2018 REGINA IUSTITIAE SORORITY
BAR OPERATIONS
COMMERCIAL LAW PURPLE TIPS ANNEX
I. CORPORATION LAW
Q1. What are the liabilities of banks?
100%
50%
MWSS v CA
GEMPESAW v. CA
Personal checks, supervise in
Failure to establish an
printing, provide adequate
accounting system, violation of
safety measures
internal banking rules, 2nd
requirement requires approval
of bank manager
ILUSORIO v. CA
ASSOCIATED BANK v. CA
Entrusted to secretary, should
Payment made to unauthorized
check personally, do not trust
drawee bank
all transactions
SECURITY BANK v. CA
Report loss to the bank and
police
40%
BANK OF AMERICA v. PHIL.
RACING
Misplacement of entries
CONSOLIDATED BANK v. CA
Loss of deposit slip
BANK OF COMMERCE
Deposit slip fraudulently filed
up
Q2. What are the residual powers of stockholders?
Section
Topic
Voting
Notes
Requirements
29
Fill board
majority SH/M Hold over
vacancy
principle
34
Disloyalty of
2/3 SH/M
directors
Appraisal
Right
X
X
COMPUTATION
Corporate Nationality
Summary of Control Test and Application
Test
Application
Applies in situations when there is no
Old DOJ-SEC
doubt as to Filipino ownership and/or
Rule
there are no non-voting shares
How Applied
When a corporation is 60% owned by a Filipino, or a
Filipino corporation whose stocks are 60% owned by a
Filipino, it is 100% Filipino. (60% = 100%)
When a corporation is owned partially by a corporation
whose stocks are below the 60% threshold, then you
must compute for Filipino ownership. The combined
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percentages of Filipino ownership must be equivalent
to 60%.
Gamboa v.
Apples when there are voting and nonTeves & the voting shares, thus needing a test to
new SEC Rule determine the beneficial ownership
The 60% rule must apply to voting shares (control
test), and also 60% to all shares, whether voting or nonvoting (beneficial interest test)
When there is 60-40 Filipino ownership
First, apply the control test and beneficial ownership
Narra Nickel as determined by the other two tests, yet
test in Gamboa.
there is doubt as to the legitimacy of the
Mining
Then, apply the Grandfather Rule.
60% allegedly owned by Filipinos
*Election of Board of Directors
Cumulative Voting
COLE FORMULA
HONDT TABLE FORMULA
STEPS:
1. Create a table, with the X-axis representing the number of directors that will be voted for, & the Y-axis
containing the competing Blocs.
2. Use the ff. formula in order to compute for the contents of the table:
(No. of stockholders in the Bloc x no. of Directors to be Elected)
-------------------------------------------------------------------------------------(no. as specified in the Y-axis)
3. Encircle the 5 largest numbers (representing the number of directors to be elected); the smallest circled
entry in the top column above is at column 3, which means that Bloc I can guarantee itself 3 seats.
4. The smallest circled entry for Bloc II is in column 2, which means Bloc II can get 2 seats.
5. BUT Bloc I can safely nominate 4 candidates, because the first un-circled entry in the top row, 82.5, is
LARGER than the first un-circled entry in the bottom row, 56 2/3.
6. Bloc I can also safely nominate 5 candidates, because its first un-circled entry, 82.5, is larger than the
second un-circled entry of Bloc II, which is 42.5.
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7. GENERAL RULE: A bloc can safely vote for n directors if the nth entry in that bloc’s row is greater
than the first un-circled entry in the competing bloc’s row.
GLASSER ITIRETATIVE PROCEDURE
Liquidation
Methods of Liquidation
a. Board of Directors/Trustees Pursuing Liquidation
b. Liquidation Pursued thru a Court-Appointed Receiver
c. Liquidation Pursued Through a Trustee
*Declaration of Stocks
Sec. 43. Power to Declare Dividends. The board of directors of a stock corporation may declare dividends out of
the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on
the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be
withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no
stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called for the purpose.
Corporate Liquidation (Right to proportionate share of remaining assets upon dissolution)
Section 122. Corporate liquidation. - Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other
manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would
have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.
At any time during said three (3) years, the corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and
after any such conveyance by the corporation of its property in trust for the benefit of its stockholders,
members, creditors and others in interest, all interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other
persons in interest.
Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of
its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
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NOTE: In the liquidation of a corporation, after the payment of all corporate debts and liabilities, the remaining
assets, if any, must be distributed to the stockholders in proportion to their interests in the corporation. The
share of each stockholder in the assets upon liquidation is what is known as liquidating dividend.
