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[Ch 6&7

- A] A]

Law 108: Negotiable Instruments First Semester

CHAPTER VI: DISCHARGE FOX V KROEGER 119 Tex

(2d) 679 (1931) ~kooky~ FACTS: SUBJECT: promissory note for $769

Fox as principal and J

Kroeger as surety PAYEE: Levi State Bank & Trust Company

Fox as principal and Kroeger as surety executed the above note

Fox died before its maturity

At maturity,

Kroeger executed and delivered his own note of the same amount to the payee

The payee bank then assigned the principal note to Kroeger

More than two years later Kroeger sued BJ Fox,

Fox’s estate

ISSUE: WON the payment of Kroeger as surety discharged the obligation HELD: NO

the payment by the principal debtor or by the party accommodated discharges the instrument,

but payment by a party secondarily liable,

other than the principal debtor or party accommodated,

does not extinguish or discharge the debt

By sec 121,

the party accommodated is excluded from those secondarily liable,

payment by whom does not discharge the instrument

The statute requires payment by the principal debtor to discharge a negotiable promissory note,

and that the payment thereof by the surety does not discharge the obligation

Disposition Affirmed

NOTE: the other issue in the case is regarding the right of the surety to collect from the principal what he has paid the creditor

Court held: where the surety pays the debt of the principal,

he has his election to either pursue his legal remedies and bring an action on an assumpsit,

or the obligation implied by law in his favor for reimbursement by the principal

or he can prosecute an action on the very debt itself,

and in either event he stands in the shoes of the original creditor as to any securities and rights of priority

EQUITABLE BANKING CORP V IAC G

L-74451,

May 25,

AY 2008-09

a business engaged in processing and procurement of lumber products) went to Edward J

Nell Co

and told the company’s sales engineer Claustro of his interest in purchasing a Garrett skidder,

one of the many merchandise the company was selling

Nell’s EVP,

who asked for cash payment for the skidders

Casals said that Casvile had a credit line with Equitable Bank

Javier then agreed to have two units of skidders paid by way of domestic letter of credit instead of cash

Each unit was to cost P485,000

The domestic letter of credit was to be payable in 36 months and was to be opened within 90 days after date of shipment of the skidders

The first installement was to be due 180 days after shipment and interest was pegged at 14% p

The letter of credit was to be opened on or before June 30,

The skidder was shipped on May 3

-June 15,

a check amounting to P300,000 postdated August 4,

Nell Co

considered the checks as partial payment for the skidder or as reimbursement for the marginal deposit due from Casals

that its application for a letter of credit had been approved by Equitable but informed the company that a sum of P400,000 was needed to stand as collateral in favor of Equitable

The amount include P100,000 to clear the title of the Estrada property which was to act as security for the trust receipts issued by the bank

To facilitate the transaction,

Nell Co

issued a check for the said amount in favor of Equitable even if the marginal deposit was supposed to be produced by Casville

a 36-month letter of credit for P606,000 and cash marginal deposit of P300,000) to cover its purchase of the skidders

The skidders were to be mortgaged as security

The bank responded favorably,

stipulating a required 30% cash margin deposit,

a real estate collateral and chattel mortgage of the equipment

attached to a letter informing the latter of the bank requirements

The cash margin deposit was to amount to P327,300 and adding the P100,000 needed for the Estrada property,

the total amount due to Equitable was P427,300

The postdated checks from Casville

Rogelio V

Quevedo

[Ch 6&7

were intended to cover the checks issued by Nell Co

The postdated checks amounted to P427,300

-Nell Co

issued a check worth P427,300 payable to Equitable Bank

The check was made payable to the “order of Equitable Banking Corp

A/C of Casville Enterprises

” The check was sent to Equitable through Casals

Casals deposited the check in Equitable Bank and the teller accepted it as deposit in Casals checking account

Casals then withdrew the amount deposited

Nell Co

discovered that the three checks amounting to P427,300 were all dishonored for having been drawn against a closed account

