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A. Basic Concepts
1. Doctrine of independence
The independence principle of a letter of credit emphasizes that the
contracts involved in a letter of credit arrangement are to be
maintained in a state of perpetual separation.
2. Fraud exception principle
Fraud exception exist when the beneficiary, for the purpose of
drawing on the credit, fraudulently present to the confirming bank,
documents that contain, expressly or by implication, material
representations of fact that to his knowledge are untrue.
3. Doctrine of strict compliance
The doctrine of strict compliance provides that the documents
tendered by the seller or beneficiary must strictly conform to the terms
of the letter of credit.
4. Warehouseman’s lien
The following claims are included in the warehouseman’s lien:
1. All lawful charges for storage and preservation of the goods;
2. All lawful claims for money advanced, interest, insurance,
transportation, labor, weighing, coopering and other charges and
expenses in relation to such goods; and
3. All reasonable charges and expenses for notice and advertisements
of the sale, and the sale of goods where default had been made in
satisfying the warehouseman’s lien.
B. Rights and obligations of parties


The following are the rights of an entruster:

1. He is entitled to the proceeds from the sale of goods, documents or

2. He is entitled to the return of goods, documents or instruments in
case of non-sale;
3. He may enforce all other rights conferred on him under the Trust
Receipts Law;
4. He may cancel the trust, take possession of goods, documents and
instruments, and sell the goods in public sale in case of default;
5. He may purchase the goods at the intended public sale.


The following are the obligations of the entrustee:

1. Hold the goods, documents or instruments in trust for the entruster;
2. Dispose of them strictly in accordance with the terms and
conditions of the trust receipt;
3. Receive the proceeds in trust for the entruster and turn over the
same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt;
4. Insure the goods for their total value against loss from fire, theft,
pilferage orother casualties;
5. Keep said goods or proceeds thereof whether in money or
whatever form, separate and capable of identification as property
of the entruster; and
6. Observe all other terms and conditions of the trust receipt not
contrary to the provision of the Trust Receipts Las.

The following are the obligations of the entrustee:

1. Return the goods, documents or instruments in the event of non-

sale or upon demand of the entruster; and
2. Observe all other terms and conditions of the trust receipt not
contrary to the provisions of the Trust Receipts Law.

Applicant (Buyer)

The buyer obliges himself to reimburse the issuing bank when the
latter complies with the terms of the letter


The obligations of the issuing bank are the following:

1. To make a payment to or to the order of a third party

2. To authorize another bank to effect such payment
3. To authorize another bank to negotiate
Beneficiary (Seller)

The seller shall ship the goods to the buyer and deliver the documents
of title and draft to the issuing bank or confirming bank to recover

C. Remedies available

The Entruster may:

1. Cancel the trust; and

2. Take possession of the proceeds realized therefrom; or
3. Take possession of the goods, documents or instruments subject of the
trust and sell them at a public or private sale
4. File an action for specific performance to compel entrustee to pay the
5. File a criminal action for estafa
6. Claim for damages under Article 33 of the NCC


A. Requisites of negotiability
The requisites are the following
1. Must be in writing and signed by the maker or drawer;
2. Must contain an unconditional promise to pay or order a sum certain
in money;
3. Must be payable on demand or at a fixed or determinable future time;
4. Must be payable to order or bearer; and
5. When the instrument is addressed to a drawee, he must be named of
otherwise indicated therein with reasonable certainty,
B. Forgery and material alteration
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge thereof, or to enforce
payment thereof against the party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up forgery or want of
Material alteration
An alteration is said to be material if it alters the effect of the instrument.
It means an unauthorized change in an instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to
the obligation of a party.
C. Negotiation
Negotiation is the transfer of the instrument from one person to another
so as to constitute the transferee a holder thereof.
D. Rights of a holder
1. Holder in due course
Like any other holder, a holder in due course may enforce the
instrument and sue thereon in his own name. He also holds the
instrument free from any defect of title of prior parties, free from
defenses of prior parties among themselves, and he may enforce
payment of the instrument for full amount thereof against all parties
liable thereon.
2. Defenses against the holder
Real Defense / Absolute Defense
Those that attach to the instrument itself and are available against all
holders, whether in due course or not, but only by the parties raise
Personal defense / equitable defense
Those which are available only against a person not a holder in due
course or a subsequent holder who stands in privity with him.
E. Checks
A check is a bill of exchange drawn on a bank payable on demand.


A. Basic concepts
1. What may be insured?
a. A future contingent event resulting in loss or damage
b. A past unknown event resulting in loss or damage
2. Insurable interest
It is an interest arising from the relation of the party obtaining the
insurance as will justify a reasonable expectation of advantage from
the continuance of his life.
3. Double insurance and over insurance
a. Double insurance exists when the same person/property is insured
by several insurers separately, in respect to the same subject and
b. Over-insurance exists when the insured takes out an insurance over
the property insured in an amount which is in excess of the value
of his insurable interest.
4. Reinsurance
Reinsurance is a contract by which an insurer procures a third person
to insure him against loss or liability by reason of such original
5. No fault, suicide, and incontestability clause
a. No fault clause – Any claim for death or bodily injuries sustained
by a passenger or a third party shall be paid without the necessity
of proving fault or negligence of any kind provided the total
indemnity in respect of any person shall be fifteen thousand pesos
for motor vehicles.