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Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !

!" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page ! of !(B. Balbastro .uestion, (& &nswer in I+&C /orm, Negotiable Instruments Law B. 0 & pur%*ase from B goo s wort* P2010002 & pai B issuing to t*e latter a %*e%3 for 201000 P*P2 B1 *owever1 wants & to se%ure *is %*e%3 wit* t*e %*e%3 of C1 w*o *as a goo %re it stan ing2 So bot* %*e%3s of & an C were given to B1 *e t*ereafter elivere t*e goo s2 B 3nowing t*at C4s %re it is better went to t*e ban3 an eposite for payment C4s %*e%32 Is C liable to B5 #$plain2 A: No, C is not liable to B, because the check issued by C is only an aval.

An aval is an instrument used as collateral for another instrument. Its main ur ose is to rovide security to another check or instrument of credit. B shall not have the right to the use of the !Aval" unless something is wrong with the check issued by A. It cannot therefore, be used by the ayee until the check on which was secured by the aval is dishonored. B.0 & boug*t goo s from B amounting to P!0010002 & issue a %*e%3 in favor of B2 '*en B en orse to C1 B use an allonge2 C en orse it to 62 '*en 6 eposite t*e %*e%31 t*e ban3 refuse payment2 Is t*e ban3 %orre%t in refusing payment5 #$plain2 A: #es, the bank is correct in refusing ayment on the check.

An allonge is a iece of a er ermanently attached to the negotiable instrument having the ur ose of accommodating further endorsements. $here was no valid endorsement when B used the allonge to effect his endorsement to C. %e should have used the back of the check to effectively transfer the instrument in &uestion. As there was no valid endorsement by B, ' did not ac&uire a valid title to the instrument from C. %e cannot therefore enforce it against the bank. B.0 & issue a %rosse %*e%3 to t*e or er of S1 *is son1 for S4s s%*ool supplies2 S *a t*e %rosse %*e%3 is%ounte wit* 7 an use t*e money for *is bar3a a2 7 eposite t*e %*e%3 wit* t*e ban32 But 7 was informe t*at & previously or ere a stop payment on t*e sai %*e%32 7 gave a noti%e of is*onor to & an S2 Is & liable5 6is%uss2 A: No, A is not liable to ( for the value of the check.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page 2 of !)hen a crossed check issued, it im oses a corres onding duty on the art of the holder thereof to in&uire as to the ur ose in which the check was issued. $he failure of the holder to in&uire constitutes bad faith on his art, making him not a holder in due course. In the case at bar, ( failed to in&uire as to the ur ose on which the crossed check was issued. ( therefore is not a holder in due course. As such, he is sub*ect to any ersonal defenses that may be raised by A. By +,s conduct of cashing the crossed check for a ur ose other than for buying school su lies, he is committing a breach of trust. Breach of trust is a ersonal defense that may be raised by a arty against a holder not in due course such as (. B.0 8 is t*e owner of a %ar2 8 as3e B to be *er agent for t*e purpose of selling t*e %ar for P20010002 B ealt wit* & for t*e %ar2 '*ile & was loo3ing for money1 B tol *im to issue a %*e%3 for P!010001 if only to assure 8 t*at *e is buying t*e %ar2 & issue a %rosse %*e%32 B use t*e %*e%31 *owever1 to pay C1 a o%tor for *er %*il 4s me i%al %*e%3 up2 '*en t*e %*e%3 was is*onore 1 C sue &2 Is & liable to C5 A: No, A is not liable to C under the check.

