LETTERS OF CREDIT

1) A Letter of Credit (L/C) is any arrangement, however named or described, whereby a bank (issuing bank), acting at the request and on the instructions of a customer (applicant) or on its own behalf, binds itself to: PAN

a. Pay to the order of, or accept and pay drafts drawn by a third party (Beneficiary), orb. Authorize another bank to pay or to accept and pay such drafts, orc. Authorize another bank to Negotiate, against stipulated documents.

Provided, the terms and conditions of the credit are complied with (Art. 2, Uniform Customs & Practice for Documentary Credits.)

2) The parties to a L/C transaction are the following:

a. Applicant/ Buyer/ Importer- procures the L/C, purchases the godos and obliged himself to reimburse the issuing bank upon receipt of the documents of title.

b. Issuing Bank- issues the L/C and undertakes to pay the seller upon receipt of the draft and proper documents of title from the seller and to surrender them to the buyer upon reimbursement.

c. Beneficiary/ Seller/ Exporter- In whose favor the instrument is executed. One who delivers the documents of title and draft to the issuing bank to recover payment.

The number of parties may be increased, to include:

a. Advising/ notifying bank- utilized to convey to the seller the existence of the credit. It incurs no liability at all.

b. Confirming bank- lends credence to the L/C issued by lesser known issuing bank. It is directly liable to pay the seller/beneficiary.

c. Paying Bank- undertakes to encash the drafts drawn by the exporter/ seller.

d. Negotiating bank- the buyer may approach this bank to have the drafts discounted instead of going to the place of the issuing bank to claim payment. (J. Dimaampao & Escalante, Pre-Week Reviewer in Commercial Law, pg. 279-280.)

3) The L/C operates as follows:

a. The importer and exporter agree on the contract to ship out goods as well as on the price. They both assent that the method of payment is through a L/C.b. The importer opens a letter of credit arrangement with the issuing bank.c. The issuing bank requires partial or full payment depending upon the credit trustworthiness and financial standing of the buyer. It may also require that collaterals be given to assure payment. The importer signs an undertaking to assume all costs relative to the arrangement.d. After the issuing bank and the buyer agree on the terms of the L/C, the issuing bank advises the sellers bank of telex, cable or fax, or such other means of communication, of the existence of the L/C.e. The sellers bank or the notifying bank advises the exporter/seller of the L/C issued in his favor.f. The seller delivers the goods to a shipping company for shipment and the issuing bank is names as the consignee in the bill of lading.g. The seller then presents the bill of lading and other documents of title to the notifying bank which may advance the amount of the price, or to the seller bank so he could receive payment.

If it is the notifying bank which advances the price, it shall send the bill of lading and other documents presented by the seller to the issuing bank so it could claim reimbursement.

h. When the goods arrive at the place of destination, the shipping company or its agent informs the consignee issuing bank of such arrival.i. The issuing bank now informs the buyer about the arrival of the goods.j. The buyer pays the issuing bank for the release of the goods. He shall present the release paper to the shipping company to claim his cargoes. However, if the buyer cannot pay in cash, it may apply for the opening of a trust receipt with the bank. (ibid., pg. 281-282.)

4) A L/C is not considered a negotiable instrument. (Lee v. CA, G.R. No. 117913, Feb. 1, 2002.)

REASON: It is issued to a definite person, and not to order or bearer. It is generally subject to a condition (presentation by seller of drafts). Hence, it is not a negotiable instrument. (J. Dimaampao, supra., pg. 279.)

5) A court cannot order that the proceeds of a letter of credit be released to a beneficiary who did not conform to the terms of the L/C. Such order violates the irrevocable nature of the letter of credit. The terms of an irrevocable letter of credit cannot be changed without the consent of the parties, particularly the beneficiary thereof. (Phil. Virginia Tobacco Administration v. De Los Angeles, G.R. No. L-27829, Aug. 19, 1988)

6) A L/C is a composite of at least 3 distinct but intertwined relationships, each relationship being concretized in a contract:

a. First contract relationship links the party applying for the L/C (the account party or applicant or buyer or importer) and the party for whose benefit the L/C is issued (the beneficiary or seller or exporter). In this contract, the account party agrees, among other things, and subject to the terms and conditions of the contract, to pay money to the beneficiary. (Contract of Sale between seller and buyer)

b. Second contract relationship between the account party and the issuing bank. Under this contract, the account party, among other things, applies to the issuing bank for a specified L/C and agrees to reimburse the bank for the amounts paid by the bank pursuant to the L/C. (Application and Agreement or the Reimbursement Agreement)

c. Third contact relationship is established between the issuing bank and the beneficiary to, inter alia, pay certain monies to the latter. (L/C itself.) (Divina, Handbook on Phil. Comm. Law, 2nd ed., pg. 143-144, citing Reliance Commodities, Inc. vs. Daewoo Industrial Co., 228 SCRA 545; J. Dimaampao, supra., pg. 280.)

7) Doctrine of Independence- The relationship of the buyer and the bank is separate and distinct from the relationship of the buyer and seller in the main contract; the bank is not required to investigate if the contract underlying the L/C has been fulfilled or not because in transactions involving L/C, banks deal only with documents and not goods (BPI v. De Reny Fabric Industries, Inc., L-2481, Oct. 16, 1970.). In effect, the buyer has no course of action against the issuing bank.

8) Fraud Exception Principle- This principle is the exception to the Doctrine of Independence. This provides that the untruthfulness of a certificate accompanying a demand for payment under a standby letter of credit may qualify as fraud sufficient to support an injunction against payment.

This principle refers to fraud in relation with the independent purpose or character of the L/C and not only fraud in the performance of the obligation or contract supporting the letter of credit. (Transfield v. Luzon Hydro, G.R. No. 146717, Nov. 22, 2004.)

Injunction against payment is the remedy for the fraudulent abuse under this principle; provided the following requisites concur: P A I1. Clear Proof of fraud; 2. Fraud constitutes fraudulent Abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and 3. Irreparable Injury might follow if injunction is not granted or the recovery of damages would be seriously damaged. (Ibid.)

9) Doctrine of Strict Compliance- The documents tendered by the seller/beneficiary must strictly conform to the terms of the L/C.

A correspondent bank who accepts a faulty tender of the drafts by the beneficiary may not later recover from the issuing bank or the buyer and thus, acts on its own risk should it accept such drafts. (Feati Bank and Trust Company v. CA, G.R. No. 940209, Apr. 30, 1991; J. Dimaampao, supra, pg. 281.)

10) The resort to arbitration by the applicant/contractor to arbitration to determine if the latter is guilty of delay does not preclude the beneficiary to beneficiary to draw on the standby L/C upon its issuance of a certification of default.

If the drawing upon the L/C was wrongful due to the non-existence of the fact of default, the right of the applicant to seek indemnification for damages

TRUST RECEIPTS LAW1) Trust Receipt (TR) - It is any transaction between the entruster and entrustee:

a. Whereby the entruster who owns or holds title or security interests over certain specified goods, documents or instrument (GDI), releases the same to the possession of entrustee upon the latters execution of a TR agreement. (This obligation is also known as Entregarla.)

b. Wherein the entrustee binds himself to hold the GDI in trust for the entruster and, in case of default,

1. to sell or otherwise dispose such GDI with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to it or2. to turn over the GDI itself if not sold or otherwise disposed of in accordance with the terms and conditions specified in the TR. (This obligation is also known as Devolvera.)

2) Two features of TR transaction:

0. Loan feature - is brought about by the fact that the entruster financed the importation or purchase of the goods under TR (Sps. Vintola vs. Insular Bank of Asia and America, G.R. No. 73271, May 29, 1987)

0. Security feature - property interest in the GDI to secure performance of some obligation of the entrustee or of some third persons to the entruster. (Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, G.R. No. 137232. June 29,2005)

3) Correlate the L/C transaction with the TR arrangement: The bank extends a loan covered by the L/C, with the TR as security for the loan. The transaction involves a loan feature represented by the L/C, and a security feature covered by the TR. (J. Dimaampao, supra., pg. 284.)

4) Absolute ownership over the GDI remains with the entrustee. While the entrustee binds himself to hold them for the entruster, the latter is made to appear as the owner merely for artificial expediency. This ownership of the entruster is more of a legal fiction than fact. What the entruster has is a mere security interest over the GDI.