Nell Co

checked the status of the letter of credit and was informed by Equitable that no letter of credit had been opened and that the entire amount of P427,300 had been withdrawn

so they assigned the Garrett skidder to the latter for the amount of P450,000 as partial satisfaction

the trial court held that Casals,

Casville and Equitable Bank were solidarily liable to Nell Co

for the amount of P427,300 erroneously credited by Equitable to Casville’s account

ISSUE WON Equitable is liable to Nell Co

HELD: NO

By making the check read “Pay to Equitable Banking Corp

order of A/C of Casville Enterprises,” the payee ceased to be indicated with reasonable certainty

As worded it could be accepted as deposit to the account of the party named after the symbols A/C or payable to the bank as trustee or as agent for Casville Enterprises with the latter being the ultimate beneficiary

The ambiguity was to be construed against Nell Co

The crossing of the check and the stamping of the words “non-negotiable” were made by the bank and not by Nell

It simply meant that the same check would thereafter be no longer negotiated

Disposition Petition granted

IN RE HARNAUGH’S ESTATE 320 Pa

182 Atl

[Ch 6&7

- B] B]

Law 108: Negotiable Instruments First Semester

FACTS SUBJECT: P/N in the sum of $7,677

administrator of Peyton Harbaugh INDORSEE: Jessie P

Harbaugh

-Peyton,

claimant and decedent were all children of Flora Moore

ISSUE WON the maker of a negotiable instrument who makes payment to the payee after the latter,

has indorsed the note to another,

may be relieved of liability on the note if evidence is received showing that the payee acted as the indorsee’s agent or that payment was in fact received by the indorsee

HELD: YES

there is no testimony on record to show agency and therefore appellee,

must show that the indorsee received the money in discharge of the note

It must be shown by preponderance of evidence

-April 4,

Moore for $13,

Disposition Decision affirmed

AY 2008-09

Rogelio V

Quevedo

[Ch 6&7

[Ch 6&7

- C] C]

Law 108: Negotiable Instruments First Semester

JONES’ ADM’RS V COLEMAN 121 Va

Lawrenceville,

Virginia,

Said note waives the benefit of the homestead exemption

MAKER: Reps Jones,

Coleman,

Jones’ domestic servant for 15-16 yrs

administrators of [the estate of] Reps Jones

She moved for judgment on the basis of the notice she filed in court

[motion for judgment on the pleadings

Case was submitted to TC judge

Kate presented a mutilated paper,

upon which there was neither date nor signature

both apparently destroyed by burning

The paper originally was a printed blank form of a negotiable instrument note,

payable at the bank of Lawrenceville

The mutilated remnant shows that the figures “500” and “365” as well as the name “Kate D

Coleman” and the words “five hundred” had been inserted in ink

Evidence showed that these words and figures were written by Reps Jones himself

He testified that sometime in 1914 he saw in Kate’s room in a sewing machine drawer a note for $500 with Reps Jones name on it,

and that after Jones’ death,

Kate showed him a mutilated envelope w/ the subject mutilated (partly burned) paper

ISSUE WON plaintiff may recover on the basis of the mutilated note HELD: NO

or w/o the authority of the holder is inoperative

but where an instrument or any signature thereon appears to have been cancelled,

the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority

AY 2008-09

-It is assumed that the date and the signature were originally upon the paper presented

There was no explanation why the same have been destroyed by burning

The presumption is that the burning was intentional and done for the purpose of cancelling the instrument

This presumption can only be overcome by evidence showing that such burning was done “unintentionally,

” Plaintiff failed to sustain this burden

Disposition Judgment reversed

Kate’s motion dismissed

MANCHESTER V PARSONS 75 W

MAKER: L

Parsons PAYEE: Burton & Co

Parsons executed his negotiable note on Sept

for $800 payable to the order of Burton & Co

and delivered the same to the payee for value

-June 3,

with the understanding between the parties that this transaction was to pay the note,

and the balance was to be paid for the execution and delivery by Burton & Co

of their note payable to Parsons

Parsons put up the defense of payment

ISSUE:WON there was discharge (payment) of the instrument

HELD: NO

either before or after the transfer

Burton (the surviving partner of Lee Whorton) is that it had been indorsed to Manchester,

