1.

A letter of credit is any arrangement, however named or described, whereby a

bank, acting upon the request of its client or on its own behalf, agrees to pay
another against proof showing that the parties have fulfilled their respective
prestations under the originating contract underlying the letter of credit.
 FALSE. Under the Doctrine of Independence, the fulfilment or non-
fulfilment of the originating contract underlying the L/C will not affect the
obligation of the issuing bank under the L/C.
2. A commercial or import letter of credit is one where the main contract underlying
the letter of credit relates to a loan transaction.
 FALSE. A commercial L/C involves the payment of money under a
contract of sale. It is payable upon the presentation by the seller-beneficiary
of documents which show that he has taken affirmative steps to comply
with the sales agreement.
3. A standby letter of credit is a security arrangement. It is not the same as guaranty
agreement but exactly the same as a surety agreement because the obligation of
the issuing bank and the applicant of the letter of credit is solidary.
 FALSE [I think it is not exactly the same as a surety agreement because although
the nature of obligation in both cases is solidary, a L/C is an independent/principal
contract, whereas a surety agreement is an accessory contract. Also, under the
General Banking Law, a bank cannot act as a surety]
4. A letter of credit is a commercial transaction. As such, it is governed by the Code
of Commerce. The Code of Commerce, nevertheless, provides that in the absence
of applicable laws governing commercial transactions, customs and usages shall
be made to apply. Letter of Credit is thus now primarily governed by the Uniform
Customs and Practices for Documentary Credit, a codification of customs and
usages governing letter of credit prepared by the International…
 FALSE [Hindi ko alam kung bakit false. Pero feeling ko, primarily governed by
Code of Commerce pa rin. The observance of UCP is only justified because of
Section 2 of the Code of Commerce which provides that in the absence of any
particular provision in the code of commerce, commercial transactions shall be
governed by usage and customs generally observed.]
5. A letter of credit is not a negotiable instrument because it does not satisfy all the
elements of negotiability under Section 1 of the NIL. However, the draft that may
be issued under a L/C as a mode of payment to the beneficiary may be considered
a negotiable instrument as the draft conforms to all the elements of negotiability
under the NIL.
 TRUE
6. After due payment to the beneficiary, the issuing bank is entitled to
reimbursement from the applicant of L/C as a matter of right. Reimbursement
 includes debiting the rightful amount from the bank account of the application, if
any, even is such deduction is against the will of the applicant.
 TRUE
7. The liability of the negotiating bank and the contributing bank is the same.
 TRUE
8. In a standby L/C issued to secure a loan obligation, any payment by the debtor to
the creditor should not be deducted from the total obligation of the issuing bank
to the beneficiary under the L/C. the issuing bank. After payment of the full
amount, is entitled to full reimbursement from the debtor. But the debtor may
recover excess payment from the creditor to prevent unjust enrichment.
 TRUE
9. The fraud exception principle is an exception to the doctrine of independence.
Under the fraud exception principle, the beneficiary may be enjoined from
collecting on the L/C if the following elements are present: a) there is fraud on the
part of the beneficiary; b) fraud must be in relation to the independent purpose or
character of the credit; c) unless the beneficiary is restrained, the applicant shall
suffer grave and irreparable injury. For the fraud exception principle to serve as
an exception to the doctrine of independence, the fraud need not relate to the
performance of the main contract but is employed in relation to the independent
purpose of character of the credit.
 TRUE
10. Under this doctrine, the documents that the beneficiary should submit to the
issuing bank or confirming bank must strictly conform to the documents
stipulated. If there is discrepancy, the issuing bank is not liable to pay unless the
beneficiary waives the discrepancy.
 TRUE [N.B: Beneficiary ba ang dapat mag-waive ng discrepancy? Hindi ba dapat
si applicant kasi siya ang magbabayad?]
11. The non-issuance of a commercial L/C when required by the seller from the buyer
prevents the consummation of the contract of sale or at the very least is a
resolutory condition that extinguishes the contract of sale.
 FALSE. The L/C is independent from the contract of sale. The failure of the
buyer to open the appropriate L/C did not prevent the birth of that
contract, and neither did such failure extinguish that contract. The opening
of the L/C in favor of the seller was an obligation of the buyer and the
performance of that obligation by buyer was a condition of enforcement of
the reciprocal obligation of seller to ship the subject matter of the contract
to buyer. But the contract itself between the buyer and the seller had already
sprung into legal existence and was enforceable.
12. The withholding by the warehouseman of delivery of goods to the endorsee of the
warehouse receipt who acquired the goods from the depositor in good faith and
for value on the ground of non-payment of the purchase price of goods is valid.
 FALSE. Non-payment by the original depositor of the purchase price will
not render the further negotiation of the receipt invalid.