5) Rights of the Entruster: P R C

a. To be entitled to the Proceeds from the sale of the GDI to the extent of the amount owing to himb. To the Return of the GDI in case of non-sale and enforcement of all other rights conferred to him in the TRc. May Cancel the trust and take possession of the goods, upon default or failure of the entrustee to comply with any of the terms and conditions of the TR (Sec. 7, P.D. 115)

6) Obligations and Liabilities of the Entrustee:HR-IKRO

a. Hold GDI in trust for the entruster and to dispose of them strictly in accordance with the terms of TR;b. Receive the proceeds of the sale for the entruster and to turn over the same to the entruster to the extent of amount owing to the entruster;c. Insure GDI against loss from fire, theft, pilferage or other casualties;d. Keep GDI or the proceeds thereof, whether in money or whatever form, separate and capable of identification as property of the entruster; e. Return GDI to the entruster in case non-sale or upon demand of the entruster;f. Observe all other conditions of the trust receipts. (Sec. 9, P.D. 115)

7) The violation of TR Law is an act malum prohibitum. The entrustee who fails to turn over the proceeds of the sale, or to return unsold GDI may be held criminally liable for estafa under Article 315 (b) of the RPC. (J. Dimaampao, supra., pg. 285.)

8) Defenses available to negate criminal liability of the entrustee: CoCo CaCo No LP

a. COmpliance with the terms of the TR either by payment, return of the proceeds or return of the goods (Sec. 13, P.D. 115)b. COnsignment

c. CAncellation of the TR agreement and taking into possession of the goods by the entruster.NOTE: Repossession of the goods will extinguish only the criminal liability.d. COmpromise by parties before filing of information in court. Compromise of estafa case arising from TR transaction, after the case has been filed in court does not amount to novation and does not erase the criminal liability of the accused. (Ong vs. CA, 124 SCRA 578 [1983].)

e. NOn-receipt of the goods by the entrustee or where proof of delivery of goods to the accused is insufficient. (Ramos vs. CA, G.R. No. L-3992-25, Aug. 21, 1987.)

f. Loss of goods without fault of the entrustee.

g. The transaction does not fall under P.D. 115. (Colinares vs. CA, G.R. No. 90828, Sept. 5, 2000, Consolidated vs. CA, G.R. No. 114286, Apr. 19, 2000.)

NOTE: In these cases (Colinares and Consolidated), the execution of a TR was made after the goods covered by it had been purchased, making the buyer the owner thereof. The transaction does not involve a TR but a simple loan even though the parties denominate the transaction as one of a TR.

9) TR Law is a valid exercise of police power and is not repugnant to the constitutional provision of non-imprisonment for non-payment of debt. The TR Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of a loan. (People vs. Nitafan, 207 SCRA 726.)

WAREHOUSE RECEIPTS LAW(ACT 2137 AS AMENDED)

1) A Warehouse Receipt (WHR) is a written acknowledgment by the warehouseman (WHM) that he has received and holds certain goods therein described in his warehouse for the person to whom the document is issued.

It has two-fold functions, that is, it is a contract and a receipt. (Telengtan Bros. & Sons v. CA, G.R. No. L-110581, Sept 21, 1994)

2) The kinds of WHR are:

a. Negotiable WHR - It is a receipt in which it states that the goods received will be delivered to the bearer or to the order of any person named in such receipt (Sec. 5, WHR Law)

Persons who can negotiate a Negotiable WRa. The owner b. Any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by the terms of the receipt, the goods are deliverable to the order of the person to whom the possession or custody of receipt has been entrusted or in such form that it may be negotiated by delivery. (Sec. 40, WHR Law)

b. Non-negotiable WHR - a receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person. (Sec. 4, WHR Law.) It shall have plainly placed upon its face by the warehouseman issuing it non-negotiable, or not negotiable. (Sec. 7, WHR Law.)

A non-negotiable warehouse receipt may be transferred by its delivery to the transferee accompanied by a deed of assignment, donation or other form of transfer.

Note: Failure to mark the WR as non-negotiable shall entitle the holder, who purchased it for value supposing it to be negotiable, to treat such receipt negotiable. (Sec. 7, WHR Law.)

3) Obligations of a WHM: T DSASUSI K

a. Take care of the goods entrusted to his safekeepingb. Deliver them to the holder of the receipt or the depositor provided there is demand by the depositor accompanied by either:a. An offer to SAtisfy the warehousemans lienb. An offer to SUrrender the receipt, if negotiable with such indorsements as would be necessary for the negotiation of the receiptsc. A readiness and willingness to Sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the warehouseman (Sec. 8, WHR Law.)

c. Keep the goods separate from the goods of other depositors, except if authorized by agreement or by custom, fungible goods may be mingled with other goods of the same kind and grade.

4) WHM is justified in refusing to deliver the goods: Sa S.B. CONFA FELVIS

a. If the WHMs lien is not SAtisfied by the claimants (Sec. 31, WHR Law)b. Where the goods have already been Sold to satisfy the WHMs lien or because of their perishable or hazardous nature (Sec. 34, WHR Law)c. If the WHR is negotiated Back to him.d. When the holder does not satisfy the COnditions prescribed in Sec. 8, WHR Law:a. Non-satisfaction of WHMs lien.b. Failure to surrender WHR.c. Refusal to sign the Acknowledgment receipt, acknowledging the receipt of the goods from the WH.e. The failure was NOT due to any Fault on the part of the WHM:a. Upon request by or on behalf of the persons lawfully Entitled (Sec. 10, WHR Law)b. If the goods are Lost, due to a fortuitous event exclusively.c. If the WHM needs reasonable time to ascertain the Validity of the claim if someone other than the depositor claims title to the goods (Sec. 18, WHR Law)d. If he had Information that the delivery about to be made was to one not lawfully entitled. (Sec. 10, WHR Law.)e. If Several persons claim the goods (Sec. 17, WHR Law.)

5) Charges covered by the WHMs lien: PMA

a. Charges for storage and Preservation of the goods (insurance and others may be included as long as it is stipulated)b. Money advanced, interest, insurance, transportation, labor, weighing coopering and other charges and expenses in relation to such goods.c. Charges and expenses for notice, and Advertisements of sale, and for sale of the goods where default had been made in satisfying the WHMs lien (Sec. 27, WHR Law.)

6) Remedies available to a WHM to enforce his lien: RECa. By Refusing to deliver the goods until the lien is satisfiedb. By causing the Extrajudicial sale of the property and applying the proceeds of the value of the lienc. By filing a civil action for Collection of the unpaid charges or by way of counterclaim in an action to recover the property from him or such other remedies allowed by law for the enforcement of a lien against personal property or to a creditor against his debtor, for the collection from the depositor of all the charges which the depositor has bound himself to pay.

7) The WHM may lose his lien:a. By surrendering the possession thereof; orb. By refusing to deliver the goods when a demand is made with which he is bound to comply. (Sec. 29, WHR Law)

8) Whether a WHM has or has not a lien over the goods, he is entitled to all remedies allowed by law to a creditor against a debtor for the collection from the depositor of all charges and advances which the depositor has expressly or impliedly contracted with the WHM to pay. (Sec. 32, WHR Law)

NEGOTIABLE INSTRUMENTS LAW

1) A negotiable instrument (NI) is a written contract for the payment of money which is intended as a substitute for money and passes from one person to another as money, in such a manner as to give a holder in due course (HIDC) the right to hold the instrument free from defenses available to prior parties. (Sundiang & Aquino, Reviewer on Commercial Law, 2009 ed., pg. 5.)

2) NI has two characteristics, namely:

(a) Negotiability- NI passes from hand to hand similar to money, so as to give the HIDC the right to hold the instrument and collect the sum payable for himself free from defenses.

(b) Accumulation of secondary contracts- additional parties become involve as they are transferred from one person to another. (De Leon, The Phil. Negotiable Instruments Law, 2004 ed., pg. 4-5.)

3) NI is not considered as a legal tender because the acceptance of a negotiable instrument as payment of a deb/t is at the option of the creditor. Whereas, legal tender pertains to the valid currency that may be offered in payment of a debt and that a creditor must accept. (J. Dimaampao, supra, pg. 1.)

NOTE: Hence, checks are not considered legal tender. However, a check which has been cleared and credited to the account of the creditor shall be equivalent to delivery of cash in an amount equal to that credited to his account. (ibid., citing Sec. 60, RA 7653.)

4) The three kinds of negotiable instruments are:

a. Promissory note (PN)- an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money. (Sec. 184, NIL.)

b. Bill of exchange (BOE)- an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money. (Sec. 126, NIL.)