-nder the law a holder is re&uired to in&uire as to the ur ose in which the crossed check was issued. $he failure on the art of the holder to in&uire as to its ur ose constitutes bad faith on his art, thereby making him not a holder in due course. In the case at bar, C failed to in&uire from B as to the ur ose of the issuance of the crossed check. %e is therefore not a holder in due course and is sub*ect to ersonal defenses that may be raised by A against him. $he act of B in using the check issued by A other than for its intended ur ose constitutes breach of trust. Breach of trust is a ersonal defense available against a holder not in due course like C. B.0 '*at is a letter of %re it5 Illustrate *ow a letter of %re it is pro%ure 2 A: A letter of credit is a firm commitment by one arty regarding the credit of a second arty in favor of a third arty. A wanted to buy a hi.tech e&ui ment he saw in the $ime /aga0ine where B is the e1clusive distributor. A is based in /anila while B is based in Italy. $hey were able to agree on the terms for 2344,444. B told A to o en a letter of credit 5LC6.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page 3 of !A a lied for a Letter of Credit with Allied Bank and all the re&uirements were com lied with i.e., marginal de osit. Allied Bank informs Banco Italia of the Letter of Credit in favor of B by A. B shall deliver to Banco Italia the invoice, acking list, bill of lading, in favor of Allied Bank, together with the consular invoice. $hen Banco Italia, shall deliver to Allied Bank the Bill of Lading etc. /eanwhile, B shi s the cargo to the country of A. $he shi cargo, however, shall notify N7$ A but Allied Bank that the e&ui ment has arrived, Allied Bank being the consignee. Allied Bank will not release the bill of lading if A cannot ay the Letter of Credit. If A does not have the money, he will have to sign and e1ecute a trust recei t in favor of Allied Bank so that the latter can issue to him the necessary documents for the release and delivery of the goods. In the latter case, the letter of credit transaction ends and a trust recei t transaction between Allied Bank and A begins. B.2 9*e letter of %re it suppose ly originate in Bang3o3 an t*e servi%ing ban3 (&llie Ban3, is in :anila2 9*e letter of %re it was opene in Bang3o3 by 7enia in a measly amount of ;3010001000 for importation of plasti% pro u%ts from :anila to Bang3o3 to %onsist of two eliveries2 9*e letter of %re it is in favor of 8nigo1 t*e plasti% 3ing of t*e P*ilippines2 &llie Ban31 upon t*e 3nowle ge of t*e letter of %re it tol 8nigo2 8nigo went to t*e <i%e=Presi ent of &llie Ban32 8nigo t*en elivere ;!"10001000 wort* of plasti% pro u%ts to t*e s*ipper for elivery to 7enia in Bang3o32 &llie Ban3 pai 8nigo t*e amount2 /or t*e se%on s*ipment1 8nigo elivere t*e se%on *alf of t*e s*ipment1 e$pe%ting to be pai 2 &llie Ban3 refuse to pay upon instru%tion of Bang3o3 Ban32 &llie Ban3 furt*er wants to get ba%3 t*e ;!"10001000 it pai on t*e groun t*at t*e letter of %re it was fa3e2 8nigo sue &llie Ban32 'ill t*e a%tion prosper5 A: No, Allied Bank is not liable under the letter of credit as it was only an informing bank. In case the letter of credit turns out to be a fake or there is something wrong with it, a notifying bank does not incur any liability. A confirming bank, though, shall incur liability to the beneficiary of the letter of credit as it confirmed as to the validity of the letter of credit. In the given facts, it was not clearly shown that when #nigo went to talk with the 82 of Allied Bank, the latter went beyond informing #nigo as to the e1istence of the letter of credit in his favor. $hus, Allied Bank is merely an informing bank not liable under the letter of credit. %ad it been shown that the 82 of Allied Bank confirmed the e1istence of the letter of credit, #nigo,s action would have ros ered. B.0

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page > of !/or value re%eive a%%ounts payable2 9o0 8olan a 6rawee1 :anila pay to t*e or er of Balbastro P !01000200 from S?62 &rturo

Is t*e instrument negotiable5 A: No, the instrument is not a negotiable instrument.

-nder the Negotiable Instruments Law, an instrument to be negotiable must contain an unconditional romise or order to ay a sum certain in money. $he sub*ect instrument is not negotiable because the amount shall be aid out of a articular account, accounts ayable. It is therefore sub*ect to a condition that funds are available on that account. B.0 /or value re%eive payable2 9o0 pay to t*e or er of Balbastro P!010001 S?60 &rturo 8olan a 6rawee1 :anila ebit a%%ounts

Is t*e instrument negotiable5 A: #es, the instrument is a negotiable instrument.

$he Negotiable Instrument Law re&uires that a negotiable instrument must contain an unconditional romise or order to ay a sum certain in money. $he word !debit" is only a rocedure after ayment. $hus, there is no condition im osed u on its ayment. $he re&uirement of negotiability under the law is therefore satisfied. B.0 Is a treasury warrant a negotiable instrument5 A: No, a treasury warrant is not a negotiable instrument.

