COMMERCIAL LAW
SUNDIANG REVIEWER
NEGOTIABLE INSTRUMENTS
- A written contract for the payment of money which is intended as a substitute foe money and
passes from one person to another as money. It must comply with the requisites of Section 1.
REQUISITES FOR NEGOTIABILITY:
1. Must be in a writing signed by the maker or drawer
2. Must contain an unconditional promise or order to pay a sum certain in money
3. Must be Payable on demand or at a fixed or determinable future time
4. Must be payable to order or bearer
5. When addressed to a drawee, he must be named or otherwise indicated with reasonable
certainty
NEGOTIATION - Transfer of an instrument from one person to another in such a manner as to
constitute the transferee a holder thereof.
HOLDER - A payee or undersea of a bill or note who is in possession of it or the bearer thereof.
- Code of commerce on cross checks is still applicable
- NCC applies only suppletorily
- NIL can be applied only to negotiable instruments
- By analogy to non negotiable if there is no law that can be applied
- Checks are not legal tender.
MAXIMUM ALLOWED FOR LEGAL TENDER:
1. Peso coins - 1000 pesos
2. Centavo coins - 100 pesos
- Bills - No limit.
KINDS OF NEGOTIABLE INSTRUMENT
1. Bill of exchange - An unconditional order in writing addressed by one person to another,
requiring the person whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or bearer.
2. Promissory Note - 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 to order or bearer
KINDS OF BILL OF EXCHANGE:
1. Draft - Bill of exchange used in documentary exchange like letters of credit
2. Inland Bill - Both drawn and payable in the PH
3. Foreign - Other than inland
4. Time draft - Payable at a fixed date
5. Sight or demand draft - payable upon presentment
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6. Trade Acceptance - Used in contracts of sale where the seller as drawer orders the buyer to
pay the some to the same seller.
7. Banker’s Acceptance - A time draft accords the face of which the drawee has written word
ACCEPTED.
8. Check - Bill of exchange on a bank payable on demand
KINDS OF PROMISSORY NOTE
1. Certificate of deposit - written acknowledgment of a bank of its receipt of a certain sum with
a promise to repay the same
2. Bonds - A promissory note with a term exceeding 5 years
3. Debenture - A bond secured by properties.
BILL OF EXCHANGE CAN BE TREATED AS PN WHEN:
1. Drawer and drawee are the same person
2. Drawee is fictitious person
3. Drawee has no capacity to contract
4. Instrument is so ambiguous that there is a doubt whether it is a bill or a note.
PROMISSORY NOTE
BILL OF EXCHANGE
Unconditional promise
Unconditional order
Involves two parties
Involves three parties
Maker is primarily liable
Drawer secondarily liable
Only one presentment
Two presentment: For acceptance and payment
ORDINARY BOE
CHECK
Not drawn on a deposit. It is not necessary that It is necessary that a check is drawn on a deposit.
a drawer of BOE should have funds in the
Or else there is fraud
hands of drawee
Death of the drawer of BOE with knowledge of
the bank does not revoke the authority of
banker to pay
Death of drawer with the knowledge of the bank
revokes the authority of the banker to pay.
May be presented for payment within a
reasonable period of time after its last
negotiation
May be presented for payment within a
reasonable time after its issue.
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Money order is not negotiable as it is governed by postal rules and regulations
Warehouse receipt is non negotiable for it represents goods not money
Pawned ticket is non negotiable for it merely represents the pawned articles
Treasury warrant is non negotiable because it is payable out of a particular fund
Bill of lading - Non negotiable for it represents goods
Trust receipt is non negotiable for it is an evidence of ownership of goods
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- Cash disbursement of money is non negotiable because it is nothing more than receipt
-
evidencing the payment
Aval is non negotiable for it is a guarantee for the payment of drafts
- Electronic messages received by banks from its investor clients as instructions in managing the
client’s peso and foreign currency accounts are not negotiable instruments.
