars are merely designed to enhance petitioner's business of teaching its investors the know-how of its multi-level marketing business. An investor enrolls under the scheme of petitioner to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. Under the scheme, the accumulated amount received by the investor comes primarily from the efforts of his recruits. Therefore, the business operation or the scheme of Power Homes constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799 as a "contract, transaction or scheme (collectively 'contract') whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others." Our definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. W.J. Howey Co. In this case, the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an "investment contract" under the Securities Act's definition of "security." The US Supreme Court, recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report, held that "Congress was using a term whose meaning had been crystallized" under the state's "blue sky" laws in existence prior to the adoption of the Securities Act. Thus, it ruled that the use of the catch-all term "investment contract" indicated a congressional intent to cover a wide range of investment transactions. It established a test to determine whether a transaction falls within the scope of an "investment contract." Known as the Howey Test, it requires a transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others. Court stressed that the Howey Test "embodies a flexible rather than a static principle, one that is capable of adaptation to

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meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits." Needless to state, any investment contract covered by the Howey Test must be registered under the Securities Act, regardless of whether its issuer was engaged in fraudulent practices. (POWER HOMES UNLIMITED CORPORATION vs. SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, G.R. No. 164182, February 26, 2008) 11.2. Are postdated checks serving as evidence of indebtedness considered securities under the Securities Regulation Code?

Ans: Yes. As DOJ correctly pointed out, the postdated checks themselves serve as the evidences of the indebtedness. A different rule would open the floodgates for a similar scheme, whereby companies without prior license or authority from the SEC. This cannot be countenanced. Moreover, it bears pointing out that the definition of "securities" set forth in Section 2 of the Revised Securities Act includes "commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another". A check is a commercial paper evidencing indebtedness of any person, financial or non-financial entity. Since the checks in this case were generally rolled over to augment the creditor's existing investment with ASBHI, they most definitely take on the attributes of traditional stocks. (BETTY GABIONZA and ISABELITA TAN vs. COURT OF APPEALS, LUKE ROXAS and EVELYN NOLASCO, G.R. No. 161057, September 12, 2008) Banking Laws 12. Explain the nature of diligence expected of Banks. Ans: Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. (Citibank, N.A. vs. Spouses Luis and Carmelita Cabamongan, et al., G.R. No. 146918, May 2, 2006) It is well to reiterate that the degree of diligence required of banks is more than that of a reasonable man or a good father of a family. In view of the fiduciary nature of their relationship with their depositors, banks are duty-bound to treat the accounts of their clients with the highest degree of care. (BANK OF THE PHILIPPINE ISLANDS vs. LIFETIME MARKETING CORPORATION, G.R. No. 176434, June 25, 2008) 13. What is the amount of the redemption price if the mortgagee is a bank? How is the right of redemption exercised?

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Ans: However, considering that Banco Filipino is a banking institution, the determination of the redemption price is governed by Section 78 of the General Banking Act which provides that the purchase price is that amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by reason of the execution and sale and as a result of the custody of the property less the income received from the property. Clearly, the redemptioner should make an actual tender in good faith of the full amount of the purchase price as provided above. In case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action which in every case must be filed within the one-year period of redemption. (Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, G.R. No. 143896, July 8, 2005) 13.1. May the special land registration case for writ of possession be consolidated the ordinary civil action to invalidate the foreclosure proceeding? Ans: No. The rule allowing consolidation is designed to avoid multiplicity of suits, to guard against oppression or abuse, to prevent delays, to clear the dockets and to simplify the work of the trial court. In the instant case, the consolidation of PNBs petition for writ of possession with Gotescos complaint for annulment of foreclosure proceedings, serve none of the above purposes. On the contrary, it defeated the very rationale of consolidation. PNBs petition was filed on May 26, 2006 and remains pending after three years despite the summary nature of the petition. Obviously the consolidation only delayed the issuance of the desired writ of possession. It prejudiced PNBs right to immediate possession of the property and gave Gotesco undue advantage for it continues to possess the property during the pendency of the consolidated cases despite the fact that title to the property is no longer in its name. Strictly speaking the petition for a writ of possession is not a judicial process. It is a non-litigious process that is summary in nature. In contrast the Gotesco action for annulment of foreclosure is an ordinary civil action and adversarial in character. The right of PNB would be prejudiced if its petition would be consolidated with Gotescos case. (PNB vs. Gotesco, G.R. No. 183211, June 5, 2009) Intellectual Property 14. Who can register a mark in his name? Ans: Kho is not the author of the trademark Chin Chun Su and his only claim to the use of the trademark is based on the Deed of Agreement executed in his favor by Quintin Cheng. By virtue thereof, he registered the trademark in his name. The registration

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was a patent nullity because Kho is not the creator of the trademark Chin Chun Su and, therefore, has no right to register same in his name. Furthermore, the authority of Cheng to be the sole distributor of Chin Chun Su in the Philippines had already been terminated by Shun Yih Chemistry. Withal, he had no right to assign or to transfer the same to Kho. (Elidad Kho, et al. vs Enrico Lazanas, et al., G.R. No. 150877, May 4, 2006) Special Laws 15. When may compliance for disclosure statement be excused? Ans: When the 7 items that must be stated therein are disclosed in the Promissory Notes. Section 1 of the Truth in Lending Act mandates that the 7 items stated therein be furnished in writing by the creditor bank to the lender client before the consummation of the loan transaction. CB Circular No. 158 provides that these 7 items of information be included in the contract covering the credit transaction. However, compliance with the foregoing may be had if the client be fully informed of these items of information in some other commercial document. As in this case, the borrower was well informed of the details of the loan through the 3 promissory notes, which, on its faces, showed all the date required by the law, signed by no less than the borrower himself. (Development Bank of the Philippines vs. Felipe P. Arcilla, Jr., G.R. Nos. 161397 and 161426, June 30, 2005) Negotiable Instrument 16. What is an accommodation party? A party who lends his name to enable the accommodating party to obtain credit or to raise money without receiving any part of the consideration of the instrument he signs as maker, drawer, acceptor or indorser. Petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz.: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to the value of 24 sets of tires

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received by Cruiser Bus Lines and Transport Corporation on August 29, 2000. There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party. (CLAUDE P. BAUTISTA vs. AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS (Twenty-First Division), G.R. No. 166405, August 6, 2008) 17. What is the fictitious payee rule? Ans: A check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument. In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise; it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check. However, there is a commercial bad faith exception to the fictitiouspayee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. (PHILIPPINE NATIONAL BANK vs. ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, G.R. No. 170325, September 26, 2008) 18. Who is a holder in due course? Ans: One who complies with the requisites of Sec. 52, which provides: Section 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face;

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(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (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. The law presumes that a holder of a negotiable instrument is a holder thereof in due course. In this case, the CA is correct in finding that BA Finance meets all the foregoing requisites: In the present recourse, on its face, (a) the "Promissory Note", Exhibit "A", is complete and regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the "Promissory Note" was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the "Chattel Mortgage" by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course. (SPS. PEDRO AND FLORENCIA VIOLAGO vs. BA FINANCE CORPORATION and AVELINO VIOLAGO, G.R. No. 158262, July 21, 2008)

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