+ection 9 5b6 of the Negotiable Instruments Law re&uires that a negotiable instrument must contain an unconditional romise or order to ay a sum certain in money.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page " of !$he treasury warrant is an order to ay from a articular item from the general a ro riations act which shall be sub*ect to the availability of funds. It is sub*ect therefore to the condition of fund availability making it non.negotiable. B.0 Pay to B or bearer P @01000200 S?60 & 9o0 ' :an aluyong1 Outsi e

& issue t*e instrument to B1 B gave t*e instrument to C wit*out en orsement1 is C a *ol er5 Supposing t*e sai instrument not a bearer1 will C be%ome a *ol er5 A: #es, C is a holder of the instrument because it is a bearer instrument.

A bearer instrument is one ayable to bearer on its face. It can be negotiated by mere delivery. $he resence of a s ecial endorsement at the back of a bearer instrument does not affect its being a bearer instrument save when it is restrictively endorsed for !de osit only." +ince the instrument issued by A to B is a bearer instrument, B,s endorsement thereon is unnecessary to effectively make C a holder as mere delivery thereof constitutes negotiation. In the second instance, C does not become a holder of the order instrument. An order instrument to be validly negotiated must be endorsed and com leted with delivery. It becomes an instrument ayable to bearer when it shall be endorsed in blank and hence, subse&uently negotiable through mere delivery. But once, it is again endorsed s ecially, it must be indorsed and com leted with delivery to effect a negotiation. B.0 & signe an instrument in%omplete on its fa%e2 But B stole it an fille up t*e amount an *is name AB2B 9*ereafter1 *e %as*e wit* Ban3 7 but & was able to or er stop payment t*ereto2 9*us1 Ban3 7 refuse payment on t*e %*e%32 Can B sue & after t*e noti%e of is*onor for t*e value of t*e %*e%35 A: No, B cannot definitely collect for the value of the incom lete and undelivered instrument.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page C of !An instrument is incom lete if it was signed by the drawer but lacking in material articular. It was undelivered as it was stolen by B from ossession of A. -nder the law, an incom lete and undelivered instrument is a real defense on the drawer which is available to him even against a holder in due course. B, the malefactor, cannot therefore enforce the check against A as he even hardly &ualifies as a holder in due course. B.0 Suppose & signe an instrument in%omplete2 But tol *is se%retary1 B to fill up t*e blan3 spa%es if s*e nee s it to pay ele%tri% an water bills2 Later on C1 t*e boyfrien of B in u%e B to fill up t*e %*e%3 an en orse to *im2 &1 *owever1 timely or ere stop payment to *is ban3 so t*at w*en C presente t*e %*e%3 for payment1 t*e Ban3 refuse 2 Can C %olle%t from &5 A: No, C cannot collect from A.

An incom lete but constructively delivered instrument binds the drawer. But he is entitled to ersonal defenses which is available to holders not in due course. An e1am le of a ersonal defense is breach of trust. In the case at bar, A is bound by the instrument although incom lete because he constructively delivered it to his secretary B, giving the latter the authority to fill u the blanks. But B committed breach of trust when she filled it u other than for the ur ose she was authori0ed. $he breach of trust committed is a ersonal defense of A against holders not in due course. C is in bad faith because he induced B to abuse the authority given to her. C is therefore not a holder in due course. As such, the ersonal defense of breach of trust is available against him. A lying the doctrine of com arative negligence, it is C who is the ro1imate cause on why the check was endorsed other than for its intended ur ose. %e therefore shall bear the loss under this doctrine. %e cannot therefore collect from A. B.0 Suppose t*e instrument is %apable of being %onstrue eit*er as a promissory note or a bill of e$%*ange1 w*i%* woul you %*oose2 #$plain2 A: I will choose to construe the instrument as a romissory note for the reasons as follows:

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page D of !:irst, the ayment in case of romissory note is direct. -nlike in a bill of e1change where drawer is only secondarily liable, the maker romises to ay directly the instrument when it matures. And secondly, failure to follow the rocedure in giving notice of dishonor within the time allowed in the case of a bill of e1change will discharge the drawer, while no similar re&uirement is needed against the maker in a romissory note. B.0 In a negotiable instrument1 is it ne%essary t*at t*e rawerEen orser write *is name before signing5 A: No, it is not necessary that the drawer;endorser write his name before signing.