- They are also not acceptances because they did not constitute the written and signed
manifestation of bank to drawer’s order to pay money
PERSONS INVOLVED
1. Maker - made the PN
2. Drawer - made the BOE
3. Drawee - person whom the order to pay is addressed in BOE. ACCEPTANCE IS NEEDED FOR
HIM TO BE PRIMARILY LIABLE
4. Payee - person to receive the payment
5. Acceptor - Drawee who accepted
6. Holder - Person who is in possession of a bearer instrument or an indorsee of an order
instrument who is in possession thereof. He is a person who can enforce payment of the
instrument
7. Referee in case of need - a person who may be designated in the instrument as the person
who may be resorted to by the parties in case of dispute
NEGOTIABLE
- Only negotiable instruments are governed
by NIL.
NON NEGOTIABLE
- Non negotiable - may only be applied by
analogy
Can be transferred by negotiation or by
assignment
Only by assignment
Transferee may be considered as holder in due
course if all the requirements are complied
Transferee can never be a holder in due course
but remains to be an assignee
- Person who takes it by negotiation takes it - One who takes an instrument by assignment
free from personal defenses available
among parties
takes the instrument subject to defenses
obtaining among the original parties
REQUISITES OF NEGOTIABILITY
1. In writing and signed by the Drawer or maker
2. Unconditional promise or order to pay a sum certain in money
3. Payable on demand or at a fixed or determinable future time
4. Payable to order or bearer
5. If addressed to drawer, he must be named or otherwise indicated with reasonable certainty.
In writing and signed by the Drawer or maker
- It may be printed, in ink or in pencil or written in any material that substitutes paper like cloth,
leather or parchment.
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- Signature of the D/M may be in one’s handwriting, printed, engraved, lithographed or
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photographed so long as they are adopted as the signature of the signer.
It is enough that there is intent to authenticate the instrument.
It is not necessary that it be the usual signature of the maker.
It must be portable and permanent.
-
Unconditional promise or order to pay a sum certain in money
The word promise or order need not to appear in the instrument
Promise to pass the bar is CONDITIONAL.
If phenomena - IT IS A PERIOD. (After the sun
STILL UNCONDITIONAL EVEN WHEN COUPLED WITH:
1. An indication of a PARTICULAR FUND OR ACCOUNT OUT OF WHICH REIMBURSEMENT is to be
made
2. Statement of the transaction which gives rise to the instrument.
- EX: Per contract of sale dated Jan 1 2003
FUND FOR REIMBURSEMENT
INDICATING PARTICULAR FUND
TWO ACTS
Drawee pays the payee from his own funds
afterwards
Drawee pays himself from the particle fund
indicated
There is only one act - The drawee pays
DIRECTLY from the particular fund indicated.
Particular fund indicated is not the direct
source of payment
Particular fund is the direct source.
- As soon as his means permit - CONDITIONAL IN NIL but is it condition with a period in NCC
- Treasury warrant - payment out of particular fund - non negotiable.
SUM CERTAIN IN MONEY
- Money need not be legal tender
- It is still negotiable although expressed in currency that is not legal tender so long as it is
expressed in money
- If the Maker/drawer/obligor is given the option to deliver another thing - NON NEGOTIABLE
- If the option is given to the HOLDER - NEGOTIABLE
- Still sum certain in money even if it requires mathematical computation
- If only “PLEASE PAY” non negotiable.
- SUM CERTAIN EVEN IF PAID:
- With interest
- Stated installments
- Stated installments with acceleration clause
- With exchange whether at a fixed rate or at current rate
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- With cost of collection or attorney’s fee in case of non payment
- The dates of each installments must be fixed or at least determinable and the amount to be
paid for each installments must be stated.
- Payable on demand or at a fixed or determinable future time
PAYABLE ON DEMAND WHEN:
1. Expressly stated
2. No time for payment is expressed
3. Instrument is issued, accepted or endorsed when OVERDUE
PAYABLE AT A DETERMINABLE FUTURE TIME
1. Fixed period after date or sight
2. On or before
3. On or before a specified event certain to happen
- Acceleration clauses - Upon default of any installment or of interest, the whole amount shall
be due. It does not affect the negotiability
INSECURITY CLAUSES - Provisions in the contract which allow the holder to accelerate payment if
he deems himself insecure. - NON NEGOTIABLE
EXTENSION CLAUSES - Subject to the extension at the option of the holder or to extension to a
further definite time at the option of the maker or acceptor or automatically upon or after
specified event. - STILL NEGOTIABLE.
