Table of Contents

CREDIT TRANSACTIONS 1 E.3. Satisfaction of lien by sale 8

E.4. At any time before the goods are so
I. LETTERS OF CREDIT (L/ C) 2 sold 9
E.5. Effect of sale 9
A. Definition and Nature of Letter of Credit 2 E.6. Other methods of enforcing lien 9
A.1Definition 2 E.7. How lien may be lost 9
A.2 Purpose 2 E.8. Lien does not preclude other
A.3. Essential Requisites of Letters of remedies 9
Credit 2
A.4. Nature 2 NEGOTIABLE INSTRUMENTS LAW 10
A.5. Duration of Letters of Credit 2
A.6. Types of letters of credit 3 I. DEFINITION 11
B. Parties to a Letter of Credit 3
B.1. Rights and Obligations of the Parties 3 A. Definition and Purpose 11
C. Basic Principles of Letter of Credit 4
C.1. Doctrine of Independence 4 II. FORMS AND INTERPRETATION 12
C.2. Fraud Exception Principle 4
C.3. Doctrine of Strict Compliance 5 A. Requisites of Negotiability 12
A.1. In writing and signed by the maker or
II. TRUST RECEIPTS LAW [PD 115 (1973)] 5 drawer 12
A.2. Containing an unconditional promise
A. Definition/ Concept of a Trust Receipt to pay or order to pay a sum certain in
Transaction 5 money 12
A.1. Loan/ Security Feature 6 A.3. Payable on demand, or at a fixed or
A.2. Ownership of the Goods, Documents determinable future time 14
and Instruments Under a Trust Receipt 6 A.4. Payable to order or to bearer 15
B. Rights of the Entruster 6 A.5. Drawee must be named or
B.1. Validity of the Security Interest As designated with reasonable certainty 16
Against the Creditors of the B. Determination of Negotiability 16
Entrustee/ Innocent Purchasers For Value 6
C. Obligation and Liability of the Entrustee 7 III. KINDS OF NEGOTIABLE INSTRUMENTS 17
C.1. Payment/ Delivery of Proceeds of Sale
or Disposition of Goods, Documents or A. Promissory Note 17
Instruments 7 A.1. Kinds of Promissory Notes 17
C.2. Return of Goods, Documents or B. Bill of Exchange 17
Instruments In Case of Non-Sale 7 B.1. Kinds of bills of exchange 18
C.3. Liability For Loss of Goods, B.2. Instances when a bill of exchange
Documents or Instruments 7 may be treated as a promissory note 18
C.4. Penal Sanction If Offender is a
Corporation 7 IV. COMPLETION AND DELIVERY 19
D. Remedies Available 7
D.1. Upon default or failure of the A. Steps in the Execution Of Negotiable
entrustee to comply with the terms and Instruments 19
conditions 7 B. Insertion of Date 19
D.2. In case of failure to turn over the C. Effect of Ante-Dating and Post-Dating 19
proceeds of the sale, or failure to return in D. Completion of Blanks 19
case of non-sale 8 E. Incomplete and Undelivered
E. Warehouseman’s Lien 8 Instruments 19
E.1. Claims included in the F. Complete and Undelivered
warehouseman’s lien 8 Instruments 20
E.2. Against what property the lien may G. Incomplete and Delivered Instruments 20
be enforced 8 H. Complete And Delivered Instruments 20
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V. SIGNATURE 22 B.6. Holder not in due course 39

C. Defenses Against the Holder 39
A. Signing in Trade Name 22
B. Signature of Agent 22 X. LIABILITIES OF PARTIES 40
B.1. Liability of an agent 22
C. Signature Per Procuration 22 A. Parties Primarily Liable 40
D. Indorsement by Minor or Corporation 23 A.1. Maker 40
F. Forgery 23 A.2. Acceptor 40
F.1Persons precluded from setting up B. Parties Secondarily Liable 40
defense of forgery 23 B.1. Drawer 41
F.2 Rules on forgery 23 B.2. Indorsers 41
G. Acceptance and Payment under Mistake 26 B.3. Order of liability among Indorsers 42