*Sale of Assets
Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations
and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill,
upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other
instruments for the payment of money or other property or consideration, as its board of directors or trustees
may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, or in case of non-stock corporation, by the vote of at least to two-thirds (2/3) of the
members, in a stockholder's or member's meeting duly called for the purpose.
*Subscription and Paid-up Capital
Minimum subscription:
The law requires that the total capital stock to be subscribed at the time of incorporation should at least be
twenty five percent [25%] of the authorized capital stock of the corporation being organized.
Minimum paid-up capital:
The paid-up capital of a Philippine corporation must not be less than PhP5,000.00. Thus, it is required that at
least twenty five percent [25%] of the subscribed capital stock should be fully paid up but the amount of which
should not be less than said PhP5,000.00.
Corporation, limitation on foreign equity holdings:
The equity requirements should be strictly observed and followed in certain areas of business where the
constitution and the laws of the Philippines impose limitation on foreign holdings.
Generally, however, foreigners may invest as much as one hundred percent [100%] equity in areas not covered
by the Negative List under the Foreign Investments Act.
Reserved to Philippine nationals by the Constitution of the Philippines:
[a] exploitation of natural resources [100% domestic equity]
[b] operation of public utilities [60% domestic equity]
[c] mass media [100% domestic equity]
[d] educational institution [70% domestic equity]
[e] labor recruitment [65% dom. equity]
[f] retail trade [100% dom. equity]
[g] rural banking [100% dom. equity]
Regulated by law
[a] defense-related activities
[b] manufacture and distribution of dangerous drugs
[c] nightclubs, bathhouse and similar activities
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[d] small and medium-sized domestic market enterprises with paid-in equity capital of less than US$500,000.00
[e] export enterprises utilizing new materials from depleting natural resources with paid-in equity of less than
US$500,000.00
Board of Directors, qualifications:
The members of the Board of a Philippine corporation must possess the following qualifications:
[1] owner or holder of at least one [1] share of capital stock;
[2] majority of the members must be residents of the Philippines;
[3] they must be elected by the owners/holders of at least the majority of the outstanding capital stock.
Board of Directors, corporate acts:
For validity and legality of the corporate acts of the Board of Directors, a meeting should be fully convened and
the same must be attended by at least a majority of its members. Any and all corporate acts must be duly
approved by a majority of the members of the Board except when otherwise provided by Philippine laws or by
the By-laws of the corporation.
Board of Directors, self-dealing rule:
A self-dealing transaction of a member of the Board of Directors becomes voidable except under the following
circumstances:
[1] When the presence of such director in the Board meeting is not necessary to constitute a quorum;
[2] When his vote is not necessary for the approval of the contract or transaction
[3] When the terms of the contract are fair and reasonable and had been previously approved by the Board of
Directors.
II. INSURANCE
Q1. What is Overinsurrance?
Premiums to be returned where there is over-insurance by several insurers shall be proportioned to the
amount by which aggregate sum insured in all policies exceeds the insurable value of the thing at risk. (De Leon
book)
Example:
INSURER
X
AMOUNT
1,200,00
PREMIUMS PAID
24,000
Y
600,OOO
1,800,000
12,000
36,000
Over-insurance of P300k
• X’s obligation to return
o 300,000/1,800,000 = 1/6
o 1/6 (24,000) = 4,000
• Y’s obligation to return
o 1/6 (12,000) = 2,000
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Q2. What is marine insurance?
In Marine Insurance, if the amount of the insurance is not equal to the amount of the subject to be insured
then, the insured and the insurer becomes co-insurers. The marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured
in the property insured. (De Leon book)
Example:
Amount of vessel = 10,000
Amount of insurance = 5,000
Vessel suffered 1M worth of damages
How much can the insured collect? 500,000
III. TRANSPORTATION
Q1. How is the loss of earning capacity computed?
A: Loss of earning capacity is based on the number of years remaining in the person’s expected life span. This is
the basis of the damages that shall be computed:
a. Net earning capacity = life expectancy x [Gross Annual income – living expenses (50% of grosss annual
income)]
b. Where life expectancy = 2/3 (80 – age of deceased)
IV. NEGOTIABLE INSTRUMENTS LAW
Q1: What are the effects of crossing a check?
