1. Introducción
1.5 Técnica LC-MS
1. In General
1.1. Commercial papers –
1. also Negotiable instruments;
2. merely special forms of either PNs or BEs;
3. also governed by the NIL
1.2. Quasi-negotiable
includes commercial paper which though not governed by the NIL, have certain attributes of negotiability.2.1. Bonds
1. evidences of indebtedness, in the nature of a PNs
2. usually accompanied by a mortgage of the property of the issuer
3. issued by the government (municipal &
other public corporations) & private corporations;
a. though not to mature for a long time, assure some regular income to bondholders in the form of interest*, usually payable annually
b. bonds and interest coupons (evidences interest obligations)*
§ may be negotiable in form, therefore governed by NIL (Sec 65);
§ both are actually promissory notes
c. they run for long periods of time, and are often sold to the public in general d. funds generated by such bonds are
used to finance corporate projects and public works;
e. there is no warranty on the part of such indorser or negotiator that prior parties had capacity to contract. The qualified indorser & negotiator by
delivery of a bond do not warrant therefore that the corporation which issued the bonds has any judicial capacity to act. A general indorser thereof however would be liable for such want of capacity.
2.2. Debentures
1. similar to bonds except that they are usually for a shorter tem and may or may not be accompanied by a mortgage.
2. they are often issued on the general credit of the issuer corporation
3.
Drafts and Letters of Credit
3.1. Drafts and Letters of Credit
- The draft and the letter of credit are generally used together to effect payment in international transactions.3.2. Draft
a form of BE generally used to facilitate the transactions between persons physically remote from each other.3.3. Letters of Credit
1. one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the
advancement, or accept bills drawn upon himself for the like amount.
2. must be issued in favor of a definite person, and not to order.
3. under our law, a letter of credit cannot be a negotiable instrument because (a) it may not contain the words of negotiability; (b) may be issued for an undetermined amount. See Art 568 Code of Commerce.
4. “INDEPENDENCE PRINCIPLE”: Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank.
a. Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it.
2. Bonds and Debentures
This principle assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
b. The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit. (Transfield vs. Luzon Hydro)
5. Pertinent Code of Commerce provisions:
a. Art 567. Letters of credit - issued by one merchant to another for the purpose of attending to a commercial transaction.
b. Art 568. The essential conditions of letter of credit shall be:
i issued in favor of a definite person, and not to order.
ii limited to a fixed and specified amount, or to one or more undetermined amount, but all within a maximum the limit of which has to be stated exactly.
Note: Those which do not have any of these last circumstances shall be considered as mere letters of recommendation.
c. Art 569. The drawer of a letter of credit shall be liable to the person on whom it was issued, for the amount paid by virtue thereof, within the maximum fixed therein.
Letters of credit may not be protested even if not be paid; bearer cannot acquire any right of action by reason of non-payment against the person who issued it.
The person paying has right to demand the proof of the identity of the person in whose favor the letter of credit was issued.
d. Art 570. The drawer of a letter of credit may annul it, informing the bearer and the person to whom it is addressed e. Art 571. The bearer of a letter or credit
shall pay the amount received to the drawer without delay. Should he not do so, an action involving execution may be brought to recover it, with legal interest and the current exchange in the place where it is repaid.
f. Art 572. If the bearer of a letter of credit does not make use thereof within the (1) period agreed upon with the drawer, or in default of a period fixed, (2) within 6 months, counted from its date, in any point in the Philippines, and within 12 months anywhere outside thereof, it shall be void in fact and in law.
BPI v. DE RENY FABRIC (1970)
The company and its officers cannot shift the burden of loss to the bank because of the terms of their Commercial Letter of Credit Agreement with the bank provides that latter shall not be responsible for the any difference in character or condition of the property. Furthermore, the bank was able to prove the existence of a custom in international banking and financing circles negating any duty of the bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship. Banks, in providing financing in international business transactions do not deal with the property to be exported or shipped to the importer, but deal only with documents.
LEE v CA (2002)
Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural development in commercial banking. Parties to a commercial letter of credit include:
(a) the buyer or the importer,
(b) the seller, also referred to as beneficiary,
(c) the opening bank which is usually the buyer’s bank which actually issues the letter of credit,
(d) the notifying bank which is the correspondent bank of the opening bank through which it advises the beneficiary of the letter of credit,
(e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and
(g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening bank.
TRANSFIELD VS. LUZON HYDRO (2004)
Can the beneficiary invoke the independence principle? Yes.
To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary.
4.
Certificate of Stock
A. or share certificate is the customary and convenient evidence of the holder’s interest in the corporation which issues it.
B. not a NI, but is included in the term “securities”
bec does not contain any promise or order to pay money;
C. described as Quasi-Negotiable bec oftentimes, by application of the principles of estoppel, and to effectuate the ends of justice and the intention of the parties, the courts decree a better title to the transferee than actually existed in his transferor, and is the same as would be reached if the certificate were negotiable.
D. When the shareholder signs the back of certificates of stock without filling in the blanks (for the name of the transferee and attorney-in-fact) and the certificate is delivered to another, the latter appears to be the owner thereof. A bona fide purchaser of value without notice, will be protected in his acquisition, although such third person has diverted the certificate from the purpose for which he was entrusted therewith. (Principle of Estoppel)
E. The same rule is applicable if the certificate is in bearer form.
F. The rule is applicable where the certificate is lost or stolen while signed in blank. Even a purchaser in good faith cannot acquire title as against the true owner. (?)
G. At common law, stock certificates are given the attributes of negotiability only where the owner thereof has entrusted the wrongdoer with the possession of such certificate and clothed him with apparent ownership thereof.