VI. CONSIDERATION 28 XI. WARRANTIES 42

A. Maker’s Warranties 42
A. Who is a Holder for Value (HFV)? 28 B. Drawer’s Warranties 42
B. Burden of Proof - Presumption of C. Acceptor’s Warranties 42
Consideration 28 D. General Indorser’s Warranties 43
C. Effect Of Want Of Consideration 28 E. Qualified Indorser’s Warranties 43

VII. ACCOMMODATION PARTY 29 XII. PRESENTMENT FOR PAYMENT 43

A. Liability of an Accommodation Party 29
B. Accommodation Party as Surety 29 A. Presentment; Meaning 43
B. Date and Time of Presentment 43
VIII. NEGOTIATION 30 C. Necessity of Presentment for Payment 44
D. Parties to Whom Presentment for
A. Negotiation Distinguished from Payment Should Be Made 44
Assignment 30 E. Dispensation with Presentment for
B. Modes of Negotiation 30 Payment 44
B.1. By delivery – if payable to bearer 30 F. Dishonor By Non-Payment 44
B.2. by indorsement completed by
delivery – if payable to order 31 XIII. NOTICE OF DISHONOR 45
C. Kinds of Indorsement 31
C.1. As to manner of future method of A. Parties to Be Notified 45
negotiation 32 A.1. To whom in general 45
C.2. As to title transferred 32 A.2. If given by agent 45
C.3. As to kind of liability assumed by A.3. If party is dead 45
indorser 33 A.4. To partners 45
C.4. As to presence/ absence of express A.5. To joint parties 45
limitations 33 A.6. To bankrupt 45
C.5. Other kinds of indorsement 34 B. When Given 45
C. When Not Necessary to Give to Drawer 45
IX. RIGHTS OF THE HOLDER 34 D. When Not Necessary to Give to Indorser 46
E. Who Will Benefit 46
A. Definition of a Holder 34 F. Parties Who May Give Notice of Dishonor 46
A.1. Rights of a holder 34 F.1. Who should give 46
B. Holder in Due Course [HDC] 35 G. Effect of Notice 46
B.1. Who are holders in due course 35 H. Form of Notice 46
B.2. The significance of due course I. Waiver 47
holding 35 J. Dispensation with Notice 47
B.3. Rights of a holder in due course 36 K. Effect of Failure to Give Notice 47
B.4. Requisites of a holder in due course 36
B.5. Presumption in favor of due course XIV. DISCHARGE OF NEGOTIABLE
holding 39 INSTRUMENT 47

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C. Effects 56
A. Discharge of Negotiable Instrument 47 D. Presentment for Payment 57
B. By Payment in Due Course 47 D.1. Time 57
C. By Intentional Cancellation 48 E. Effect Of Delay 57
D. By Other Acts That Discharge a Simple
Contract 48 INSURANCE 58
E. By Reacquisition of Principal Debtor in
His Own Right 49 I. CONCEPT OF INSURANCE 59
F. By Material Alteration 49
G. Discharge of Parties Secondarily Liable 49 A. Contract of Insurance 59
H. Right of Party Who Discharged A.1. Definition 59
Instrument 50 A.2. Form 59
I. Renunciation By Holder 50 A.3. Insurance and gambling
distinguished 59
XV. MATERIAL ALTERATION 51 B. Doing or Transacting Insurance Business 60
C. Governing law 60
A. Concept 51 D. Parties to an Insurance Contract 60
B. Changes in the Following Constitute E. Bancassurance 61
Material Alterations 51 F. Pre-need plans 61
C. Effect of Material Alteration 51
II. ELEMENTS OF AN INSURANCE
XVI. ACCEPTANCE 52 CONTRACT 62

A. Definition 52 A. In General 62
B. Requisites 52 B. Subject Matter 62
C. Kinds of Acceptance 52 C. Cause and Risk of Loss or Damage 62
D. Proof of acceptance 52 D. Consideration 62
E. Manner 52 E. Risk-Distributing Scheme 62
E.1. Express acceptance 52 F. Meeting of the Minds 62
E.2. Implied acceptance 52
F. Time for Acceptance 52 III. CHARACTERISTICS OF AN INSURANCE
G. Rules Governing Acceptance 52 CONTRACT 63