$he law merely re&uires that the drawer;endorser lace his signature and nothing further. It is resumed that by lacing the signature i.e., !(" the erson dealing with him shall know him ersonally. )hen the law does not distinguish, neither do we. B.0 Illustrate w*at steps must t*e agent follow in or er to negate *is liability in an instrument relative to *is en orsement of t*e same2 A: In order that an agent will validly negative his liability on the instrument, he shall com ly with the following re&uirements: 9. 3. =. %e must be duly authori0ed< %e must disclose his rinci al< and %e must act in a re resentative ca acity.

%e may disclose his rinci al in the manner as follows: 9. 3. =. >. A by B, agent B for A, rinci al B, Agent of A A by: B er roc or er rocuration

Note: 2er rocuration ? means that the agent,s authority is limited. +o there is a duty to in&uire other bad faith sets in. !B, agent" ? the word agent is only descri tive of B, this ty e is does not negative his liability. Illustration on :7@AB@# A ..... B...... C 5cul rit6 ....... ' ..... (

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page - of !5drawer6 5 ayee6 5drawee bank6 S%enarios0 !2 B vs2 & 22 B vs2 C 32 B vs2 6 >2 & vs2 C "2 & vs2 6 C2 & vs2 7 D2 7 vs2 6 (s%enarios !1 C an D are usually as3e , (&ssumption0 & maintains a %*e%3ing a%%ount wit* 71 t*e rawee ban3, & boug*t goo s from B for P!0010002002 9*ey agree t*at B gives & a %re it of 30 ays2 '*en t*e 30= ay %re it perio is about to e$pire1 & issue a %*e%3 in favor of B rawn on 7 ban32 & sent it t*roug* mail to B2 It *owever1 went into t*e *an s of C2 C ma e it appear t*at B en orse it to C2 9*ereafter1 C eposite it wit* 61 %olle%ting ban32 6 stampe it Aall prior en orsements guarantee 2B 61 %olle%ting ban31 now sent it to 71 rawee ban3 for %learing2 7 trie to verify t*e %*e%34s signature an %leare it2 'it*out *earing any wor 7 ban31 6 allowe C to wit* raw t*e amount eposite 2 :eanw*ile1 t*e 30= ay perio e$pire an B not *aving re%eive any payment from &1 B eman e payment from &2 '*en & %alle up 71 rawee ban31 t*e latter informe *im t*at it was %leare 2 So & eman e t*at 71 rawee ban31 %re it ba%3 t*e amount e u%te 2 71 rawee ban3 eman e in return from 61 %olle%ting ban3 of t*e amount lost2 61 %olle%ting ban3 refuse payment2 B.0 B file a %ase against & (B vs2 &,2 'ill t*e %ase prosper5 A: No, B cannot collect from A under the check because he is not a holder thereof. It never got to him in the first lace. $he law considers one a holder when 596 he is in hysical ossession of the instrument and 536 that he is legally entitled to be aid thereof. B, is not a holder because he was not in hysical ossession of the instrument. %e therefore cannot collect from A under the check. %e is however entitled to collect from A under some other contract i.e., contract of sale. B.0 Can B %olle%t from 61 t*e %olle%ting ban35 (B vs2 6, (B vs2 C, A: No, B cannot collect from ', the collecting bank. 5collecting bank6

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page @ of !$here was no rivity of contract between B and ', the collecting bank. B, therefore has no cause of action against ', the collecting bank, to which he will remise his claim. B.0 A: Can & %olle%t from C5 (& vs2 C, #es, A can collect from C for torts and damages.

$he law allows recovery of damages for in*uries and damages caused by acts that are tortuous in character. $he act of C in a ro riating the check intended for B, resulted in the default of ayment by A of his debt to B resulting in A,s tarnished re utation. Liability may therefore be based on torts resulting to in*ury on the art of A i.e., tarnished re utation although no rivity of contract was resent between A and C. And a lying the doctrine of com arative negligence, as between A and C, it is C who shall bear the loss as he is the ro1imate cause of said loss. B.0 Suppose1 71 rawee ban31 i not agree to re%re it t*e eman of &2 '*at will be t*e a%tion of &5 (& vs2 7, A: A, shall enforce recrediting of his account with (, drawee bank under the contract of de osit. Based on the contract of de osit, the failure of the drawee bank, to follow drawer,s instructions shall constitute breach of contract. 7n this basis, A can hold (, drawee bank, liable for amount deducted from his account. B.0 A: '*at is t*e efense of 71 rawee ban35 $he doctrine of com arative negligence shall save the day for (, drawee bank.