13. The warehouseman’s lien may be lost in case of unjustified refusal to deliver the
goods but the warehouseman may still enforce payment of lawful storage charges
through judicial remedies.
 TRUE
14. The failure of the entrustee to perform all of its obligation under the trust receipt
agreement constitutes criminal liability.
 FALSE. Not all obligations under the TR will constitute criminal liability.
The entrustee will be held criminally liable only if he fails to turn over to
the entruster the proceeds of the sale of goods, documents, or instrument
(GDI) to the extent of the amount owing to it OR to turn over the GDI itself
if not sold or otherwise disposed of in accordance with the terms and
conditions specified in the TR.
15. The loss of the goods subject of the TR due to force majeure extinguishes the civil
liability of the entrustee up to the extent of the amount owing to the entruster.
 FALSE. Loss of the GDI which is the subject of a TR, pending their
disposition, irrespective of whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish his obligation to the
entruster for the value thereof. [It does not extinguish civil liability.]
16. The return of the goods extinguishes the criminal liability but not the civil liability
of the entrustee unless the goods are sold and the proceeds thereof applied in full
payment of the loan.
 TRUE
17. The cancellation of the trust and repossession of the goods by the entruster in case
of default by the entrustee extinguishes both the criminal and civil liabilities of the
entrustee.
 FALSE. Repossession of the goods will extinguish only the criminal liability
because repossession of the goods by the Entruster cannot be considered as
payment. Payment would legally result only after the entruster has
foreclosed on the securities, sold the same and applied the proceeds thereof
to the entrustee’s obligation.
18. A civil action for the collection of the loan may be instituted independently of the
criminal action for violation of the trust receipts law despite the failure of entruster
to make a reservation in the criminal action to file the appropriate civil action
 TRUE
19. A TR is considered a simple loan despite the label if the entrustee became the
owner of the goods using the loan extended by the entruster to finance the
acquisition of the goods.
 FALSE. It is not considered as a simple loan because it is the entruster who
financed the acquisition of the goods. If the entrustee became the owner of
the goods using the loan extended by the entruster, it is considered a TR
transaction.
20. A TR is considered a simple loan despite the label if the goods subject of the TR
are not intended for sale or resale or to manufacture items not intended for sale or
resale.
 TRUE
21. D owns 100 sacks of rice which he sold to B. D obtained a loan from C secured by
the proceeds of sale of rice from B which D agrees to hold in trust for C. D and C
properly denominate their transaction as one of TR.
 FALSE. [The sale of goods by a person in the business of selling goods, for profit,
who at the outset of the transaction, has as against the buyer, general property
rights in such goods, or who sells goods to the buyer on credit, retaining title or
other interest as security for the payment of the purchase price, does not constitute
as trust receipt transaction.]
22. The real owner of the goods subject of TR is the _____________ the law provides
the he has absolute title to the goods.
 FALSE [The real owner of the articles subject of the TR is the entrustee who binds
himself to hold the designated GDI. The entruster merely holds a security interest.
If under the trust receipt, the bank is made to appear as the owner, it was but an
artificial expedient, more of legal fiction than fact, for if it were really so, it could
dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with purpose of the trust receipt of giving a stronger security for the
loan obtained by the importer.]
23. The entrustee cannot mortgage the goods subject of TR because the entrustee is
not the absolute owner of the property mortgaged nor has free disposal thereof.
However, the buyer during the foreclosure sale is considered an innocent
purchaser for value whose interest over the goods under TR is superior than the
entrsuter.
 FALSE. The inclusion of goods under trust receipt transaction in a
mortgage is void. Consequently, the ensuing foreclosure sale is likewise
null and void.
24. The security interest of the entruster over the goods under TR is superior than the
monetary claims of the laborers against entrustee corporation.
 TRUE
25. Compromise agreement between the entruster and the entrustee to convert the TR
into a term loan prevents the rise of criminal liability on the part of the entrustee
regardless of the date of the execution of the compromise agreement.
 FALSE. To extinguish criminal liability, compromise by the parties must be
made before the filing of information in court.
26. The risk of loss of goods, documents, or instruments in a TR is borne by the
entruster because the principle of res perit domino does not apply against the
entrustee.
 FALSE. Risk of loss is borne by the entrustee. If under a trust receipt
transaction, the entruster is made to appear as the owner, it was but an
artificial expedient, more of legal fiction than fact.
27. If the violation of the TR or the offense is committed by a corporation, the criminal
liability shall be impose upon all directors, officers, employees who authorized the
transaction.
 TRUE
28. The director or officer of the corporation or an agent who signed the TR inn behalf
of the corporation shall be criminally liable but not civilly unless he assumes
personal liability.
 TRUE
29. The BSP is considered the lender of last resort because the public may obtain
emergency loan from BSP in case of insolvency of banks.
 FALSE [I think it is because BSP grants loans only to banks, and not to the public
in general?]