Rogelio V

Quevedo

[Ch 6&7

and therefore the payment to the original holders did not discharge it

The delivery of the Colts was on June 3,

almost a year after the indorsement of the note to Manchester

Subsection 4 reads “by any other act which will discharge a simple contract for the payment of money

Reading Sec

it is apparent that it was never the legislative intent to make a radical change in the general law as would be brought by the literal interpretation argued by Parsons

The legislature did not contemplate making so vital a change in the law,

as to permit equities between the original parties to a negotiable instrument to defeat the title of an innocent holder for value in due course

in order to effect a discharge of negotiable paper,

must be necessarily limited to such acts as relate to and affect the holder of the paper demanding payment of it

It does not include a holder in due course

by putting it on a plane with simple contracts for the payment of money

and the rights of an HDC must be considered in construing Sec

The rights of a bona fide assignee of such a note,

are not affected by the equities of the maker

whether before or after they had negotiated it,

could not defeat collection by an innocent bystander for holder for value who acquired it in due course

Disposition Judgment is affirmed

SCHWARTZMAN V POST 94 App

his father and by defendant Postawalsky

The note was delivered to plaintiff Schwartzman in payment of his interest in a partnership of which he & Postawalsky were members

Post paid $2,750,

The payment was made on the condition that the note for $5,000 be surrendered to him

but as Post had possession of the same,

he did not allege that he was the holder thereof

[Ch 6&7

- D] D]

Law 108: Negotiable Instruments First Semester

AY 2008-09

defendant moved to dismiss the complaint on the ground that the surrender of the note to defendant constituted a discharge thereof

ISSUE WON the oral contract released the maker (and thus the indorser too)

ISSUE WON the instrument has been discharged

HELD: YES

It does no apply to Sec 119 and 120 which talks about discharge

Reasoning

-Sec 122,

should be distinguished from Sec 119 and 120,

Since renunciation and discharge are separated,

it suggests that one is different from the other

Under S122,

renunciation should be in writing

In S119 and 120,

If there was an intention to apply the requirement of writing to S199 and 120,

why the need to change the terminology between the two

it would be radical and impractical to require writing in the discharge of the instrument

The principle was approved by Foster v Dawber and it was held there that it applies to bills and notes

It was adopted by the English Bills of Exchange Act,

where the written requirement was added

In that form and meaning it came to our uniform statute

That meaning cannot be expanded without impringing upon the intended effect of other provisions of the statute,

we are constrained to hold that the renunciation,

which under S120 must be in writing,

is one accomplished by the unilateral act of the holder

Ordinarily,

it will be without consideration

S122 intended to deal only “with the formal and express release of common law” while Sec 119 was intended “to continue in effect other recognized methods of discharging obligations of this character”

it can be seen that the requirement in S122 was intended to apply only to renunciation and not extend to discharge in S199 and S120

HELD: YES Ratio Subdivision 5 of Section 200 of the Negotiable Instruments Law provides that a negotiable instrument is discharged “when the principal debtor becomes the holder of the instrument at or after maturity in his own right”

Reasoning Post was the maker of the note,

It was surrendered to him,

& he became the “holder” thereof without fraud or mistake,

DEFINITIONS: Holder – Sec

” Person Primarily Liable on Instrument – Sec

by the terms of the instrument,

is absolutely required to pay the same

” In his own right – merely excludes such a case as that of a maker acquiring the instrument in purely a representative capacity

Disposition Judgment reversed

McGLYNN V GRANSTROM 168 Min 164,

McGlynn denied liability and said that the payee was a party to an oral contract between the maker and third parties which discharged the maker from liability

And according to Sec 120 of the NIL,

saying that such renunciation must be made in writing and thus the contract did not have an effect of releasing the maker from its obligation