-nder the doctrine of com arative negligence, as between two negligent arties, the arty whose negligence is the ro1imate cause of the loss shall bear the same. In the case at bar, A is deemed to be the more negligent arty because the mailing of the check to B sub*ected the same to the risk of getting lost through the mails. B.0 71 rawee ban3 sue 61 t*e %olle%ting ban31 will t*e %ase prosper5 #$plain2 A: No, the case will not ros er.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !0 of !Banking rules mandate that the drawee bank shall inform the collecting bank within 3> hours from discovery of the forgery but in no event beyond the eriod fi1ed by law for filing a legal action. $he rationale of the rule is to give the collecting bank ade&uate o ortunity to roceed against the forger. $he failure to follow said rules will absolve the collecting bank from liability. 5/iravite6 $he endorsement !all rior endorsement and;or lack of endorsement guaranteed" by ', the collecting bank, should be read in the light of the 3>.hour clearing house rules. 5Balbastro6 $he fact that (, drawee bank, allowed the said eriod to e1 ire without informing the collecting bank, ', that there was something wrong with the check, entitled the latter bank to allow the withdrawal of the amount of the check by the forger C. In this instance, the drawee bank, (, should suffer the loss. Illustration on &%%ommo ation B boug*t %ertain goo s from C for P "010002002 C oes not believe in t*e solven%y of B an fran3ly tol *im to let & issue a %*e%3 for & is a better ebtor2 & issue a %*e%3 payable to t*e or er of C2 Be%ause of B4s *appiness1 *e gave &1 t*e only money from *is po%3et P!10002002 B en orse t*e %*e%3 to t*e or er of C2 But & tol *is rawee ban3 7 to stop payment t*ereby resulting to t*e %*e%3 being is*onore 2 B.0 Is t*e P!1000200 enoug* %onsi eration5

A: No, it is not enough consideration. It is fondly called ! am alubag loob lamang" in the vernacular. B.0 A: Is & liable to C5 Cannot & raise t*e efense of la%3 of %onsi eration5 #es, A is liable to C and he cannot raise the defense of lack of consideration.

$he absence of consideration goes to the very nature of accommodation. $he accommodating arty shall be liable to the instrument sub*ect to his right of reimbursement on the accommodated arty. In this case, A is the accommodation arty while B is the accommodated arty, the 29,444.44 given by B to A is not enough consideration. B.0 A: &ssuming & pays C1 is t*e instrument is%*arge 5 No, the instrument is not discharged.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !! of !$he instrument shall be discharged when there is ayment in due course. $here is ayment in due course when the arty rimarily liable ays the instrument after maturity. $he ayment by the accommodation arty is not ayment in due course under the law because he is not the arty rimarily liable. In the case at bar, the relationshi between A and B is that of accommodation. A is the accommodation arty while B is the rinci al debtor. 2ayment by A therefore does not constitute ayment in due course. In this regard, the instrument shall not be discharged. /oreover, the instrument is not discharged because A will still need the same in the reimbursement from B, the rinci al debtor. B.0 If C went to B1 an B pays to C1 is t*e instrument is%*arge 5

A: #es, the instrument is discharged rovided ayment is done after the maturity of the instrument. As correctly stated above, ayment by the erson rimarily liable after maturity shall constitute ayment in due course resulting to the discharge of the instrument. In the case at bar, B is the rinci al debtor, thus his ayment to C of the instrument is ayment in due course resulting to the discharge of the instrument. B.0 '*o is a *ol er5 A: A holder is a erson who 596 has hysical ossession of the instrument and 536 has the right to be aid on said instrument. Illustration. 5front6 2ay to the order of B 2 34,444.44 +igned: A $o: ( /andaluyong 7utside C signed here C