NOTE: A bill itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not liable on the bill, unless and until he accepts the same. (Sec. 127, NIL.)

c. Check- a BOE drawn on a bank payable on demand. (Sec. 185, NIL)

5) Parties to a NI:

PNPARTYFUNCTIONLIABILITY

1. MakerOne who makes the promise and signs the instrumentPrimarily liable

2. PayeeThe party to whom payment is originally payable

BOEPARTYFUNCTIONLIABILITY

1. DrawerThe person who issues and draws the billSecondarily liable, except when drawee refused to accept.

If drawee refused to accept, he becomes primarily liable.

2. DraweeThe party upon whom the bill is drawnNOT liable UNTIL he becomes acceptor

3. PayeeThe party to whom payment is originally payable

CheckPARTYFUNCTIONLIABILITY

1. DrawerDepositor of the drawee bank who issues the check ordering the bank to pay the payee out of its own funds. Same as that of a BOE

2. Drawee bankWhen ordered by the drawer to pay the payee the amount indicated in the check, it subsequently debits the amount paid from the drawers account.

4. PayeeThe party to whom payment is originally payable

Other persons who may become parties after the issuance of the instrumentPARTYFUNCTION

1. IndorserPerson who transfers or negotiates the instrument by indorsement coupled with delivery

2. HolderThe payee or indorsee of a bill or a note who is in possession of it or the bearer thereof.

6) Negotiable vs. Non-negotiable instrument:

Negotiable InstrumentNon-Negotiable Instrument

Governed by NILGoverned by provisions on Assignment of Credits in the NCC;Application of NIL is by analogy

Transferred by negotiationTransferred only by Assignment

Transferee may become a HIDC upon compliance with Sec. 52 of the NILTransferee becomes only a mere assignee

HIDC acquires better right than that of the transferorTransferee merely steps into the shoes of the transferor

Personal defences cannot be raised against a HIDCAll defences, whether personal or real, available to prior parties may be raised against the transferee.

7) Elements of Negotiability (Sec. 1, NIL.) : SUn-DOrA

a. It must be in writing and Signed by the maker or drawer.

NOTE: The law does not require that the maker affix her usual or customary signature in the PN. (J. Dimaampao, ibid., pg. 6.)

b. Must contain an Unconditional promise or order to pay a sum certain in money.

c. Must be payable on Demand, or at a fixed or determinable future time.

d. Must be payable to Order or to bearer (so called badges of negotiability)

e. If Addressed to a drawee, he must be named or otherwise indicated with reasonable certainty.

NOTE: The instrument is negotiable even if drawees are named jointly (i.e., To: A and B). However, the instrument becomes non-negotiable if drawees are named in the alternative (i.e., To: A or B) or in succession (i.e., To: A, or in his absence, B). (ibid., pg. 10.)

8) The negotiability of an instrument is not affected by the illegality of the reason or consideration for its issuance. As long as the requisites under Sec. 1, NIL are complied with. Validity is an issue distinct and separate from the question of negotiability. (ibid., pg. 13-14)

E.g. A BOE drawn by Husband in the amount of P100,000 payable to his Lover or order, with the Wife as drawee. BOE is still negotiable notwithstanding that it was issued in consideration of the illicit affair between Husband and his Lover. (ibid.)

9) The sum payable is a sum certain, although it is to be paid:

a. With interest; orb. By stated instalments; or;c. By stated instalments, with a provision that, upon default in payment of any instalment or of interest, the whole shall become due; ord. With exchange, whether at a fixed rate or at the current rate; ore. With costs of collection or an attorneys fee, in case payment shall not be made at maturity. (Sec. 2, NIL)

10) An unqualified order or promise to pay is unconditional though coupled with:

a. An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; orb. A statement of the transaction which gives rise to the instrument.

But an order or promise to pay out of a particular fund is NOT unconditional. (Sec. 3, NIL.)

11) An instrument is payable at a determinable future time, which is expressed to be payable:

a. At a fixed period after date or sight; orb. On or before a fixed or determinable future time specified therein; orc. On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

An instrument payable upon a contingency is NOT negotiable, and the happening of the event does NOT cure the defect. (Sec. 4, NIL.)

12) A PN providing for the time of payment, as soon as my means permit me to do so, is NOT negotiable.

Article 1180 of the Civil Code must be read in relation to Article 1197 of the same Code. Although the note is subject to a period, the duration thereof has to be fixed by the courts. The instrument is not payable at a fixed or determinable future time since the term thereof would have to be set by the courts. (ibid.,pg. 8.)

13) Where the instrument does not express the date of payment, it is payable on demand. This means the party liable must be given reasonable time within which to pay the obligation. (ibid., pg. 8, citing Sec. 7, NIL.)

In case of promissory note, presentment for payment must be made within a reasonable time after its issue. In a BOE, presentment for payment must be done within a reasonable time after the last negotiation thereof. (ibid., pg. 8, citing Sec. 71, NIL)

14) An instrument is payable to ORDER where it is drawn payable to the order of a specified person or to him or to his order. It may be drawn payable to the order of: PaDD JoinSH

a. A PAyee who is not a maker, drawer, or drawee;b. The Drawer or maker; orc. The Drawee; ord. 2 or more payees JOINtly; ore. 1 or some of Several payees; orf. The Holder of an office for the time being. (Sec. 8, NIL.)

15) An instrument is payable to BEARER when:ENaF PaLa

a. It is Expressed to be so payable;b. It is payable to a person Named therein or bearer;c. It is payable to the order of a Fictitious person or non-existing person, and such fact was known to the person making it so payable;d. The name of the PAyee does not purport to be the name of the person;e. When the only or the Last indorsement is an indorsement in blank. (Sec. 9, NIL.)

16) Fictitious-Payee Rule- When the payee is fictitious or not intended to be the true recipient of the proceeds of the check, the check is considered as a bearer instrument and as such, it does not require indorsement to be validly negotiated. It is negotiable by mere delivery.

The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery.

A fictitious payee is NOT limited to persons having no real existence. An actual, existing, and living payee may also be fictitious if the maker of the check did not intend for the payee to in fact receive the proceeds of the check.

GR: The drawer bears the loss in a fi ctitious-payee situation. The drawee bank is absolved from liability.

XPN: The drawee bank becomes liable when it is shown that there was commercial bad faith on the part of the drawee or any transferee of the check for that matter.

Commercial bad faith exception- It is when the drawee bank acts dishonestly and is a party to the fraudulent scheme. If this exception is present, then the check is deemed payable to order, and consequently, the drawee bank bears the loss.(Divina, Handbook on Phil. Commercial Law, 2nd Ed., pg. 9 and J. Dimaampao, supra., pg. 9-10; both citing PNB vs. Rodriguez, 566 SCRA 513.)

17) Provisions not affecting negotiability: DVNo S. CurSECo Law

a. Omission of Dateb. Non-specification of Value given or that any value had been givenc. Non-specification of place where it is drawn or payabled. Bears a Seale. Designation of particular kind of CUrrency in which payment is to be made. (Sec. 6, NIL)

g. Authorizing the sale of collateral Securities on defaulth. Giving the holder an Election to require something to be done in lieu of payment of money.i. Authorizing Confession of judgment on default (Sec. 5, NIL)

NOTE: The stipulation authorizing confession of judgment may be void for being contrary to public policy, but this will not negate the negotiability of the instrument. The stipulation is simply avoided. (J. Dimaampao, supra., pg. 15.)

j. Waiving the benefit of the LAW intended for the protection of the obligor (Sec. 5, NIL.)

18) GR: Only persons whose signature appear on an instrument are liable thereon (Sec. 18, NIL)

XPNs: Notwithstanding the absence of their signatures in their own names, the following persons are deemed liable: TraP FAP

a. Person who signs in TRAde or assumed name (Sec. 18, NIL.)Party who signed must have intended to be bound by his signature.b. Principal who signs through a duly authorized agent and such agent discloses the name of his principal and adding words to show he is merely signing in a representative capacity (Sec. 19, 20, NIL.)c. Forger (Sec. 23, NIL.)d. Acceptor, who makes his acceptance of a bill on a separate paper (Sec. 134, NIL.)e. Person, who makes a written Promise to accept the bill before it is drawn (Sec. 135, NIL.)

NOTE: Where a signature is so placed upon the instrument that it is not clear in what capacity the person signed, he is deemed to be an indorser (Sec. 17 [f], NIL.), not a maker or drawer.

19) To exempt an agent, whose signature appears on the instrument, from liability, the following must concur:

a. He is duly authorizedb. He adds words to his signature indicating that he signs as an agent/ representative andc. He discloses the name of his principal (Sec. 20, NIL.)

20) Different classes of holder:

1. Holder simply (in general) has right to sue in his own name, and to receive payment. (Sec. 51, NIL)

1. Holder for value one who has given a consideration sufficient to support a simple contract for the instrument. (Sec. 26, NIL.)