30. Mandamus will not lie to compel the BSP to actually prosecute for violation of
banking laws, rules, and regulations. It can only conduct its own investigation and
if it finds it warranted, refer the matter to the department of justice.
 TRUE
31. Whenever on the basis of the report of the appropriate supervising and examining
department, the MB finds that a bank or quasi-bank is in a temporary state of
inability or unwillingness to maintain a condition of liquidity adequate to protect
its depositors and creditors, the MB may appoint a conservator to take charge of
the assets, liabilities, and management thereof.
 TRUE
32. The MB may appoint a receiver if the MB finds that a bank or quasi-bank cannot
continue business without involving imminent losses to its depositors and
creditors.
 FALSE. It must be “probable” losses, not imminent.
33. Once the bank is placed under receivership, its officers are no longer authorized
to transact business in connection with bank’s assets and properties.
 TRUE
34. The receiver that BSP should appoint to rehabilitate a bank in financial distress is
the PDIC.
 FALSE [Hindi ko alam bakit false ito. Dapat TRUE.]
35. The propriety of the act of BSP in imposing sanctions against banks for violation
of banking laws, rules, and regulations is not proper subject for a petition for
declaratory relief.
 TRUE
36. The remedy of a bank to assail the resolution of BSP ordering the closure of a bank
is a petition for review under Rule 43 of the Rules of Court because BSP is a quasi-
judicial government agency.
 FALSE. The remedy of a bank is to file a Petition for Certiorari under Rule
65.
37. All claims by or against the insolvent bank should be filed in the liquidation
proceedings.
 FALSE. Only the claims against the bank are filed in the liquidation
proceedings. Claims by the bank are filed in regular courts.
38. Once liquidation proceedings have been initiated against a closed bank, the
majority stockholders of the bank can no longer file a separate action to assail the
order of closure. Instead, issues on the validity of closure should be raised as an
affirmative defense in the opposition to the petition for assistance in liquidation.
 TRUE
39. Notes and coins called in for replacement shall remain legal tender for a period of
one year from date of call and during the following year or such longer period as
the MB may determine.
 FALSE. Notes and coins called in for replacement shall remain legal tender
for a period of one year from the date of call. After that period, they shall
cease to be legal tender during the following year or for such longer period
as MB may determine.
40. Banks may accept funds for safekeeping. Information about these funds is
confidential under RA 1405.
 FALSE. Funds for safekeeping or that under a contract of strict deposit is
not covered by RA 1405. It only covers those which the bank may use and
utilize in authorized loans.
41. An entity that accepts deposits from the public and uses these funds to grant loans
to clients is engage in banking even though the funds received from the public are
documented as deposits for future subscription.
 TRUE
42. An expanded commercial bank can invest in the equity of allied and non-allied
undertakings.
 TRUE
 43. The minimum capital adequacy ratio of commercial banks is 10(x) of its risk assets.
 TRUE
44. Non-compliance with SBL and DOSRI rules and regulations renders the
transaction void because these banking regulations are mandatory in nature.
 FALSE. It does not make the transaction void but only renders the
responsible officers and directors criminally liable.
45. The redemption period in case of extra-judicial foreclosure of REM conducted by
banks is fixed at 3 months from date of foreclosure sale or registration of the sale
whichever comes earlier regardless of the person of the mortgagor.
 FALSE. The mortgagor must be a juridical person.
46. Foreign currency and Philippine currency deposits may be looked into if there is
a court order as long as the deposits are the subject matter of litigation.
 FALSE. Foreign currency deposits are not subject to court order except for
violation of the anti-money laundering law. It cannot be inquired or looked
into unless the depositor has given his written consent.

ESSAY:
Juan Dela Cruz is a prominent member of the Philippine House of Representatives.
Congress has earmarked 100m of public funds as his Countrywide Development Fund
which Congressman Dela Cruz may tap to finance carious accredited public projects.
P10m of these funds were donated to a foundation whose purposes under its AOI make
the foundation eligible to receive the grant. It turns out that the foundation is spurious
and the P10m allocation instead of being disbursed for the intended recipients was
deposited with a bank and thereafter withdrawn in part by the President of the
foundation who would then share ½ thereof with Congressman Dela Cruz.
1. May the AMLC obtain a bank inquiry order and freeze order from the
competent court ex-parte?
 YES. The AMLC may file an ex-parte petition for the issuance of a bank
inquiry order and freeze order to prevent unwarranted dissipation or
closure of the account.
2. Can the AMLC inquire into the deposit account of the foundation even without
a bank inquiry order?
 NO. The AMLC can only inquire into a deposit account without court
order if the deposit is related to hijacking, kidnapping for ransom,
murder, destructive arson, violation of the dangerous drugs act, and
terrorism or conspiracy to commit terrorism.