B.0

'*at is C5 Is C liable5

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !2 of !A: C, is called the irregular endorser, otherwise known in legal arlance as the accommodation endorser. C,s ur ose of signing at the front is to lend credit to the instrument. B.0 & B C 6 # C / ? 9o0 7 rawee In t*e above situation1 %an t*e negotiation of C to / ma3e t*e latter a *ol er in ue %ourse5 A: #es, C can make : a holder in due course assuming that all the necessary elements for the same are resent. Bven if the instrument is endorsed back to the one rimarily liable, but before it matures, it can still be negotiated and still makes the subse&uent holder one in due course. B.0 Suppose ?1 presente on t*e 30 t* ay from a%%eptan%e for payment1 but 7 is*onore 2 ? gave noti%e of is*onor to &1B1C161#1/2 Suppose C pai 1 %an *e get reimbursement from 6 an #5 A: No, C cannot get reimbursement from ' and B.

)hen the instrument is negotiated back, the effect is merely utting him in the osition as he was before originally. As such C cannot seek reimbursement from ' and B who are arties subse&uent to him. $he right of reimbursement of C is only to A and B. B.0 6efine a *ol er in ue %ourse2 (:#:O+IF#GGG Se%tion "2, A: B.0 '*at is t*e reason w*y real efenses are available even against a *ol er in ue %ourse5 A: @eal defenses are available even against a holder in due course because the defense goes into the very root of the instrument. It is as if the instrument does not e1ist, so that there is no holder at all. -nlike in ersonal defenses, the contract is there but there is something wrong between the arties.

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !3 of !B.0 A: @e ublic of the 2hili ines Cue0on City /etro /anila 6 6 6 +.+. :a3e a noti%e of is*onorEprotest

N7$ICB 7: 'I+%7N7@;2@7$B+$ 5ste s to follow6 9. 3. =. >. Identify the instrument 5a6 bank 5b6 check D 5c6 amount Narrate the facts starting from issuance until dishonor and /ake demand for ayment Eurat

B.0 & signe a %*e%3 wit*out spe%ifying t*e payee an amount2 He pla%e it insi e *is rawer2 He gave instru%tion to B1 *is se$ytary to use it for *ouse*ol nee s2 C t*e boyfrien of C %onvin%e B to put *er name on it an en orse t*e same to C2 C t*en en orse it to 6 for value wit*out 3nowle ge of t*e brea%* of trust2 By t*e time 6 negotiate it to #1 t*e brea%* of trust be%ame publi% 3nowle ge in%lu ing #2 '*en is*onore 1 %an # sue & on t*e instrument5 A: #es, B can enforce the instrument against A and in his refusal sue him for the value thereof. Bven a arty who has knowledge of the infirmities of an instrument shall have all the rights of a holder in due course if he derived the instrument from a holder in due course. $he law rotects the holder in due course by making those who derive the instrument from him as having all the rights of a holder in due course. A contrary rule will re*udice the holder in due course since nobody will acce t the check from him anymore. B.0 /eb2 C1 2002 Pay to B1 30 ays after sig*t S?60 & 9o0 7 :anila

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !> of !&ssuming t*is is a bill of e$%*ange1 will t*is instrument ever mature if B oes not ma3e any a%tion5 A: No, B has to have it acce ted. !2resentment for acce tance" is necessary for the ur ose of fi1ing the maturity of the note of this instrument. B.0 & issue a %*e%3 to t*e or er of B1 rawn on 7 Ban32 9*e %*e%3 was is*onore an B re%eive t*e noti%e from *is own ban3 (Ban3 8, on a /ri ay2 So1 on :on ay1 *e went to t*e offi%e of *is lawyer2 If you were t*e %ounsel of B1 *ow will you p*rase t*e noti%e of is*onor to 3nowing t*at & an B live in t*e same pla%e5 A: If I were the counsel of B I will avoid this statement !In behalf of my client, B, I hereby inform you that the check you issued is dishonored" as the foregoing will be deemed as an admission in court knowing that the notice of dishonor was not given within a 3> hour eriod. Instead I will state !In behalf of my client, B, I @BI$B@A$B $%B 2@B8I7-+ N7$ICB, he immediately gave you at the time he received the notice which he gave to you on time." $his way I will avoid the blunder lawyers often commit in giving the su osed necessary notice to bind secondary arties often resulting to discharge of said arties to the detriment of their clients. B.0 (on a%%eptan%e, Pay to B1 30 ays after sig*t P!01000200 S?60 & 9o0 7 :anila & B C 6 # Situation0 abnormal5 A: If, #B+, then notice of dishonor is N7$ necessary to bind A. -nlike, when the endorsement is N7@/AL when negotiated, that notice of dishonor is necessary bind the drawer as a secondary arty. B.0 #$plain briefly t*e nature of a bills in set5 7 is*onore it w*en B presente it for a%%eptan%e2 7 a%%epte it w*en C presente it for a%%eptan%e '*en t*e instrument mature at #4s *an 1 *as t*e en orsement been