1. Holder in due course one who has taken the instrument under the ff conditions: COFI that it is Complete & regular upon its face;

he became the holder of it before it was Overdue & without notice that it had been previously dishonored, if such was the fact;

that he took it in good Faith & for value; and

at the time it was negotiated to him he had no notice of any Infirmity in the instrument or defect in the title of the person negotiating it. (Sec. 52, NIL)

1. Holder who derives title from HIDC has all the rights of a HIDC, provided he derives title from such and he himself is not a party to any fraud/illegality affecting the instrument. (Sec. 58, NIL.)

21) A person is not deemed a HIDC in the following instances:

a. A holder who acquires the instrument after its date of maturity.b. Where an instrument payable on demand is negotiated for an unreasonable length of time after its issue (Sec. 53, NIL.)c. Where the instrument contains an acceleration clause, knowledge of the holder at the time of acquisition thereof that one instalment or interest, or both, is unpaid is a notice that it is overdue.

22) Rights of a holder who is NOT a HIDC: The rights of such holder are similar to an assignee. The other rights are:

a. He may receive payment and if the payment is in due course, the instrument is dischargedb. He is entitled to the instrument but holds it subject to the same defences as if it were non-negotiable.c. He may sue on the instrument in his own name. (Sec. 51, NIL.)

23) A crossed check is a check with 2 parallel lines, written diagonally on the upper right corner thereof. It is a warning to the drawee bank that payment must be made to the right party; otherwise the bank has no authority to use the drawers funds deposited with the bank.

The effects of crossing a check are:

3. That the check may not be encashed but only deposited in the bank;3. That the check may be negotiated only once to one who has an account with the bank;3. That the act of crossing the check serves as a warning to the holder that the check has been issued for definite purpose so that he must inquire if he has received the check pursuant to the purpose. Otherwise, he is not a HIDC. (State Investment House vs. IAC, 175 SCRA 310.)

24) Shelter Principle- the HIDC, by negotiating the instrument to a party not a HIDC, transfers all his rights as holder to the latter, who thus acquires the right to enforce the instrument as if he was a HIDC. This principle presupposes that the sheltered holder is not a party to any fraud or illegality impairing the validity of the instrument. (J. Dimaampao, supra., pg. 22.)

The holder who has knowledge but no participation to any fraud or illegality, and derives his title from a holder in due course is often called as the HIDC by subrogration or HIDC through a HIDC. (ibid., citing Sec. 58, NIL.)

25) DEFENSES available against the holder:

a. Real/ Absolute- those that are attached to the instrument itself and are available against all parties, both immediate and remote, including HIDC.

b. Personal/ Equitable- defences which are only available against a holder NOT a HIDC. Those which grow out of the agreement or conduct of a particular person which renders it inequitable for him, though holding the legal title, to enforce it against the party sought to be made liable.

REAL

(IM In Ultra. AFForD PODIF)PERSONAL

(InnocentSS ADD FUn In Fraud)

1. Incomplete and undelivered instrument2. Minority (available only to the minor)3. INcapacity as far as incapacitated persons are concerned4. Ultra vires acts of a corporation5. Want of Authority, apparent and real6. Fraudulent Alteration7. FOrgery8. Duress amounting to Forgery9. Prescription10. Other infirmities appearing on the face of the instrument11. Discharge in insolvency12. Illegal Contract13. Fraud in Factum or in Esse Contractus1. INNOCENT alteration or spoliation2. Discharge of party Secondarily liable by discharge of prior party.3. Set-off between immediate parties4. Filling up of blanks not in accordance with the Authority given5. Acquisition of instrument by Duress or force and fear; unlawful means or for an illegal consideration.6. Discharge by payment or renunciation or release before maturity7. Failure or absence of consideration8. UNdelivered complete instrument9. INsertion of a wrong date10. FRAUD in inducement or simple fraud

NOTE: Minority is a real defense that is personal to the minor. It may only be invoked by the minor alone.

Further, minors validly transfer title but incur no liability. (J. Dimaampao, supra, pg. 26)

NOTE: An ultra vires act is made beyond the powers of the corporation. It is a real defense that may be set up against any holder, even a HIDC. Thus, the corporation cannot be held liable for the obligation of its officer who issued the instrument, since it did not authorize the same through a board resolution.

Neither is the drawee bank liable to the payee. An instrument, e.g. a check, by itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank. The bank is not liable to the holder, until and unless it accepts or certifies the same.

The remedy of the payee in this case is to demand payment from the issuing officer. The issuing officer is personally liable. (ibid., pg. 26-27.)

26) The following are defective or abnormal instruments:

0. Incomplete but delivered (Sec. 14, NIL)0. Incomplete and undelivered (Sec. 15, NIL)0. Complete but undelivered (Sec. 16, NIL)0. Forgery (Sec. 23, NIL)0. Material Alteration (Sec. 125, NIL)

Sec 14Sec 15Sec 16

Incomplete instrument which has been delivered by the maker or the drawer to the payee or holder.Incomplete and undelivered instrument.Complete instrument but undelivered.

1. Where instrument is wanting in any material particular, the person in possession has prima facie authority to complete it by filing up blanks therein.

2. When the instrument is merely a signature on blank paper delivered by person making the signature in order that the paper may be converted into a NI, the person in possession has prima facie authority to fill up as such for any amount.

Note: The holder must only act in accordance with the authority granted him, otherwise it may be used as a defense against him.Instrument will not, be a valid contract in the hands of any holder, if completed and negotiated without authority.1. If instrument is not in possession of party who signed, a valid and intentional delivery by him is prima facie presumed.

2. If holder is HIDC, valid delivery by all parties prior to him so as to make them liable to him is conclusively presumed.

Forgery is when a signature is affixed by one who does not claim to act as an agent and who has no authority to bind the person whose signature he has forged (Sec. 23, NIL.) The burden of proving forgery is on the party alleging forgery (Chiang Yia Min vs. CA, G.R. No. 137932, Mar. 28, 2001.)

Effects of forgery: Only the signature forged or made without authority is the one inoperative, the instrument itself and the genuine signatures are valid. An instrument indorsed which on its face is payable to bearer may be enforced by the holder to whose title over the instrument the forged signature is not necessary. The instrument can be enforced against those who are precluded from setting up forgery.

GR: Existence of forgery does not avoid the instrument but only the forged signature. The signature is wholly inoperative.

However, a forged indorsement prevents any subsequent parties from acquiring any right against any party prior to the forgery. Such forged indorsement cuts off the rights against prior parties to the forger. (Cut-off rule) On the other hand, parties after the forgery are liable because they warrant that they have good title to the instrument. (J. Dimaampao, supra, pg. 31-32, citing Sec. 66, in re: Sec. 65, NIL.)

XPNs: 1. If the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority (Sec. 23, NIL)

2. Where the forged signature is not necessary to the holders title, in which case, the forgery may be disregarded (Sec. 48, NIL.)

Legal Consequences when a bank honors a forged check:

When drawer's signature is forged

GR: Drawee bank is liable. Drawee-bank by accepting the check cannot set up the defense of forgery, because by accepting the instrument, the drawee bank admits the genuineness of signature of drawer (BPI Family Bank v. Buenaventura, G.R. No. 148196, Sept. 30, 2005; Sec. 23, NIL).

XPN: However, the drawer may be precluded or estopped from setting up the defense of forgery as against the drawee-bank, when it is shown that the drawer himself had been guilty of gross negligence as to have facilitated the forgery (Metropolitan Waterworks v. CA, G.R. No. L-62943, July 14, 1986). When payee's signature is forged- When drawee-bank pays the forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. In such case, the bank becomes liable since its primary duty is to verify the authenticity of the payee's signature (Traders Royal Bank v. Radio Philippines Network, G.R. No. 138510, Oct. 10, 2002; Westmont Bank v. Ong, G.R. No. 132560, Jan. 30, 2002).

Forged indorsement Drawer's account cannot be charged, and if charged, he can recover from the drawee-bank (Associated Bank v. CA, G.R. No. 107382, Jan. 31,1996).

a. The Drawer has no cause of action against collecting bank, since the duty of collecting bank is only to the payee (Manila Lighter Transportation, Inc. v. CA,G.R. No. L-50373 Feb. 15, 1990). b. Drawee-bank can recover from the collecting bank because even if the indorsement on the check deposited by the bank's client is forged, collecting bank is bound by its warranties as an indorser and cannot set up defense of forgery as against drawee bank (Associated Bank v. CA, G.R. No. 107382, Jan. 31, 1996, Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, G.R. No. 18657, Aug. 23, 1922).