A: The effects are:
a. It may not be encashed but only be deposited in the bank;
b. The check may be negotiated only once—to one who has an account with a bank;
c. And the act of crossing the check serves as warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. (Bataan Cigar v. CA)
Q2: What is Shelter Principle?
A: This principle is what is embodied by Sec. 58, which provides that “when subject to original defense. In the
hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses
as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in
respect of all parties prior to the latter.”
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IV. SPECIAL LAWS IN TRANSPORTATION
Q1: If a creditor insures the life of the debtor and the debtor pays before he died, will the creditor
still be able to claim from the insurance company?
A: No. Section 10 (c) of the Insurance Code provides that a person has an insurable interest to the life of any
person under a legal obligation to him for the payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance. Payment is a mode of extinguishing an obligation.
Thus, after a debtor has paid his dues, there is no longer a legal obligation to the creditor. The creditor loses an
insurable interest to the debtor’s life and this bars recovery from the insurance.
Q2: What if it is the employer who insured the life of an employee, will the employer still be able to
claim if the employee resigned?
A: No. No. Section 10 (c) of the Insurance Code provides that a person has an insurable interest to the life of any
person under a legal obligation to him for the payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance. The legal obligation of the employer stems from the
employer-employee relationship. If the employee resigns, the employer-employee relationship will no longer
exist. Thus, after a there is no longer a legal obligation to the creditor. The employer loses an insurable interest
to the employee’s life and this bars recovery from the insurance.
Q3: What is Pari en Passu?
A: All are considered equal before the liquidation proceeding. (Financial Rehabilitation and Insolvency Act of
2010)
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Carriage of Goods by Sea Act
A. Origin/Purpose
Only the carrier’s liability is extinguished if no suit
is filed within 1 year by shipper, consignee, or
COGSA is a US law which was adopted by the RP as insurer. The prescriptive period does not apply to
C.A. No. 65 in 1936, to govern contracts for the suits filed by insured against insurer.
carriage of goods by sea to and land from the RP in
foreign trade.
E. Liability (Sec. 4[5]):
B. Primary Law
1. Maximum of $500 per package or, if not shipped
in packages, per customary freight unit (e.g. metric
COGSA is governing law, if stated in bill of lading or ton of bulk shipment). 2. Nature and value of goods
similar document that contract of carriage is subject may be declared by shipper and inserted in bill of
to its provisions (Sec. 13). Note effect on Art. 1753 of lading; declaration is prima facie evidence and not
NCC.
conclusive on carrier. 3. Shipper and carrier may
agree on another maximum amount, but not more
C. Bill of Lading
than amount of damage actually sustained.
Prima facie evidence of the receipt by the carrier of When the packages are shipped in a container
the goods as described therein. (Sec. 3[4]). Contrary supplied by carrier and the number of such units is
evidence may be presented.
stated in the bill of lading, each unit and not the
container constitute the “package.”
D. Prescriptive Period (Sec. 3[6]).
F. No liability (Sec. 4[6]):
1. If loss or damage is apparent or external, notice in
writing must be given to carrier or agent at time of 1. If nature or value of goods knowingly and
removal of goods by person entitled to delivery.
fraudulently misstated by shipper. 2. If damage
2. If loss or damage is not apparent, within 3 days of resulted from dangerous nature of shipment loaded
delivery.
without consent of carrier. 3. If unseaworthiness not
3. If no notice is given, there is prima facie evidence due to negligence of carrier. 4. If deviation was to
of delivery of goods as described in bill of lading.
save life or property at sea
4. Notice is not needed if goods jointly surveyed or
inspected at time of their receipt
5. Whether notice of loss/damage is given or not, suit
must be filed within 1 year after delivery of when
goods should have been delivered, otherwise,
prescribed.
6. If misdelivery, prescriptive period for suit is 10
years for breach of written contract or 4 years for
quasi-delict.
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Warsaw Convention
A. Origin/ Purpose
Signed first by 30 countries in October 1929 to
establish uniform system of rules for international air
transportation of persons, baggage, or goods. RP
concurred in 1950.
B. Liability of Carrier (Arts. 17-21):
1. Death or injury happening on board aircraft or
during embarking/disembarking. 2. Destruction, loss,
or damage to checked baggage or goods while in the
charge of the carrier, whether on board aircraft or in
airport. 3. Damage occasioned by delay.
E. Prescription Period (Arts. 26 & 29)
1. In case of damage, written complaint within 3
days from receipt of baggage, and 7 days from
receipt of goods.