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !" of !A: In a bills in set, there is only one bill of e1change consisting of = arts 5tri licate6 and the only difference is numbering, meaning the contents are all the same. $he ur ose is to insure the chances of getting the bill to the creditor. B.0 & boug*t goo s from B on 30 ays %re it1 & prepare a bills in set1 so five ays before maturity1 & sent part !1 two ays later part 21 an finally part 3 t*ereof2 If B use part !1 is t*e w*ole obligation is%*arge 5 '*at if B negotiate t*e 3 bills to 3 ifferent persons w*o are *ol ers in ue %ourse1 is 7 ban3 liable5 A: #es, the whole obligation is discharged.

In the event that B used the = bills to = different ersons who are holders in due course, ( bank is liable, because in the hands of holders in due course, each of the bills in set is se arate and distinct. $he recourse of A is against B, but only for 2 344,444. 6o%ument 9itle of ?oo s 'are*ouse +e%eipts Law Memorize (Section 8 of the Warehouse Receipts Law) Se%tion - must be %omplie wit* in or er t*at t*e ware*ouseman %an vali ly be or ere to release t*e goo s from t*e ware*ouse2 Se%tion - provi es0 !2 One %laiming must be a *ol er of t*e re%eipt a, p*ysi%al possession b, rig*t to t*e o%ument wit* %orollary obligation to surren er it2 22 Payment of ware*ouseman4s lien 32 'illingness to sign evi en%ing elivery of goo s +ituations: A B C A is the warehouseman B is the de ositor C is the holder 9. 3. =. >. F. Eudgment creditor vs. holder -n aid seller vs. holder lessor;landlord vs. holder landlord;overseer vs. holder owner 5alleged6 vs. holder

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !C of !B.0 '*at are t*e vali reIuisites for vali A: eposit5

'e osit must be made by only $)7 ersons a6 owner b6 agent or duly authori0ed by owner who can make a valid de osit. +hort of them, there is no valid de osit.

Case 9. 5*udgment creditor vs. holder6 B.0 71 t*e Ju gment %re itor1 file a %ase against B1 for %olle%tion of money2 7 %ame to 3now about t*e eposit of B wit* &1 7 t*roug* %ounsel se%ures a writ of e$e%ution an gave it to t*e s*eriff2 Be%ause t*e goo s in t*e ware*ouse is personal property1 t*e S*eriff eman e for t*e goo s2 But B transferre it to C for value2 Between C an 71 to w*om s*oul t*e goo s be release by &5 A: $o C. Because it is C who can com ly with +ection G of the )arehouse @ecei ts Law. B.0 (Case 2, as against t*e unpai seller an t*e *ol er1 w*o s*all *ave a better rig*t5 A: C, the holder.

$hat the right of the un aid seller is defeated by the act of B in endorsing the recei t 5to C6. $here was a valid delivery made by B, although B did not ay ( yet after ( delivered 5sold6 the thing to B. )hen B endorsed it to a third erson, the latter is the more innocent arty. /oreover, C can com ly with the re&uirements of +ection G of the )arehouse @ecei ts Law. $hus, C shall have reference in delivery. B.0 If t*e re%eipt is still wit* B1 w*o *as t*e better rig*t5 A: In this instance, the un aid seller shall have the better right because the right of an un aid seller is only defeated if there is an endorsement made by B to a third erson for value. B.0 (Case 3, 71 is t*e owner of a ri%e lan 1 lease it to B for !00 %avans every *arvest2 '*en *arvest %ame1 B was loo3ing for 71 not aroun 1 so B eposite t*e !00 %avans to t*e ware*ouseman1 &2 But B in orse it to C2 7 eman e from t*e ware*ouseman2 C also %laime elivery2 9o w*om must & eliver t*e !00 %avans of ri%e5

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !D of !A: C has the better right of delivery than (.