XVII. PRESENTMENT FOR ACCEPTANCE 53 A. In General 63

B. Consensual 63
A. Requisites 53 C. Voluntary 63
B. When Presentment for Acceptance D. Aleatory 63
Necessary 53 E. Executory and Unilateral But
C. When Presentment for Acceptance Synallagmatic 63
Excused 53 F. Conditional 63
D. Time/ Place/ Manner of Presentment 54 G. Contract of Indemnity (For Non-Life
D.1. When Made 54 Insurance) 64
E. What Constitutes Sufficient H. Contract of Adhesion (Fine Print Rule) 64
Presentment? 54 I. Personal Contract 64
F. How Made 54 J. Property (For Life Insurance) 64
G. Effect of Failure to Make Presentment 54 K. Uberrimae Fides Contract 64
H. Dishonor by Non-Acceptance 54
IV. CLASSES OF INSURANCE 65
XVIII. PROMISSORY NOTES 55
A. Marine Insurance 65
XIX. CHECKS 56 A.1. Definition 65
A.2. Divisions 65
A. Definition 56 A.3. Bottomry and respondentia
B. Kinds 56 distinguished 66

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A.4. Risks 66 VI. PERFECTION OF THE INSURANCE

A.4.A. Perils of the sea 66 CONTRACT 84
A.4.B. Perils of the ship 66
A.5. Loss 66 A. Offer and Acceptance/ Consensual 84
A.6. Abandonment 67 B. Premium payment 84
A.7. Average 68 B.1. Authority of agent to receive
B. Fire insurance 69 premium 85
B.1. Definition 69 B.2. Payment by post-dated check 85
B.2. Risks 70 B.3. Non-payment of premium 85
B.3. Alterations in use or condition 70 B.4. Excuses for non-payment 86
B.4. Measure of indemnity 70 C. Cover-Notes 86
C. Casualty Insurance 71 D. Non-Default Options in Life Insurance 86
C.1. Definition 71 D.1. Cash surrender value (CSV) 86
C.2. Intentional and accidental injury D.2. Alternative to CSV 87
distinguished 71 E. Reinstatement of a Lapsed Life Insurance
C.3. Divisions 71 Policy 87
D. Suretyship 72 F. Refund of premiums 87
E. Life Insurance 72
E.1. Definition 72 VII. RESCISSION OF INSURANCE
E.2. Types 73 CONTRACTS 88
E.3. Examples of life insurance policies 74
E.4. Risks 74 A.1. Proof of fraud in concealment 88
F. Compulsory Motor Vehicle Liability A.2. Test of materiality 88
Insurance 75 A.3. Effects 89
A.4. Concealment in marine and ordinary
V. INSURABLE INTEREST 76 private insurance distinguished 89
A.5. Concealment in non-medical
A. In General 76 insurance 89
A.1. When insurable interest should exist 77 A.6. Matters which must be disclosed
A.2. Change of interest 77 even in the absence of inquiry 90
B. In Life/ Health insurance 77 A.7. Matters which need not be disclosed 90
B.1. In life insurance 78 B. Misrepresentation/ omissions 90
B.2. Interest in health insurance 79 B.1. Kinds of representations 90
B.3. Transfer of policy 79 B.2. Test of materiality 91
C. In Property Insurance 79 B.3. Effects 91
C. 1. Time of existence 80 C. Breach of Warranties 92
C.2. Transfer of policy 80 C.1. Warranties, riders, and endorsements 92
C.3. Measure of indemnity 80 C.2. Kinds of warranties 93
C.4. Interest in property and life C.3. Effect 93
distinguished 80
D. Double and Over Insurance; Reinsurance 81 VIII. CLAIMS SETTLEMENT AND
D.1. Double insurance 81 SUBROGATION 94
D.2. Rules for payment 81
D.3. Double and over insurance A. Concept of Loss 94
distinguished 82 A.1. Causes of loss 94
D.4. Reinsurance 82 A.2. Liability for loss 94
D.5. Double insurance and reinsurance B. Notice and Proof of Loss 94
distinguished 82 B.1. Notice of loss 94
E. Multiple or Several Interests on Same B.2. Proof of Loss 95
Property 82 C. Guidelines on Claims Settlement 96
E.1. Open loss payable mortgage clause 83 C.1. Unfair claims settlement; sanctions 97
E.2. Union mortgage or standard C.2. Prescription of action 97
mortgage clause 83
IX. INSURANCE COMMISSIONER 98

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