2. In case of delay, 14 days from delivery of
goods/baggage.
3. No action lies if complaint beyond period, unless
there is fraud.
4. Action must be filed within 2 years from date of
arrival, or when ought to arrive, or when
transportation stopped.
F. Defendants (Art. 30):
Defense: Exercise of extraordinary diligence;
impossibility to prevent damage; contributory 1. In case of successive carriers, the carrier in which
negligence.
the accident or delay occurred, unless, by express
agreement first carrier assumed liability for entire
C. Excluded:
journey.
2. As regards baggage or goods, passenger/consignor
Under WC, to be prosecuted as quasi-delict or breach may sue against first carrier; passenger/consignee
of contract under New Civil Code: refusal to bard, against last carrier; or against carrier in which
bumping off, downgrading, disrespect, abusive and destruction, loss, or damage occurred; all carriers
jointly and severally liable.
insulting language, etc.
D. Limited Liability (Arts. 22-25):
1. 125,000F per passenger, unless higher limit is
agreed upon.
2. 250F per kilo of checked baggage/good unless
declaration of higher value and added payment made.
3. 5,000F per handcarried baggage.
Condition: no willful misconduct
G. Jurisdiction (Art. 28):
Plaintiff has option to file for damages at: 1.
Domicile of carrier
2. Principle place of business of carrier
3. Where carrier has business through which
contract made
4. Place of destination
Stipulation to lower limit or to exempt from liability
is void.
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Q4: If a creditor insures the life of the debtor and the debtor pays before he died, will the creditor
still be able to claim from the insurance company?
A: No. Section 10 (c) of the Insurance Code provides that a person has an insurable interest to the life of any
person under a legal obligation to him for the payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance. Payment is a mode of extinguishing an obligation.
Thus, after a debtor has paid his dues, there is no longer a legal obligation to the creditor. The creditor loses an
insurable interest to the debtor’s life and this bars recovery from the insurance.
Q5: What if it is the employer who insured the life of an employee, will the employer still be able to
claim if the employee resigned?
A: No. No. Section 10 (c) of the Insurance Code provides that a person has an insurable interest to the life of any
person under a legal obligation to him for the payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance. The legal obligation of the employer stems from the
employer-employee relationship. If the employee resigns, the employer-employee relationship will no longer
exist. Thus, after a there is no longer a legal obligation to the creditor. The employer loses an insurable interest
to the employee’s life and this bars recovery from the insurance.
Q6: What is Pari en Passu?
A: All are considered equal before the liquidation proceeding. (Financial Rehabilitation and Insolvency Act of
2010)
V. BANKING LAW
Q1: What is the rule regarding the restrictions on bank exposure to directors, officers, stockholders,
and their related interests?
A: As a general rule, no director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank, nor shall he become a guarantor, endorser or surety
for loans from such bank to others, or in any manner be an obligor or incur any contractual liability to the
bank. The exceptions are instances of valid insider trading and loans, credit accommodations, and guarantees
extended by a cooperation bank to its cooperative shareholders. (Sec. 36)
Q2: What is the doctrine of Close Now-Hear Now?
A: The law does not contemplate prior notice and hearing before the bank may be directed to stop operations
and placed under receivership. This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to
protect the depositors, creditors, stockholders and the general public. (Central Bank of the Philippines v. CA,
G.R. No. 76118 Mar. 30, 1993)
Q3: What is the meaning of Deposit Substitutes?
A: (Y) The term 'deposit substitutes' shall mean an alternative form of obtaining funds from the public (the term
'public' means borrowing from twenty [20] or more individual or corporate lenders at any one time), other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account,
for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or
the needs of their agent or dealer. (Sec. 22(Y), Tax Code of 1997)
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Q4: Does an application for Bank Inquiry violate substantive due process?
A: The Court ruled that the AMLC's ex parte application for a bank inquiry, which is allowed under Section 11
of R.A. 9160, does not violate substantive due process. There is no such violation, because the physical seizure
of the targeted corporeal property is not contemplated in any form by the law. The AMLC may indeed be
authorized to apply ex parte for an inquiry into bank accounts, but only in pursuance of its investigative
functions akin to those of the National Bureau of Investigation. As the AMLC does not exercise quasi-judicial
functions, its inquiry by court order into bank deposits or investments cannot be said to violate any person's
constitutional right to procedural due process. (Subido Pagente Certeza Mendoza and Binay Law Offices v. CA)
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