There was also no delivery of the note to the maker

McCORMICK V SHEA 99 NY Supp

Rogelio V

Quevedo

[Ch 6&7

PAYEE: John McCormick INDORSER: Annie Shea

Defendant claims that the cancellation was part of their claims against each other while plaintiff claims that the cancellation was not authorized and that there was no consideration for such cancellation

plaintiff claims that even if he did agree,

the effect would only be to release the indorser as a person secondarily liable

ISSUE Who bears the burden of proving the cancellation without authority

but where an instrument or any signature thereon appears to have been cancelled,

the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority

ROBERTS V CHAPPELL 63 Ohio Apple 397,

Audrey Daily,

Lewis Daily PAYEE/INDORSER: Chappell HOLDER: Roberts

Audrey Daily,

Lewis Daily executed a note for S237 payable to the order of Chappell

The latter indorsed it to Roberts

Upon presentment,

Roberts sued Chappell

The estate has now been administered and closed

Roberts should have presented the note to the administrator

Since he failed to do so,

Chappell should be discharged

ISSUE WON Chappell was discharged

[Ch 6&7

- E] E]

Law 108: Negotiable Instruments First Semester

HELD: NO

Reasoning

This interpretation is in accord with the Ohio law relating to suretyship

Under such law,

mere failure to claim of a creditor against the estate does not discharge the surety

The rule relating to sureties becomes important since the rights and duties of sureties correspond to that of indorsers

Prior to the enactment of the law,

such meaning refers to a discharge by an act of the holder and not a discharge accomplished by operation of law

CORLEY V FRENCH 154 Tenn

PAYEE-HOLDER: Corley INDORSERS: French Nichol,

and was made payable at the American National Bank

The note was not presented at this bank on the day of maturity nor thereafter

The maker had funds on deposit in this bank at the date of maturity of the note sufficient to pay it

The maker was later adjudged bankrupt

The other indorsers were discharged in bankruptcy

ISSUE WON French is liable on the note as indorser

HELD: YES

French did not become technically or strictly “primarily” liable (CA found French liable saying that he became primarily liable)

French continued to be secondarily

AY 2008-09

but without the right to interpose the defense based upon want of presentment,

His obligation by virtue of the waiver became absolute and unconditional with respect to defenses so grounded

No steps need be taken by the holder upon maturity to charge the waiving indorser,

who engages that it shall be paid according to its tenor,

and whether proceedings on dishonor be taken or not

an immediate right of recourse to all parties secondarily liable thereon accrues to the holder

the holder has his right of recourse upon dishonor that is failure to pay,

against those primarily liable,

and against those secondarily liable who have waived presentment,

the prescribed steps have been taken

in the meaning of this term as used in Sec

by which it is provided that one so liable only is discharged “by a valid tender of payment made by a prior topic”,

and that constructive tender by the maker “primarily liable” took place under the provision of Sec

payable at a special place and he (the person primarily liable) is able and willing to pay it there at maturity,

such ability and willingness are equivalent to a tender of payment upon his part

However,

presentment was not necessary to charge the maker,

if it appears that the maker had been both able and willing (as does not appear) to pay the note at the bank named therein at maturity,

a constructive tender would have accrued as to him,

and such tender might have constituted such “a valid tender of payment made by the prior party” as would have operated to discharge the indorser

there is no evidence of “willingness” on the part of the maker to have such application made of its funds of deposit,

and these element must concur to be equivalent to a tender of payment upon his part

it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon

Rogelio V

Quevedo

[Ch 6&7

and the duty of the bank to pay the note from the funds of the maker on deposit with it,

In the present case,

the bank has the right to so apply its depositor’s fund only when the bank is the place of payment and the payee and holder of the instrument as well

no tender was made by or on behalf of the maker primarily liable on the instrument which operated to discharge the indorser

Dispositive CA affirmed

MAGLIONE V PENTA 266 Mass

Penta indorsed the note and assigned the mortgage to Maglione

A subsequent foreclosure (on the mortgage) was instituted by Maglione

But he dropped the foreclosure suit (mortgagor paid $300)

Penta inquired of Maglione whether the note and mortgage have been paid

Maglione said that he had a satisfactory arrangement with the maker-mortgagor

is discharged from liability in lieu of Maglione’s agreement with maker-mortgagor HELD: YES

the surety is thereby discharged

Penta was secondarily liable

But the jury found that there was a valid and binding agreement between Maglione and the makers thereby discharging Penta from his liability

CHAPTER VII: OTHER FORMS OF COMMERCIAL PAPER

[Ch 6&7

- F] F]