SANTAMARIA v HONGKONG & SHANGHAI BANK (1951)
Plaintiff, in failing to take the necessary precaution upon delivering the certificate of stock to her broker, was chargeable with negligence in the transaction which resulted to her own prejudice, and as such, she is estopped from asserting title to it as against the defendant bank.
A certificate of stock, indorsed in blank, is deemed quasi-negotiable, and as such the transferee thereof is justified in believing that it belongs to the holder and transferor.
DE LOS SANTOS, McGRATH (1955)
Although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery it is well settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such rights or defense as the registered owner or credit may have under the law, except in so far as such rights or defenses are subject tot eh limitations imposed by the principles governing estoppel.
CAPCO v. MACASAET (1990)
Certificates of stocks are considered as quasi-negotiable instruments. When the owner or shareholder signs the printed form of sale or assignment at the back of every stock certificates without filling in the blanks provided for the name of the transferee as well as for the name of the attorney-in-fact, the said owner or shareholder, in effect, confers on another all the indicia of ownership of the said stock certificates.
5.
Negotiable Documents of Title
5.1. In General
1. as distinguished from negotiable instruments, refer to goods and not to money; the sale of goods covered is effected by the transfer of said document
2. not governed by the NIL but by the Civil Code.
3. includes any bill of lading, dock warrant,
“quedan”, or warehouse receipt or order for
the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document.
4. Documents of title negotiable when goods represented thereby are deliverable to a specified person , to order or to bearer.
5. valuable in commerce because it facilitates the sale and delivery of goods.
5.2. Kinds
1. Warehouse receipts an agreement by a warehouseman to store goods and deliver them to a named person or his order or to bearer.
2. Bill of Lading a similar contract by a carrier to ship goods and deliver them to the person named therein or his order or to bearer; negotiable bill of lading is useful not only as evidence of the receipt of the goods by the carrier but as evidencing title to goods covered by it. It also facilitates the purchase of goods by one person from another who is physically remote and probably unknown to him.
a. “straight” bill where the goods are to be delivered to a specified person, it is not negotiable and is called a
“straight” bill. Otherwise, it is referred to as an “order” bill.
3. Certificate of Deposita receipt of a bank for certain sum of money received upon deposit; generally framed in such FORM as to constitute a promissory note, payable to the depositor, or to the depositor or order, or to bearer.
a. it is taken when depositor does not need his money for some extended period of time and wants it to earn interest; more of an investment paper than a commercial paper because it is not attendant to a commercial transaction the way a check or a promissory note is.
b. it is negotiable if it meets all the requirements of Sec 1 NIL
5.3. Negotiation
- same as those used in NIs;to order=delivery + indorsement, to bearer = delivery
1. The means of negotiating a document of title are the same as those used in negotiable instruments.
2. If by the terms of the document, the goods are deliverable to the order of a specified person, then it should be indorsed by such person, either specially or in blank.
3. If the goods are deliverable to bearer, or the document has been indorsed in blank, then negotiation may be by mere delivery.
5.4. Rights of a Holder
1. When free from personal defense
a. Under Art 1518 Civil Code, a holder of a negotiable document of title in good faith, for value and without notice is placed on the same level as a HDC of a negotiable instrument – i.e., personal defenses enumerated in said article are not available against him. Personal defenses include: negotiation was a breach of duty on the part of the person making the negotiation, owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress or conversion.
b. Note Art 1518’s conflict with Art 1512.
(see p 915)
2. What title acquired (NOTE: see Arts 1513, 1514 and 1519 Civil Code)
a. A person to whom a negotiable document of title has been duly negotiated acquires the title of the person NEGOTIATING it as well as the title of the ORIGINAL BAILOR or depositor of the goods.
ex. if the original bailor had no authority from such owner to deposit the goods, then the holder of the negotiable document, even if the negotiation to him was valid, cannot acquire title to the goods; AND even if the original bailor had authority, if the negotiation to the present holder’s transferor was not valid, such holder, even if in good faith and for value, does not acquire any right to the goods. à the holder’s remedy if any, is against his transferor and/or the guilty party.
i Thus, if the original bailor or depositor of the goods was not the owner thereof or had no authority from such owner to deposit the goods, then the holder of the negotiable document, even if the negotiation to him was valid, cannot acquire title to the goods.
ii On the other hand, even if the original bailor or depositor was the owner or had authority from the owner, if the negotiation to the present holder’s transferor was not valid, such holder, even if in good faith and for value, does not acquire any right to the goods.
iii In both cases, the holder’s remedy if any, is against his transferor and/or the guilty party.
b. The person to whom the document has been negotiated acquires the obligation
of the bailee to make delivery to him, as if they had contracted directly with each other.
i By issuing a negotiable document of title, such bailee had given in advance his consent to hold the goods for any person to whom such document is negotiated.
ii If document non-negotiable, notice of any transfer should be given to the bailee otherwise bailee or any other person other than the transferor not bound iii Thus, the transferee’s rights may
be defeated by a levy of attachment on the goods or by a notification to the bailee of a sale of the goods to another purchaser.
iv A sale of the goods without the document will not prejudice a subsequent purchaser who takes the document in good faith and for value.
v The bailee’s delivery to the legal holder of the document would relieve him of any further responsibility for the goods.
5.5. Liability of Indorser
1. The indorsement of a negotiable document of title carries with it certain implied warranties by the indorser.
2. As to the document, his warranty covers its genuineness, his legal right to negotiate it and his lack of knowledge of any fact which would impair its validity.
3. As to the goods, he warrants that he has the right to transfer title thereto and that they are merchantable.
4. However, unlike the indorser of a NI who is liable if the primary party fails to pay, the indorser of a negotiable document of title is not liable for the failure of the bailee to fulfill his obligation to deliver the goods.
ROMAN v ASIA BANKING CORP. (1922)
ROMAN v ASIA BANKING CORP. (1922)