Payable to order or bearer
- An instrument that is payable to a specified person or entity is not negotiable because NIL
requires that it must be payable to order to bearer.
- A certificate of time deposit stating “This is to certify that bearer has deposited xxxx repayable
to the depositor” is NEGOTIABLE
PAYABLE TO BEARER IF:
1. Expressed as such
2. Payable to a person named therein or bearer
3. Payable to the ORDER OF FICTITIOUS OR NON EXISTING PERSON and such was known to such
person making it so payable
- It can still be payable to bearer even if the payee is EXISTING if the maker or drawer
does not intend the payee to have any right over the instrument
- EXCEPTION: DOCTRINE OF COMMERCIAL BADFAITH PNB VS RODRIGUEZ
- The parties have knowledge of the bad faith in such commercial transaction. The doctrine
of fictitious person was not applied .
4. Payable to a name of the payee that does not purport to be the name of any person (Pay
to cash)
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5. When the only or last indorsement is in blank
PAYABLE TO ORDER IF:
1. Payable to the order of a SPECIFIED PERSON
2. Payable to a specified person or his order
IT MAY BE PAYABLE TO THE ORDER OF:
1. Payee who is not the maker or drawer
2. Drawer or maker
3. Drawee
4. Two or more payees jointly
5. One or some of several payees
6. Holder of an office for the time being
- A bill may be addressed to more than one drawee jointly whether they are partners or not but
not to two or more draws in alternative or in succession.
- NON NEGOTIABLE: Juan dela Cruz or Pedro Santos
PROVISIONS THAT DO NOT AFFECT NEGOTIABILITY
1. Not dated (no date of issuance)
2. Does not specify the value given or that any value had been given therefor
3. Does not specify the place where it is drawn or the place where it is payable
4. Bears a seal
5. Designates particular kind of current money in which payment is to be made
6. Addressed to more than one drawee JOINTLY
- Date may be inserted by the holder when date is necessary in order to determine the maturity
of the said instrument
- When payable at a fixed period but is undated
- When payable at sight but is undated.
-
APRIL 31 - NO SUCH DATE. SO IT IS PAYABLE ON ISSUANCE.
APRIL 30 - Date with no year - NON NEGOTIABLE
If it is just wrong date but it will happen - PAYABLE ON ISSUANCE OBLY
When such date will not happen - PAYABLE ON ISSUANCE
- Where the instrument or acceptance or any indorsement is DATED, such date is prima-facie
evidence to be the true date
- Absence of the year of maturity affects the negotiability. The evident intent is to make the
instrument payable on a fixed date but year was omitted. Hence, the time for payment is not
determinable in this case.
STILL NEGOTIABLE EVEN IF THE FOLLOWING ARE PRESENT:
1. Authorizes the sale of collateral securities in case the instrument be not paid at maturity
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2. Authorizes a confession of judgment if the instrument be not paid at maturity
- The Stipulation is void but it does not make the instrument non negotiable. STILL
NEGOTIABLE.
3. Waives the benefit of any law intended for the advantage or protection of obligor
4. Gives the holder an election to require something to be done in lieu of the payment of
money
TRANSFER OF INSTRUMENTS:
1. IF NEGOTIABLE
1. Negotiation
2. Assignment
2. NON NEGOTIABLE
1. Assignment only
- If merely assigned, the transferee does not become a holder and he merely steps into the
shoes of the transferor.
- Any defense available to the transferor is also available against the transferee
ISSUE - The first delivery of the instrument complete in form to a person who takes it as a holder.
DELIVERY - Transfer of possession of instrument by the maker or drawer with the intention to
transfer title to the payee and recognize him as a holder.
WAYS TO NEGOTIATE:
1. Bearer - Delivery
2. Order - Indorsement & Delivery
- Bearer instrument is always a bearer instrument
- Where an instrument, payable to bearer is indorsed specially, it may nevertheless be further
negotiated by DELIVERY but any person endorsing it specially is liable as indorser to only
such holders as make title through his indorsement.