Law 108: Negotiable Instruments First Semester

MICO METALS CORP v

CA and PBC 375 SCRA 579

De Leon,

letters of credit and trust receipt transactions granted by the plaintiff plus legal interest until fully paid

Charles Lee,

as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000

On the same day,

Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000

MICO availed of the first loan of One Million Pesos (P1,000,000

Upon maturity of the loan,

MICO caused the same to be renewed,

the last renewal of which was made on May 21,

Two more loans to complete the three million were availed by MICO under the same terms

MICO through its VicePresident and General Manager,

Mariano Sio,

Metro Manila

Chua Siok Suy,

Mariano Sio,

Alfonso Yap and Richard Velasco,

in their personal capacities executed a Surety Agreement in favor of PBCom whereby the petitioners jointly and severally,

guaranteed the prompt payment on due dates or at maturity of overdrafts,

and other obligations of every kind and nature,

for which MICO may be held accountable by PBCom

in his capacity as president of MICO,

wrote PBCom and applied for an additional loan in the sum of Four Million Pesos (P4,000,000

The loan was intended for the expansion and modernization of the company’s machineries

Upon approval of the said application for loan,

MICO availed of the additional loan of Four Million Pesos (P4,000,000

AY 2008-09

availments were credited to MICO’s current checking account with PBCom

To induce the PBCom to increase the credit line of MICO,

Charles Lee,

Chua Siok Suy,

Mariano Sio,

Alfonso Yap,

Richard Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties),

executed another surety agreement in favor of PBCom on July 28,

whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts,

trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBCom

MICO filed with PBCom an application for a domestic letter of credit

The corresponding irrevocable letters of credit was approved

Thereafter,

the domestic letters of credit was negotiated and accepted by MICO as evidenced by the corresponding bank draft issued for the purpose

After the suppliers of the merchandise was paid,

trust receipts upon MICO’s own initiative,

was executed in favor of PBCom

On three occasions MICO applied for authority to open a foreign letter of credit in favor of various corporations and thus,

the corresponding letter of credits was then issued by PBCom with cables sent to the beneficiaries advising that said beneficiaries may draw funds from the account of PBCom in its correspondent bank’s New York Office

As in past transactions,

MICO executed in favor of PBCom a corresponding trust receipt

In all the transactions involving foreign letters of credit,

PBCom turned over to MICO the necessary documents such as the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila

the latter made a demand for payment

For failure of petitioner MICO to pay the obligations incurred despite repeated demands,

private respondent PBCom extrajudicially foreclosed MICO’s real estate mortgage

Aside from the unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663

MICO likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (P461,600

PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who,

refused to acknowledge their obligations to PBCom under the surety agreements

PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila

Rogelio V

Quevedo

[Ch 6&7

-Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom,

and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans and since no loan was ever released to or received by MICO,

the corresponding real estate mortgage and the surety agreements signed concededly by the petitionerssureties are null and void

In ruling for herein petitioners,

the trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO

inasmuch as no consideration ever passed from PBCom to MICO,

all the documents involved therein,

real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or consideration

The trial court said that the lack of proof as regards the existence of the merchandise covered by the letters of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate the latter in his financial requirements

the Court of Appeals said that while the subject promissory notes and letters of credit issued by the PBCom made no mention of delivery of cash,

it is presumed that said negotiable instruments were issued for valuable consideration

ISSUE WON the proceeds of the loans and letters of credit transactions were ever delivered to MICO HELD: YES

the party having the burden of proof must establish his case by preponderance of evidence

During the trial of an action,

the party who has the burden of proof upon an issue may be aided in establishing his claim or defense by the operation of a presumption,

by the probative value which the law attaches to a specific state of facts

A presumption may operate against his adversary who has not introduced proof to rebut the presumption

[Ch 6&7

- G] G]

Law 108: Negotiable Instruments First Semester

effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby,

and which if no proof to the contrary is presented and offered,

The burden of proof remains where it is,

but by the presumption the one who has that burden is relieved for the time being from introducing evidence in support of his averment,

because the presumption stands in the place of evidence unless rebutted

Under Section 3,

Rule 131 of the Rules of Court the following presumptions,

are satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument was given or indorsed for sufficient consideration