-nder the )arehouse @ecei ts Law, the warehouseman can be com elled delivery when +ection G of the law shall be validly com lied with. +aid law rovides that there was a valid recei t for the goods de osited by its owner or agent authori0ed to de osit it< he ays the warehouseman,s lien and willing to sign documents evidencing delivery of goods as well as surrender the said recei t issued to him. :irstly, there was a valid de osit by B, as he was still the owner of the 944 cavans of rice de osited. $he facts reveal that there was only an intention of B to deliver the same to (, but there was no delivery yet. %ence, B was still the owner of the 944 cavans of rice when he de osited them with A. C therefore, can validly com ly with +ection G. B.0 In t*e event of fire1 burning t*e ware*ouse1 is B still liable to 7 for t*e !00 %avans of ri%e5 A: #es, B is still liable to B, he being the owner of the said 944 cavans of rice. $he rinci le of res erit domino shall a ly. B.0 (%ase >, 7 is t*e owner of a "0 *e%tare %o%onut plantation2 7 appointe B as overseer (in%arga o1 tagapama*ala,2 B ivi e t*e "0=*e%tare into " areas an lease ea%* area to &1 B1 C1 6 an # at a %ertain pi%uls of %opra per area2 So1 w*en *arvest time %ame1 B %olle%te t*e rentals2 He gat*ere "00 pi%uls an eposite it to &1 t*e ware*ouseman2 & issue a re%eipt t*erefor2 'as t*ere a vali re%eipt5 'as t*ere a vali elivery5 'as t*e a%t of B bin ing on 75 Is B aut*oriKe 5 A: $he answers all de end on whether or not B has the authority from ( to effect the de osit. If B is authori0ed then a valid de osit was constituted with A, the warehouseman. But note however, that if B is doing it as a habit, there is here an im lied authority. B.0 Suppose B en orse t*e o%ument to C for value1 to w*om s*oul & eliver t*e %opra1 C or 75 A: If B was authori0ed by ( to effect the de osit, or if the act of de ositing the same by B is a habit im lying his authority, the C shall have a better right, as the authority makes the de osit as valid. -nder the )arehouse @ecei ts Law, the warehouseman can be com elled delivery when +ection G of the law shall be validly com lied with. +aid law rovides that there was a valid recei t for the goods de osited by its owner or agent authori0ed to

Silliman University College of Law Pertinent Balbastro Illustrations Bar Ops 2003 by en Series !" #$%lusive SUL&' Commer%ial Law ()IL an 'are*ouse +e%eipts Law, page !- of !de osit it< he ays the warehouseman,s lien and willing to sign documents evidencing delivery of goods as well as surrender the said recei t issued to him. In the case at bar, there was a valid de osit of the goods to the warehouseman. $hereby making the issuance of the document of title to C effective. $hus, as C can com ly with the said rovision as he has ossession of the document of title, A must deliver only to C the goods stored in his warehouse. B.0 Suppose &1 t*e ware*ouseman oes not *onor C4s o%ument of title on t*e groun t*at B was not t*e owner of t*e goo s w*en *e eposite it1 %an C ma3e B liable as en orser5 A: No. C cannot make B liable as endorser.

$he endorser of the recei t is not liable to the indorsee in case the warehouseman does not erform. If C will have to sue B, it will not be as indorser but under the law on sales, for B to sell to C the document, B not being the owner thereof. B.0 Upon eposit by B1 t*e goo s wit* &1 B negotiate to C for value an goo fait*2 71 %laiming t*e goo s were stolen from t*e store1 %laims t*e goo s2 'ill & eliver t*e goo s to 7 on t*e basis of t*eft or to C on t*e basis of t*e re%eipt5 A: A must be cautious enough not to deliver the goods either to ( or C.

$he act of A to deliver the goods under the recei t, when there is a &uestion raised as to the ownershi of the goods de osited shall o en him to double liability, if the &uestion raised shall later roven to be valid. $he recourse of A is to file a com laint in inter leader im leading ( and C. B.0 A: B)otes0 $he right of the transferee accrues from the time he notifies the warehouseman in case of assignment. $hat is why, if the title to the goods is merely assigned, during the interregnum, if a third arty ac&uires a lien thereto, the right of the assignee is defeated by the right;lien of the third erson. Prepare a %omplaint in interplea er2