Drawee bank vs. collecting bank When the signature of the drawer is forged, as between the drawee-bank and collecting bank, the drawee-bank sustains the loss, since the collecting bank does not guarantee the signature of the drawer. The payment of the check by the drawee bank constitutes the proximate negligence since it has the duty to know the signature of its client-drawer. (Philippine National Bank v. CA, G.R. No. L-26001, Oct. 29, 1968).

Material alteration- any change in the instrument which affects or changes the liability of the parties in any way.

Effects of material alteration of a NI without the assent of all parties liable thereon:

1. Avoids the instrument except against:1. A party who has made the alteration;1. A party who authorized or assented to the alteration; or1. The indorsers who indorsed subsequent to the alteration (because of their warranties).

1. If negotiated to a HIDC, he may enforce the payment thereof according to its original tenor against the person not a party to the alteration. He may also enforce payment thereof against the party responsible for the alteration for the altered amount.

1. If negotiated to a holder not a HIDC, he cannot enforce payment against the person not a party prior to the alteration. He may, however. enforce payment according to the altered tenor from the person who caused the alteration and from the indorsers. (Sec. 124 NIL.)

27) Liabilities of Parties:PRIMARILY LIABLESECONDARILY LIABLE

Absolutely required to pay the instrument upon maturityUndertakes to pay only after the ff. conditions have been fulfilled: 1. due presentment for payment or acceptance to primary party (Sec.143, NIL.);1. dishonor by such party (Sec.70, NIL.);1. taking of proceedings required by law (Sec.152, NIL.)

The following persons are primarily liable:1. Maker- of a PN2. Acceptor of a BOE3. Certifier of a checkThe following are secondarily liable:1. GR: Drawer of a BOEXPN: if drawee refuses to accept, then drawer becomes primarily liable

2. Indorser of a PN

Warranties and liabilities of persons secondarily liable:

ABSOLUTE LIABILITYLIMITED LIABILITY

Drawer of a BOEQualified Indorser

Warrants:1. The existence of payee and his then capacity to indorse;1. That the instrument will be accepted or paid upon due presentment by the party primarily liable according to its tenor; and 1. That if dishonored, he will pay the party entitled to be paid. (Sec. 61, NIL.)Warrants that:a. Instrument is genuine and in all respects what it purports to be; b. he has good title to it;c. capacity to contract of all prior parties; andd. no knowledge of any fact which would impair the validity of the instrument. (Sec.65, NIL.)

Note: He is liable to all parties who derive their title through his indorsement.

General IndorserPerson negotiating by delivery

a. Warrants that: 1. Instrument is genuine and I all respects what it purports to be;2. He has a good title to it;3. All prior parties had capacity to contract;4. Instrument, at the time of indorsement, was valid and subsisting;

b. On due presentment, it shall be accepted or paid, or both according to its tenor.

c. if the instrument is dishonored and the necessary proceedings on dishonor be duly taken, he will pay the holder. (Sec. 66, NIL.)Same warranties as a qualified indorser. But unlike a qualified indorser, a person negotiating by mere delivery is liable only to his immediate transferee. (par. 2, Sec. 65, NIL)

Note: Person negotiating by mere delivery and a qualified indorsers secondary liability is limited, namely, to their warranties.

Irregular Indorser

1. In an order instrument, liable to the payee and all subsequent parties1. If bearer instrument or payable to order of maker or drawer, liable to all parties subsequent to the maker or drawer1. If he signs for accommodation of the payee, liable to all parties subsequent to payee. (Sec. 64, NIL.)

PRE-WEEK REVIEWER 2013Mercantile Law

1ACADEMICS COMMITTEE

OVERVIEW OF TRANSACTIONS OF NEGOTIABLE INSTRUMENTSStages in the Life of a Negotiable InstrumentSTAGESRULES AND QUALIFICATIONS

1. IssuanceStages: 1. The mechanical act of writing the instrument completely and in accordance with Sec. 1 of NIL.2. Delivery of the complete instrument by the maker or the drawer to the payee or holder with the intention of giving effect to it.

2. NegotiationNegotiation is the transfer of an instrument from one person to another so as to constitute the transferee the holder thereof. (Sec. 30, NIL.)

If payable to bearer- it is negotiated by mere delivery If payable to order- it is negotiated by the indorsement of the holder completed by delivery. (ibid.)

Indorsement - A person placing his signature upon an instrument otherwise than as maker or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity. (Sec. 63, NIL.) May be made on the instrument itself; or upon a paper attached thereto known as allonge

Kinds of Indorsement

1. Special (Sec. 34, NIL)Specifies the person to whom or to whose order the instrument is to be payable. Also known as specific indorsement or indorsement in full.

Note: An instrument payable to bearer indorsed specially may nevertheless be negotiated by delivery. (Sec. 40, NIL.) (RULE : Once a bearer always a bearer)

1. Blank (Sec. 34, NIL.) Specifies no indorsee.1. Instrument is payable to bearer and may be negotiated by delivery;1. May be converted to special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of indorsement (Sec. 35, NIL).

1. AbsoluteThe indorser binds himself to pay:a. upon no other condition than failure of prior parties to do sob. upon due notice to him of such failure

1. Conditional Right of the indorsee is made to depend on the happening of a contingent event. Party required to pay may disregard the conditions (but the indorsee would hold the proceeds in trust for the indorser until the condition is fulfilled)(Sec. 39)

Note: The condition refers to the indorsement not on the instrument itself.

1. Restrictive When the instrument:

NegotiabilityPassing of titleConsideration presumedDefense available

1. Prohibits further negotiation (e.g. Pay to Dennis only)Destroys negotiability & bars further negotiation to a HIDCPasses title

Consideration presumedDefenses available against the indorser are not cut off by the transfer unless there is waiver or estoppel(real & personal defenses available because indorsee is not HIDC)

2. Constitutes the indorsee the agent of the indorser; (e.g. To Henesty for collection as agent only)Negotiable but subject to same restriction that he only holds it for collectionDoes not pass title to the endorsee because the indorsee is a mere agent of the indorserNo Consideration presumed defenses available against indorser can be raised against indorsee because he is just an agent

3. Vests the title in the indorsee in trust for or to the use of some persons NegotiableThere is transfer of legal title but as trustee only for the indorser & beneficial owner(there is notice that the instrument cannot be negotiated by indorsee for his own benefit) Consideration presumedNo defense available as indorsee is an HIDC

1. Qualified(Sec. 34) constitutes the indorser a mere assignor of the title to the instrument made by adding to the indorsers signature words like, without recourse, sans recourse or at the indorsees own risk. (This serves as an ordinary equitable assignment). (Sec. 38)Note: A qualified indorsement does not affect negotiability of the instrument; it only shows an unwillingness by qualified indorser to be answerable for solvency of prior parties but he is still secondarily liable for breach of his warranties as indorser under Sec. 65

1. Jointindorsement made payable to 2 or more persons who are not partners. (Sec. 41)

Note: All of them must indorse unless the one indorsing has authority to indorse for the others

1. Irregular(Sec. 64) A person who, not otherwise a party to an instrument, places thereon his signature in blank before delivery.

1. Facultative Indorser waives presentment and notice of dishonor, enlarging his liability and his indorsement.

1. Successive indorsement to two persons in succession.

Note: Any of them can indorse to effect negotiation of the instrument.

3. Presentment for acceptanceGR: It is not necessary to render any party to the bill liable. (par.2, Sec. 143)XPN: Presentment for acceptance is necessary in the ff cases1. Where bill is payable after sight, or when it is necessary in order to fix the maturity of the instrument1. When bill expressly stipulates that it shall be presented for acceptance; or1. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. (Sec. 143)Effect: Failure to make such presentment will discharge the drawer from liability or to the extent of the loss caused by the delay

XPN to the XPN: Even if Presentment for acceptance is necessary under Sec 143, it is EXCUSED in the ff:1. Drawee is dead, or has absconded, or is a fictitious person not having capacity to contract by bill1. After exercise of reasonable diligence, presentment cannot be made; or1. Although presentment has been irregular, acceptance has been refused on some other ground. (Sec. 148)

4. AcceptanceA signification by the drawee of his assent to the order of the drawer (Sec. 132).

GR: Only the drawee may accept. A stranger or volunteer is not bound by acceptance.XPN: In case of a bill which is accepted for honor supra protest (Sec. 161)

Kinds

1. Constructive/implied0. Drawee to whom the bill is delivered for acceptance destroys it (intent must be present); or0. Drawee refuses, within 24 hours after such delivery, or within such time as is given him, to return the bill accepted or non-accepted

1. Extrinsic the acceptance is written on a paper other than the bill itself. To be binding upon the acceptor:0. Acceptance must be shown to the person to whom the instrument is negotiated; and0. Such person must take the bill for value on the faith of such acceptance (Sec. 134).