As observed by the Court of Appeals,

a similar presumption is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party for value

Negotiable instruments which are meant to be substitutes for money,

must conform to the following requisites to be considered as such a) it must be in writing

b) it must be signed by the maker or drawer

c) it must contain an unconditional promise or order to pay a sum certain in money

d) it must be payable on demand or at a fixed or determinable future time

e) it must be payable to order or bearer

and f) where it is a bill of exchange,

the drawee must be named or otherwise indicated with reasonable certainty

Negotiable instruments include promissory notes,

Letters of credit and trust receipts are,

But drafts issued in connection with letters of credit are negotiable instruments

Irrevocable letter of credits,

While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit,

the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration

Under Section 3(r),

Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was given in a contract

AY 2008-09

have presented credible evidence to rebut that presumption as well as the evidence presented by private respondent PBCom

The letters of credit show that the pertinent materials/merchandise have been received by MICO

The drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the account of MICO

On the other hand,

aside from their bare denials petitioners did not present sufficient and competent evidence to rebut the evidence of private respondent PBCom

Petitioner MICO did not proffer a single piece of evidence,

to support its allegation that the loan transactions,

letters of credit and trust receipts were issued allegedly without any consideration

MERCER COUNTY V HACKETT US Supreme Court

Commonwealth of Pennsylvania PAYEE: PEC or bearer BEARER: Hackett

where the railroad if built would pass through their county and benefit it

The act,

had a restriction wherein the bonds to be issued shall in no case be sold,

or transferred by the PEC at less than par value

The instruments were elegantly engraved,

with such external indications as were calculated to arrest the eye,

and through it to inspire confidence

It was signed by the Mercer commissioners,

and authenticated by the county seal conspicuously put

It was announced as issued for stock in the PEC

The pertinent obligatory part,

read: “… the County of Mercer (Pennsylvania) is indebted to (PEC) in the full and just sum of ($1k),

which sum said county agrees to pay,

annually… upon delivery of the coupons severally hereto annexed … the faith,

credit and property of the County of Mercer are hereby solemnly pledged,

under the authority of an act of Assembly of this Commonwealth…”

Rogelio V

Quevedo

[Ch 6&7

-A number of bonds were obtained,

And the coupons,

Hackett sued the county of Mercer

credit and property…” part and declared that the instruments were on their face complete and perfect

exhibiting no defect in form of substance

ISSUE WON evidence of fraud practiced by the railroad company to whom these bonds were delivered,

and by whom they were paid to bona fide holders for value,

or the fact that they were negotiated at less than their par value,

be received to defeat the recovery of Hackett HELD: NO

intended to pass by manual delivery,

and to have qualities of negotiable paper

and their value depends mainly upon this character

Being issued by States and corporations they are necessarily under seal

But there is nothing immoral or contrary to good policy in making them negotiable,

if the necessities of commerce require that they should be so

A mere technical dogma of the courts cannot prohibit the commercial world from inventing or using any species of security not known in the last century

When a corporation covenants by these means and obtains funds for the accomplishment of the useful enterprises of the day,

it cannot be allowed to evade payment by parading some obsolete judicial decision that a bond,

cannot be made payable to bearer

the knavery of railroad “speculators” are pleas which might have just weight in an application to restrain the issue or negotiation of these bonds,

but cannot prevail to authorize their repudiation,

after they have been negotiated and have come into the possession of bona fide holders Disposition Judgment affirmed

MANKER V AMERICAN SAVINGS & TRUST CO Washington SC,

131 Wash

230 Pac

The bonds provide that:

except from the special assessment made for the improvement for which bond was issued

[Ch 6&7

- H] H]

