I.

LETTERS OF CREDIT Definition/Concept It is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have a c ontrol of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue thereof, the issuing bank can authorize the seller to draw drafts and engaged to pay them upon presentment simultaneously with the tender of documents required by the letter of credit, [which basically are the shipping documents of the goods purchased] (Bank of America v. CA [1993]). Governing Laws [1] Arts. 567 572 of the Code of Commerce; and [2] Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce acknowledge by the SC on the basis of Art. 2 of the Code of Commerce in the absence of applicable provision of the Code of Commerce, commercial transactions shall be governed by usage generally observed. (Bank of America v. CA *1993+). Parties (1) buyer-applicant; (2) issuing bank; (3) seller-beneficiary; (4) correspondent bank. Doctrine of Independence The doctrine of independence, in a letter of credit transaction means that the issuing bank, in determining compliance with the terms of a letter of credit is required to examine only the shipping documents presented by the seller and is precluded from determining whether the main contract is actually accomplished or not. This assures the sellerbeneficiary of prompt payment independent of any breach of the main contract. Fraud Exception Principle The applicant cannot enjoin the payment of obligation by the issuing bank under the letter of credit based on any irregularity or non-performance of an obligation, unless there is fraud or forgery in the tender of documents (i.e. untruthfulness of a bill of lading accompanying a demand for payment under a letter of credit). Doctrine of Strict Compliance The doctrine of strict compliance in a letter of credit transaction means that the documents tendered by the seller or beneficiary must strictly conform to the terms of the letter of credit (i.e. they must include all documents required by the letter of credit), and that a correspondent bank which departs from what has been stipulated under the letter of credit, [as when it accepts a faulty tender], acts on its own risk and may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the seller or beneficiary (Feati Bank v. CA [1991]).

II. WAREHOUSE RECEIPTS LAW A. Nature/Functions 1. Kinds 2. To whom delivered 3. Negotiable Instrument v. Negotiable Warehouse Receipt 4. Rights of a Holder of a Negotiable Warehouse Receipt v. Transferee of a Non-Negotiable B. Duties of Warehouseman C. Warehousemans Lien III. TRUST RECEIPTS LAW

A. Definition/Concept of a Trust Receipt Transaction Trust Receipt; Definition A trust receipt is a commercial document whereby the entruster releases the goods in the possession of the entrustee but retains ownership thereof while the entrustee shall sell the goods and apply the proceeds for the full payment of the liability with the entruster. Trust Receipt Transaction; Concept A trust receipt transaction is a transaction between an entruster and an entrustee whereby the entruster, who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a trust receipt wherein the entrustee binds himself to hold the specified goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster, or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of (Sec. 4, P.D. 115). Loan/Security Feature (BAR 2012) A trust receipt is a security transaction intended to provide financtial assiatnce to importers and retail dealers who do not have sufficient funds to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased (Metropolitan Bank v. Go [2007]). Ownership of the goods, documents or instruments under a trust receipt (BAR 2012) The entruster-bank acquires security interests The entruster shall not, by virtue of such security interest, be responsible as principal or vendor under any sale or contract to sell made by the entrustee (Sec. 8, P.D. 115). entruster cannot go against such purchaser for value and in good faith. As against creditors of the entrustee the entrusters security interest pursuant to the terms of the trust receipt shall be VALID against all creditors of the entrustee for the duration of the trust receipt agreement (Sec. 12, P.D. 115). As against purchaser for value and in good faith the entrusters security interest pursuant to the terms of the trust receipt shall NOT BE VALID against a purchaser for value and in good faith of the goods, documents or instruments (Sec. 11, P.D. 115) 1. Rights of the entruster; In general (Sec. 7, P.D. 115) B. Obligations and Liabilities of the Entrustee 1. Payment/delivery of proceeds of sale of goods, documents or instruments 2. Return of goods, documents or instruments in case of sale 3. Liability for Loss 4. Penalty if Offender is a Corporation C. Remedies

IV. NEGOTIABLE INSTRUMENTS LAW (ACT 2013) A. Preliminary B. Forms & Interpretation C. Completion & Delivery D. Rules of Interpretation E. Signature F. Consideration G. Accommodation Party H. Negotiation Order Instrument indorsement & delivery Bearer Instrument mere delivery An order instrument may be converted to a bearer instrument; if the last indorsement is an indorsement in blank (Sec 9 [e]). BEARER INSTRUMENT ALWAYS A BEARER (Sec. 40) [GR] indorsement of an instrument bearer on its face (Sec. 9 [a-d]) will not convert it to an order instrument. It may be further negotiated by mere delivery (Sec. 40). [EXPN] However, such party indorsing specially (not blank) is liable as an indorser to only such holder who acquires title thru his special indorsement (i.e if such holder can trace his title thru a series of unbroken chain of [special] indorsements) (Secs. 40 & 67). [EXPN TO EXPN] Striking out of unnecessary indorsements (Sec. 48). I. Rights of a Holder Memorize who is a HDC (Sec. 52) Every holder is prima facie to be a HDC. (This is important guide during exams. If the question plainly stated holder, such holder is a HDC) J. Warranties & Liabilities of Parties Parties Primarily Liable: Maker [original tenor]; Acceptor [tenor of his acceptance] Parties Secondarily Liable: Drawer; Indorser Parties Not Liable: Drawee [unless & until he has accepted the instrument [Sec. 127)] K. Presentment for Payment L. Notice of Dishonor Must be given to parties secondarily liable (drawer; indorsers) to the instrument so as to fixed their liability in the instrument. However, it need not be given to all; the prerogative to choose to whom such will be given belongs to the holder. As a general rule, failure to give such notice discharges the drawer or indorsers [not notified] from liability on the instrument. This, however, is subject to certain special rules and exceptions. M. Discharge of Instrument Only those modes in Sec. 119 will completely discharge the instrument. Hence, it will release all parties to the instrument (primary/secondarily liable)

 Discharged of a party secondarily liable will inure to those parties subsequent to him, subject to certain exceptions (i.e. express reservation of right to recourse). Payment made by a party secondarily liable will not discharge the instrument, as a general rule; except if made by drawer (as primary debtor [Sec. 119[a]) or by an accommodated party (Sec. 119[b]). N. Material Alteration O. Acceptance V. INSURANCE CODE