1. Virtual 0. Unconditional promise in writing to accept a bill0. Promise made before it is drawn0. Any person who, upon faith thereof, received the bill for value. (Sec. 135)

Liabilities of an acceptor1. Engages to pay according to the tenor of his acceptance1. Admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrumentAdmits the existence of the payee and his then capacity to indorse. (Sec. 62)

5. Dishonor by non-acceptanceA bill dishonored by non-acceptance:1. When it is duly presented for acceptance and such an acceptance is refused or cannot be obtained;or2. When presentment for acceptance is excused, and the bill is not accepted. (Sec. 149)

6. Presentment for paymentRules: GR: Presentment for Payment is only necessary to charge persons secondarily liable (Sec. 70).EXP: Presentment for Payment is not necessary to charge persons secondarly liable in the following cases:0. As to drawer, where he has no right to expect or require that the drawee or acceptor will pay the instrument (Sec. 79) 0. As to indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented (Sec. 80)0. When dispensed with under Sec. 82, such as: 0. Where, after the exercise of reasonable diligence, presentment cannot be made0. Where the drawee is a fictitious person 0. By waiver of presentment, express or implied0. When the instrument has been dishonored by non-acceptanceMannerGR: Instrument must be exhibited to the person from whom payment is demanded. When paid, it must be delivered to person paying it. (Sec. 74)XPN: When exhibition is excused:1. Debtor does not demand to see the instrument and refuses payment on some other grounds; or1. Instrument is lost or destroyed.

Time

INSTRUMENTTIME FOR PRESENTMENT

Payable at a fixed or determinable future time GR: On the day it falls due. (Sec. 85)XPN: If the due date falls on a Saturday, presentment must be made on the next Monday.

Note: If presentment for payment is made before maturity; it will not result to a discharge of the instrument (Sec. 50).

Promissory note payable on demand Within a reasonable time after its issue.

Bill of exchange payable on demandWithin a reasonable time after the last negotiation thereof (Sec.71).

Note: Last negotiation means the last transfer for value. Subsequent transfers between banks for purposes of collection are not negotiations within Sec. 71.

7. Dishonor by non-paymentDishonorKinds:1. Dishonor by presentation of the NI - The instrument is duly presented for payment to party primarily liable and it is either refused or cannot be obtained

2.Without presentation of the NI - Presentment is excused and the instrument is overdue and unpaid(Sec.83)

Effect - When the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder (Sec. 84)

8. Notice of dishonor

Given by the holder to the parties secondarily liable, drawer and each indorser, that the instrument was dishonored by non-payment or non-acceptance by the drawee/maker.

9. Protest in case of foreign billGR: Protest is NECESSARY in case a foreign bill 1. Is dishonored by nonacceptance, it must be duly protested for nonacceptance, 2. by nonacceptance is dishonored 3. where a bill which has not previously been dishonored by nonpayment, it must protested for nonpayment.

Ex: Protest is dispensed with by any circumstances which would dispense with notice of dishonor.

10. DischargeDischarge - It is the release of all parties, whether primary or secondary, from the obligations arising thereunder. It renders the instrument without force and effect, and consequently, it can no longer be negotiated

Parties primarily liable -0. Payment by principal debtor:1. By or on behalf of principal debtor1. At or after its maturity1. To the holder thereof1. In good faith and without notice that the holders title is defective0. Payment by Accommodated party0. Intentional Cancellation of instrument by the holder (by expressly stating it in the instrument or when the instrument is torn up, burned or destroyed)0. GR: Any act which discharges a simple contract for the payment of money under Art. 1231 of the NCC specifically Remission, novation, and merger.Ex: Loss of the negotiable instrument will not extinguish liability; compensation is not available so long as an obligation is evidenced by a negotiable instrument. (Commercial Law Review, Villanueva, 2009ed)1. Reacquisition by principal debtor in his own right. Reacquisition must be:1. By the principal debtor1. In his own right 1. At or after date of maturity (instrument is discharged; if made before, it may be renegotiated) (Sec. 119)

Secondarily Liable: 1. Any act which discharges the instrument;1. Intentional cancellation of his signature by the holder1. Discharge of prior party which may be made when signature is stricken out1. Valid tender of payment by a prior party;1. Release of the principal debtor, unless holder expressly reserves his right of recourse against the said subsequent parties1. Extension of time of payment, unless:5. Extension is consented to by such party5. Holder expressly reserves his right of recourse

INSURANCE CODE

0. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against the loss, damage or liability arising from an unknown or contingent event. (Sec. 2[1], IC)

It is a contract of adhesion because the only participation of the insured is the signing of his signature or his 'adhesion' thereto. (Sweet Lines, Inc. vs. Teves, GR No. L-37750, May 19, 1978.)

0. Parties in an insurance contract:

0. Insurer party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured on the happening of a specified contingency or event.

Every person, partnership, association, or corporation duly authorized (by the Insurance Commission) to transact insurance business may be an insurer (Sec. 6, IC).

0. Insured person in whose favor the contract is operative and is indemnified against.

Anyone except a public enemy may be insured (Sec. 7, IC.).

Note: The insured is not always the person to whom the proceeds are paid.

0. Assured/Beneficiary- a person designated by the terms of the policy to receive the proceeds of the insurance. He may be the insured or a third party in the contract for whose benefit the policy is issued and to whom the loss is payable.

0. Subject matter of a contract of insurance- Anything having an appreciable pecuniary value, which is subject to loss or deterioration or of which one may be deprived so that his pecuniary interest is or may be prejudiced.

0. Event or peril insured against- It is any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him subject to the provisions of Chapter I of the Insurance Code. (Sec. 3, IC)

0. Minors can no longer enter into insurance contracts. The exception under the (Sec. 3) Insurance Code is no longer controlling because the age of majority is now 18 years (RA No. 6809). (Sundiang and Aquino, Reviewer on Commercial Law, 2009 Ed., pg. 90.)

0. Elements of Contract of Insurance: SPEAR

0. Scheme to distribute losses- such assumption of risk is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk.0. Payment of premium As consideration for the insurers promise, the insured makes a ratable contribution called premium, to a general insurance fund.0. Existence of insurable interest The insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable interest.

In general (except in life insurance policies), a person is deemed to have an insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss from its destruction or injury by the happening of the event insured against.

0. Assumption of Risk The insurer assumes that risk of loss for a consideration.0. Risk of loss The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated peril.

0. GR: A contract of insurance is a contract of indemnity.

XPN: The principle is not applicable to life and accident insurance where the result is death. Reason is that, life is not capable of pecuniary estimation.

0. Classes of Insurance:

0. Life Insurance0. Non-Life Insurance- (Property)1. Marine2. Fire3. Casualty0. Contracts of Suretyship or bonding0. Compulsory Motor Vehicle Liability Insurance (CMVLI)

0. An insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. (Violeta R. Lalican vs. The Insular Life Assurance Company Limited, G.R. No. 183526, August 25, 2009)

Note: The existence of insurable interest is a matter of public policy and is not susceptible to the principle of estoppel. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance (ibid.)

0. GR: A person is deemed to have an insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss from its destruction or injury by the happening of the event insured against.

XPN: To have an insurable interest in the life of a person, the expectation of benefit from the continued life of that person need not necessarily be of pecuniary nature. (De Leon, supra, pg. 83.)

0. Insurable interest in life insurance vs. insurable interest in property insurance.

INSURABLE INTEREST IN LIFEINSURABLE INTEREST IN PROPERTY

As to extentGR: Every person has an unlimited insurable interest in his own life. (De Leon, supra, pg. 85.)XPN: Where life insurance is taken out by a creditor on the life of the debtor, insurable interest is limited to the amount of debtLimited to the actual value of the property

When must insurable interest existMust exist at the time the policy takes effect and need not exist thereafter. (Sec. 19, Insurance Code.)GR: Must exist both at the time the policy takes effect and the time of loss, but need not exist in the period in between. (Sec. 19, ibid.)

XPN: Secs. 21-24; 25, ibid.

As to the beneficiarys interestThe beneficiary need not have insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured. (Sundiang, supra, pg. 97.)The beneficiary must have insurable interest over the thing insured. (Sundiang, supra, pg. 97.)

0. Does the insured have the right to change the beneficiary he designated?

GR: Yes. The insured shall have the right to change the beneficiary he designated in the policyXPN: If the insured expressly waived this right in the said policy.