Law 108: Negotiable Instruments First Semester

which purchased it in due course of business

The respondent City of Seattle has the funds ready to pay the bonds

ISSUE (Who is entitled to the payment on the bonds,

?) WON these bonds are negotiable instruments HELD: NO,

they are not negotiable instruments

Therefore the appellant is entitled to payment on the bonds

An order or promise to pay only out of a particular fund is not unconditional

Therefore,

which provide for the particular fund out of which the bonds are to be paid,

because large sums of money are now invested in securities of that sort,

and to hold them as non-negotiable would be to destroy their market value,

and few persons would assume the risk incident to purchasing these bonds,

The court cannot decide these questions upon a matter of public policy,

Where the law is as plain as it is here,

the decision must be governed by the law

Disposition The appellant will be entitled to the amount held by the city of Seattle for the exctinction of his bonds

ENOCH V BRANDON New York CA

They are all equally secured by and entitled to the benefits and subject to the provisions of a trust mortgage and redeemable at 105% and interest at

AY 2008-09

Rogelio V

Quevedo

[Ch 6&7

The bonds may become due in advance of maturity in case of default under the mortgage

The bonds contain a provision allowing it to be registered in the usual way,

“they are to be treated as negotiable,

and all persons are invited by the company to act accordingly

” MAKER/ISSUER: The Manitoba Power Company

It was obliged to create a sinking fund to provide for its purchase and redemption

CONTROVERSY: It appears from the disposition of the case that some of these Manitoba bonds were purchased in due course from a thief

the title of the purchaser was put in issue

The lower court (called the Trial Term) held that the bonds were negotiable hence the purchaser in due course may retain them but the Appellate Division reversed

upon the bondholders and limit and explain those rights

They are speaking solely of security

It would never occur to a purchaser,

that because of something contained in the mortgage he might be unable to collect the amount due him

It only means that the bonds are to be issued not only upon the general credit of the corporation but upon the faith of some collateral mortgage

the privilege given the obligor to redeem before maturity at certain dates,

the obligation to create a sinking fund or the fact that the bonds are payable to bearer,

to the registered holder does not affect the bonds’ negotiability

Disposition Decision of the Appellate Division reversed and that of the Trial Term affirmed

ISSUE WON the bonds are negotiable instruments,

a purchaser in due course from a thief may retain them

ARANETA V PHIL

NAT’L BANK 95 Phil

HELD: YES

Ratio The NIL deals with the form of the instrument – with what a mere inspection of its face should disclose

Reference to the paper itself said to be negotiable determines its character

Reasoning If in the bond or note anything appears requiring reference to another document to determine whether in fact the unconditional promise to pay a fixed sum at a future date is modified or subject to some contingency,

then the promise is no longer unconditional

The rule itself is not a difficult one

The trouble lies in its application to particular facts

There is no infallible test as to whether there is a modification of the promise

Because of differences in the words used,

or in the arrangement of paragraphs,

each instrument must be interpreted by itself

The instrument must be considered as a whole and when the meaning is doubtful,

the construction most favorable to the bondholder must be adopted

speaking of possible redemption,

it continues: “All as provided” in the trust mortgage,

“to which reference is hereby made for a description of the property mortgaged and pledged,

the nature and extent of the security,

the rights of the holders of the bonds with respect thereto,

the manner in which notice may be given to such holders,

and the terms and conditions under which said bonds are issued and secured

The provisions all have to do with the trust mortgage

They refer to the rights conferred by it

Barclay’s Bank Ltd

PNB paid Barclay’s the amount of the draft

the British pound was devaluated from the rate of $4

0325 to $2

PNB sent Araneta a bill of P33,727

Araneta re-transmitted the check

PNB issued a receipt stating that it was received as partial payment and that there was still a P10,533

55 balance

Araneta filed present complaint

is the contract between the parties

this refers merely to the time when the plaintiff was bound to pay,

[Ch 6&7

- I] I]

Law 108: Negotiable Instruments First Semester

to the rate of exchange at which the draft was drawn and presented or negotiated

the equivalent of any “amount that might be drawn or paid upon the faith” of the plaintiff’s credit and that the plaintiff agreed to “reimburse” the defendant bank in said manner