Note: Under Sec. 64 of the Family Code, the innocent spouse is allowed to revoke the designation of the other spouse as irrevocable beneficiary after legal separation.

0. The insured cannot assign the policy if the designation of the beneficiary is irrevocable. The irrevocable beneficiary has a vested right. (Sundiang, supra, pg. 91.)

0. Double insurance exists where the same person is insured by several insurers separately, in respect to the same subject and interest. (Sec. 93, ibid.)

0. Requisites of double insurance: STRIP1. Subject matter is the same 1. Two or more insurers insuring separately1. Risk or peril insured against is the same1. Interest insured is the same1. Person insured is the same

0. Over-insurance- exists whenever the insured obtains a policy in an amount exceeding the value of his insurable interest. (Perez, supra, pg. 133.)

0. Distinctions between double insurance and over insurance?

DOUBLE INSURANCEOVER INSURANCE

There may be no over insurance as when the sum total of the amounts of the policies issued does not exceed the insurable interest of the insured.When the amount of the insurance is beyond the value of the insureds insurable interest.

Two or more insurers.There may be only one insurer, with whom the insured takes insurance beyond the value of his insurable interest.

0. Rules governing double insurance:

1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount which the insurers are severally liable under their respective contracts.

1. Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured.

1. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy.

1. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves.

1. Each insurer and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. (Sec. 94, ibid.)

0. Effect of non-disclosure of the existence of other insurances covering the subject matter of the insurance being applied for, if the applicant is required to do so: The insured cannot recover from the insurance because he is guilty of violation of warranty/ condition. 0. Instances wherein a contract of insurance may be rescinded?

1. Concealment2. Misrepresentation/ omission3. Breach of warranties

Concealment is a neglect to communicate that which a party knows and ought to communicate. (Sec. 26)

Requisites in concealment:

1. A party knows a fact which he neglects to communicate or disclose to the other party1. Such party concealing is duty bound to disclose such fact to the other1. Such party concealing makes no warranty as to the fact concealed1. The other party has no means of ascertaining the fact concealed1. The fact must be material

Test of materiality: It is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. (Sec. 31)Note: As long as the facts concealed are material, concealment, whether intentional or not, entitles the injured party to rescind. (Sec.27)

Test in ascertaining the existence of concealment: If the applicant is aware of the existence of some circumstances which he knows would probably influence the insurer in acting upon his application, good faith requires him to disclose that circumstance, though unasked.

Matters that need not be disclosed: GR: The parties are not bound to communicate information of the following matters: 0. Those which the other knows0. Those which, in the exercise of ordinary care, the other ought to know and of which, the former has no reason to suppose him ignorant0. Those of which the other waives communication0. Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material0. Those which relate to a risk excepted from the policy and which are not otherwise material;0. The nature or amount of the interest of one insured (except if he is not the owner of the property insured, Sec. 34).

XPN: In answer to inquiries of the other. (Sec. 30)

Note: Neither party is bound to communicate, even upon inquiry, information of his own judgment, because such would add nothing to the appraisal of the application. (Sec.35)

The parties are bound to know all the general causes which are open to his inquiry, equally with the other, and all general usages of trade. (Sec.32)

Matters that must be disclosed even in the absence of inquiry:

1. Those material to the contract1. Those which the other has no means of ascertaining1. Those as to which the party with the duty to communicate makes no warranty

Effects of concealment1. If there is concealment under Section 27, the remedy of the insurer is rescission since concealment vitiates the contract of insurance.1. The party claiming the existence of concealment must prove that there was knowledge of the fact concealed on the part of the party charged with concealment.1. Good faith is not a defense in concealment. Concealment, whether intentional or unintentional entitles the injured party to rescind the contract of insurance. (Sec. 27)1. The matter concealed need not be the cause of loss. (Sec.31)1. To be guilty of concealment, a party must have knowledge of the fact concealed at the time of the effectivity of the policy.

When should concealment take place in order that the policy may be avoided? At the time the contract is entered into and not afterwards. The duty of disclosure ends with the completion of the contract. Waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Failure to communicate information acquired after the effectivity of the policy will not be a ground to rescind the contract.

Reason: Information is no longer material as it will no longer influence the other party to enter into such contract.

Representation- is an oral or written statement of a fact or condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to assume the risk.

Representation may be made at the time of, or before, issuance of the policy. (Sec. 37). It may be altered or withdrawn before the insurance is effected. (Sec.41) Misrepresentation- is an affirmative defense. To avoid liability, the insurer has the duty to establish such a defense by satisfactory and convincing evidence. (Ng Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No. L- 30685, May 30, 1983. [See also sec.44 (when the facts fail to correspond to the assertions or stipulations.)]

Requisites misrepresentation:1. The insured stated a fact which is untrue;1. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead;1. Such fact in either case is material to the risk.

Note: A representation cannot qualify an express provision in a contract of insurance but it may qualify an implied warranty. (Sec.40)

How does concealment differ from misrepresentation? In concealment, the insured withholds the information of material facts from the insurer, whereas in misrepresentation, the insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract.

RESCISSION on the ground of misrepresentation: If there is misrepresentation, the injured party is entitled to rescind from the time when the representation becomes false.

The right to rescind must be exercised previous to the commencement of an action on the contract. (the action referred to is that to collect a claim on the contract). (Sec.48, par.1)

Warranties are statements or promises by the insured set forth in the policy itself or incorporated in it by proper reference, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment render the policy voidable by the insurer.

Effects of breach of warranty:1. Material

GR: Violation of material warranty or of material provision of a policy will entitle the other party to rescind the contract.

XPN: (with regard to promissory warranties)0. Loss occurs before the time of performance of the warranty;0. The performance becomes unlawful at the place of the contract; and0. Performance becomes impossible. (Sec.73)

1. Immaterial

GR: It will not avoid the policy.

XPN: When the policy expressly provides or declares that a violation thereof will avoid it.

For instance, an Other Insurance Clause which is a condition in the policy requiring the insured to inform the insurer of any other insurance coverage of the property. A violation of the clause by the insured will not constitute a breach unless there is an additional provision stating that the violation thereof will avoid the policy. (Sec. 75)

Effect of a breach of warranty without fraud: The policy is avoided only from the time of breach (Sec. 76) and the insured is entitled:1. To the return of the premium paid at a pro rata from the time of breach or if it occurs after the inception of the contract; or1. To all premiums if it is broken during the inception of the contract.

LIFE INSURANCE

1) Life insurance- is insurance on human lives and insurance appertaining thereto or connected therewith. (Sec. 179, Insurance Code.) It is made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. (Sec. 180, IC)

2) Under the Article 739 of the Civil Code, the following are prohibited designation of beneficiaries:1. Those made between persons who were guilty (finding of guilt in a civil case is sufficient) of adultery or concubinage at the time of donation1. Those made between persons found guilty of the same criminal offense, in consideration thereof1. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

Note: The designation of the above-enumerated persons is void but the policy is binding. The estate will get the proceeds. (Sundiang, supra, pg. 91.)

3) Extent of the creditors recovery from the insurance he procured upon the life of the debtor, if the latter dies: It is limited only to the extent of the amount of the debt at the time of debtors death and the cost of carrying the insurance on the debtors life.

4) The consent of the person insured is not essential to the validity of the policy. So long as it could be proved that the insured has an insurable interest at the inception of the policy, the insurance is valid even without such consent. (Sec. 10, Insurance Code.)

5) If the beneficiary willfully brought about the death of the insured:

GR: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice; accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance, if not otherwise disqualified. (Sec. 12, ibid.)

XPN:1. The beneficiary acted in self-defense;

1. The insureds death was not intentionally caused (e.g., thru accident);

1. Insanity of the beneficiary at the time he killed the insured.

6) Measure of indemnity under a policy of insurance upon life or health:

GR: The measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.

XPN: The interest of a person insured is susceptible of exact pecuniary measurement. (Sec. 183, IC)

7) Insurer is liable in case of suicide:

0. The suicide is committed after the policy has been in force for a period of 2 years from the date of its issue or of its last reinstatement.

0. The suicide is committed within a shorter period provided in the policy.

0. The suicide is committed in the state of insanity regardless of the date of commission, unless suicide is an excepted risk. (Sec. 180-A, IC.)

PROPERTY

1) Insurable interest in property: Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that contemplated peril might directly damnify the insured, is insurable interest. (Sec. 13, Insurance Code.) 2) What consists an insurable interest in property:

1. An existing interest The existing interest in the property may be legal or equitable title or

Examples of insurable interest arising from legal title:1. Trustee, as in the case of the seller of property not yet delivered;1. Mortgagor of the property mortgaged;1. Lessor of the property leased (De Leon, supra, pg. 107-108.)

Examples of insurable interest arising from equitable title:0. Purchaser of property before delivery or before he has performed the conditions of the sale0. Mortgagee of property mortgaged;0. Mortgagor, after foreclosure but before the expiration of the period within which redemption is allowed (De Leon, supra, pg. 108.)

1. An inchoate interest founded on an existing interest or

Example: A stockholder has an inchoate interest in the property of the corporation of which he is a stockholder, which is founded on an existing interest arising from his ownership of shares in the corporation. (De Leon, supra, pg. 108.)

1. An expectancy coupled with an existing interest in that out of which the expectancy arises.

3) The measure of insurable interest in property: The extent to which the insured might be damnified by loss or injury thereof. (Sec. 17). Insurable interest in property does not necessarily imply a property interest in, or lien upon, or possession of, the subject matter of the insurance, and neither title nor a beneficial interest is requisite to the existence thereof. It is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. (Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8, 2006.)

4) A change of interest that suspends an insurance contract must be an absolute one.

5) Effect of change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance:

GR: A change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person. (Sec. 20 & Sec.58, ibid.)

Note: Change of interest contemplated by law is an absolute transfer of the insureds entire interest in the property insured to one not previously interested or insured. (Perez, supra, pg. 41.)

XPNs:

0. When there is a prohibition against alienation or change of interest without the consent of the insurer in which case the policy is not merely suspended but avoided. (ibid., citing Curtis vs. Girard Fire and Marine Ins., 11 SE 3, 190 Ga. 954.)

0. In life, accident, and health insurance. (Sec. 20, Insurance Code.)

0. A change of interest in a thing insured, after the occurrence of an injury which results in a loss does NOT affect the right of the insured to indemnity for loss. (Sec. 21, ibid.)

0. A change of interest in one or more distinct things, separately insured by one policy does NOT avoid the insurance as to the others. (Sec. 22, ibid.)

0. A change of interest by will or succession, on the death of the insured, does NOT avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured. (Sec. 23, ibid.)

0. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others does NOT avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured. (Sec. 24, ibid.)

0. When the policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57, ibid.)

MARINE INSURANCE

1) Marine Insurance now includes, not only risks connected with marine navigation, but which are otherwise connected therewith such as insurance of aircraft, goods while being packed or assembled, injury to passengers, precious stones, jewels, jewelry whether in the course of transportation or not. (Perez, Quizzer and Reviewer on Commercial Laws, Vol. 1, 2010 ed.)

2) GR: In the usual form of a marine policy, the risks insured against are only perils of the sea.

XPN: When the insurance is an all risk policy and thus covers even perils of the ship.

XPN to XPN: When the risks are expressly excepted by the all risk policy.

Note: The burden rests on the insurer to prove that the loss is caused by a risk that is excluded (Sundiang, supra. Pg. 136, citing Go Tiaco Y Hermanos vs. Union Insurance Society of Canton, 40 Phil. 40;Filipino Merchants Ins. Co. vs. CA, 179 SCRA 638; and Choa Tiek)

3) Extent of insurable interest of the:

1. Ship owner0. Over the value of the vessel, even when it has been chartered by one who covenants to pay him its value in case of loss. In such a case, the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer. (Sec. 100, IC.)0. If hypothecated by a bottomry loan, the insurable interest is only the excess of the value of the vessel over the amount secured by bottomry. (Sec. 101, IC)0. He also has an insurable interest on expected freightage. (Sec. 103, IC)

1. Cargo owner over the cargo and expected profits. (Sec. 105, IC)

1. Charterer over the vessel, to the extent that he is liable to be damnified by its loss. (Sec. 106, IC)

1. Creditor/lender over the amount of the loan.

4) Loan on bottomry- loan in which under any condition whatever, the repayment of the sum loaned, and of the premium stipulated, depends upon the safe arrival in port of the goods on which it is made or of the price they may receive in case of accident. (Art. 719, Code of Commerce.)

5) Loan on respondentia- basically the same as loan on bottomry. The only distinction is, a loan on bottomry involves a vessel as a security, while a respondentia has cargo as its security. (Perez, supra, pg. 153.)

6) Concealment in marine insurance is the failure to disclose any material fact or circumstance which in fact or law is within, or which ought to be within the knowledge of one party and of which the other has no actual or presumptive knowledge. (De Leon, supra, pg. 328.)

Note: Information of the belief or expectation of a third person, in reference to a material fact, is material. (Sec. 108, IC)

7) The insured is presumed to have knowledge of a prior loss at the time of insuring, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication. (Sec. 109, IC). This presumption is rebuttable.

8) The following matters, when concealed, do not vitiate the entire insurance contract, but merely exonerates the insurer from a loss resulting from the risk concealed:

1. National character of the insured;1. The liability of the thing insured to capture and detention;1. The liability to seizure from breach of foreign laws of trade;1. The want of necessary documents; and1. The use of false and simulated papers. (Sec. 110, IC)

9) Distinctions on concealment in marine insurance and other property insurance?

MARINE INSURANCEOTHER PROPERTY INSURANCE

The information or the belief or expectation of 3rd persons in reference to a material fact is material and must be communicated.The information or belief of a 3rd party is not material and need not be communicated, unless it proceeds from an agent of the insured whose duty is to give information.

The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed.Concealment of any material fact will vitiate the entire contract, whether or not the loss results from the risk concealed.

10) Effect of falsity of a representation by the insured:Qualify.

0. Promissory Representation: If a representation by the insured is intentionally false in any material respect or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract. (Sec. 111, IC)

0. Representation of Expectation: The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance. (Sec. 112, IC)

11) Implied warranties in marine insurance: SINAI

1. Seaworthiness. (Sec. 113 to 119, IC)A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. (Sec. 114, IC)

1. Non-engagement from Illegal venture.

1. Warranty of Neutrality The ship will carry the requisite documents too show the nationality or neutrality of the ship or its cargo and will not carry any documents that cast reasonable suspicion on it if the nationality or neutrality of the ship or its cargo is expressly warranted. (Sec. 120, IC)

1. Non-deviation from the Agreed voyage. (Secs. 123, 124, 125, IC)

1. Presence of Insurable interest

12) Scope of the seaworthiness of a vessel: A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage. (Sec. 116, IC.)

13) When is the warranty of seaworthiness complied with?

A: GR: It is complied with if the ship is seaworthy at the time of the commencement of the risk. (Sec. 115, IC)

XPN:1. In the case of time policy- the ship must be seaworthy at the commencement of every voyage she may undertake. (Sec. 115, [a], IC)

1. In the case of cargo policy- each vessel upon which cargo is shipped or transshipped must be seaworthy at the commencement of each particular voyage. (Sec. 115, [b], IC)

1. In the case of voyage policy contemplating a voyage in different stages- the ship must be seaworthy at the commencement of each portion of the voyage. (Sec. 117, IC)

14) Effect of the admission of seaworthiness by the insurer: If the policy provides that the seaworthiness of the vessel as between insured and insurer is admitted, the issue of seaworthiness cannot be raised by the insurer without showing concealment or misrepresentation by the insured. (Phil. American General Insurance Co. v. CA, G.R. No. 116940, June 11, 1997.)

NOTE: Seaworthiness admitted by the insurer when1. The warranty of seaworthiness is to be taken as fulfilled; or1. The risk of unseaworthiness is assumed by the insurer. (ibid.)

15) Effect if unseaworthiness is unknown to the owner of the cargo: It is immaterial in ordinary marine insurance and may not be used by him as a defense in order to recover on the marine insurance policy. It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods. (Roque v. IAC, G.R. No. L- 66935, Nov. 11, 1985)

16) Effect when the ship becomes unseaworthy during the voyage: An unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom. (Sec. 118., IC.)

17) Deviation- is a departure from the course of the voyage insured, mentioned in Sec. 121 and Sec. 122, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec. 123, IC)

A deviation is proper:0. When caused by circumstances over which neither the master nor the owner of the ship has any control;0. When necessary to comply with a warranty, or to avoid a peril, whether or not peril is insured against;0. When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or0. When made in good faith, for the purpose of saving human life or relieving another vessel in distress. (Sec. 124, IC.)

Note: In improper deviation, an insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation. (Sec. 126, IC.)

18) Kinds of losses:

1. Total, which may be:

ACTUAL TOTAL LOSSCONSTRUCTIVE TOTAL LOSS

It e