Moreover,

the tern “reimburse” requires the return of something paid

Disposition Appealed judgment is affirmed

NATL RICE & CORN CORP V PAN-PHIL SHIPPING (CA) 51 O

Sanchez ~chriscaps~ FACTS

where Pan-Phil agreed to sell & deliver to NARIC 850 metric tons of Ecuadorian Fortuna Canilla rice at US $12

per 100 pounds net shipped weight final,

CIF Manila

In accordance w/ this,

Pan-Phil,

and RF Navarro w/ Julian Salgado (deceased),

Appellants obligated themselves,

to answer for faithful performance by Pan-Phil of its obligations

in favor of Nicholas Graver & Sons (agent of Pan-Phil),

of California and/or assignee,

payable in New York negotiation of drafts to expire not later than Jan 31,

in case of non-shipment by Nov 30,

except force majeure beyond control of Pan-Phil,

Pan-Phil shall pay/reimburse Naric for bank commission and miscellaneous banking charges in connection w/ contract

arranged w/ and transmitted by cable to Anglo-California Nat’l Bank irrevocable LC No

payable on sight against complete shipping docs w/ certificate as to weight,

quality and moisture content of the rice

AY 2008-09

PNB debited Naric’s account

ISSUE WON Pan-Phil is liable HELD: YES

Pan-Phil says nonshipment was due to causes beyond its control – that the rice wasn’t shipped bec Nicholas Graver & Sons relinquished its interest in the LC upon alleged ground that its terms didn’t conform w/ conditions of the contract

But one thing is certain

The LC is in accord with the contract

Mere refusal of beneficiary to use LC can’t be force majeur w/in meaning of the law

PanPhil’s liability to reimburse Naric for bank expenses is inescapable

But the LC,

being irrevocable and in favor of a specified party,

can’t be changed by Naric or the bank w/o consent of the beneficiary and Pan-Phil

because svcs were actually rendered by bank in negotiation of LC w/ the bank’s addressee at San Francisco and second,

because the minute the said bank cabled the LC to its correspondent at San Francisco,

the former became exposed to liability thereon until it was cancelled

BPI V DE RENY FABRIC INDUSTRIES 35 SCRA 256

Sept 16,

De Reny through Aurora Carcereny (aka Aurora Gonzales),

applied to the BPI for 4 irrevocable commercial letters of credit (L/C) to cover the purchase of goods such as dyestuffs from their supplier J

Distributing Co

the aforementioned officers bound themselves personally as joint and solidary debtors with the corporation

De Reny delivered to BPI peso marginal deposits as each L/C was opened

Rogelio V

Quevedo

[Ch 6&7

instructions for them to notify the beneficiary thereof,

JB Distributing Co,

that they have been authorized to negotiate the latter’s sight drafts up to the amounts mentioned therein,

if accompanied upon presentation,

by full set of negotiable clean “on board” ocean bills of lading,

covering the merchandise appearing on the L/Cs (ie dyestuffs)

the corresponding banks debited the account of BPI w/ them up to the full value of the drafts presented by the JB Dist

endorsed and forwarded all documents to BPI

De Reny made partial payments to BPI however,

further payments were discontinued subsequently as a result of the chemical test wherein it was found that the goods that arrived in Manila were not dyestuffs but were colored chalks

ISSUE WON it was the duty of the correspondent banks of BPI to take the necessary precaution to ensure that the goods shipped under the covering L/C conformed w/ the item appearing therein TF having failed to do so,

no claim for recoupment could be had against the defendants HELD: NO,

defendants are liable for recoupment

the defendants agreed that BPI shall not be responsible for the “existence,

value or delivery of the property purporting to be represented by documents

for any difference in character,

or value of the property from that expressed in documents,” or for “partial or incomplete shipment,

or failure or omission to ship any or all the property referred to in the Credit,” as well as “for any deviation from instructions,

or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves(purchasers) or any of us

the defendants have to comply w/ their covenant

they are still liable because banks,

in providing financing in int’l business transactions such as those entered into by the defendants,

do NOT deal with the property to be

[Ch 6&7

- J] J]

Law 108: Negotiable Instruments First Semester

exported or shipped to the importer but deal only with documents (as per Art 10 of the Uniform Customs and Practices for Commercial Documentary Credits Fixed for the 13th Congress of Int’l Chamber of Commerce)

the defendants are bound by said established usage

Disposition Judgment affirmed

SANTAMARIA V HSBC Bautista-Ange

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