INCOMPLETE NEGOTIATION OF ORDER INSTRUMENT
- When transferred it for value without indorsing it, The transfer vests in the transferee such title as
the transferor had it therein, and Transferee acquires a right to have indorsement of the
transferor.
- HDC when indorsement is actually made
INDORSEMENT
- By signing usually at the back
- It may be placed on the instrument itself or separate piece of paper attached to the
instrument called ALLONGE
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- Indorsement shall be of the entire instrument
- EXCEPT: When there is partial payment
- NIL Disallows negotiation to two or more indorsees severally.
- EX: Pay to jose cruz 15k and Pedro Santos 5k.
- But it is considered as ASSIGNMENT
KINDS OF INDORSEMENT
1. Blank - No indorsee is specified and done only by affixing the SIGNATURE
2. Special - Designates the indorsee.
- EX: Pay to Edward
- The holder may convert a blank indorsement into a special indorsement by writing over
the signature of the indorser in blank any contract consistent with the character of indorsement.
3. Qualified - Adding words like “Without recourse” or any words of similar import.
- It does not impair the negotiability of the instrument
- Constitutes the indorser as a mere assignor of the title to the instrument.
SANS RECOURSE - Without recourse (He will not be liable for insolvency)
4. Conditional
- The party required to pay may disregard the condition and make payment to the
indorsee or his transferee whether the condition has been fulfilled or not.
5. Restrictive
1. Prohibits further negotiation of instrument (Pay only to Edward)
2. Constitutes the indorsee the agent of indorser (Pay to Edward for collection)
3. Vest the title in the indorsee in trust for or to the use of some other persons (Pay to
Edward in trust for Violet)
- LALAKE - ORDER
- BAKLA - BEARER
RIGHTS OF RESTRICTIVE INDORSEE
1. Receive the payment for the instrument
2. Bring any action thereon that the indorser could bring
3. Transfer his rights as such indorsee, where the form of the indorsement authorizes him to do
so.
- When an instrument is negotiated back to a prior party, such party may reissue and further
negotiate the same. But he is not entitled to enforce the payment against any intervening
party to whom he was personally liable.
- He may strike out the intervening endorsements
- A TO B. B TO C. C TO D. D TO B.
- B may strike out C and D.
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- Joint indorsement is allowed. But all of them must sign. or else there is only partial indorsement,
HOLDER
- The payee or indorsee of a bill or note who is in possession of it of the bearer thereof. (Sec 191)
ORDER INSTRUMENT - Payee or indorsee
BEARER INSTRUMENT - Payee or bearer
REQUISITES TO BE HOLDER IN DUE COURSE (HDC)
1. Complete and regular upon its face
2. Holder before it was overdue and without notice that it has been previously dishonored if
such was the fact
3. Took it in good faith and for value
4. At the time it was negotiated, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
- A holder NOT in due course may sue in his own name and payment to him in due course
-
discharges the instrument
The only disadvantage is that the instrument is subject to defenses as if it were NON
NEGOTIABLE.
SHELTER RULE - A holder can acquire the right of HDC if he was not a party to any fraud or
irregularity in serving the instrument.
- A payee can be a holder in due course. Section 191 defines HOLDER as payee or indorsee.
-
Hence the word holder in the first clause of Section 52 may be replaced by definition in
section 191 so as to read a HDC is a payee or an indorsee in possession.
This applies even to crossed checks where the payee was not involved in the transaction
- Where instrument is payable on demand and is negotiated after an UNREASONABLE LENGTH
OF TIME after its issue, the holder is not HDC
- UNREASONABLE LENGTH OF TIME - Depends on the usage of trade and nature of instrument
- Notice of an alteration which is apparent is notice of infirmity in the instrument
- Good faith on the part of the holder is presumed
- A person who takes a crossed check without making further inquiries is not a HDC. The act of
crossing check serves as a 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 such purpose.
HOLDER FOR VALUE (HFV)
VALUE - a consideration sufficient to support a simple contract.
- A holder is a Holder for value only to the extent that the consideration agreed upon has been
paid, delivered or performed.
- Non performance of the obligation will give rise to partial or full defense of failure of
consideration as the case may be.
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- Where the transferee receives notice of any infirmity in the instrument or defect in the title of
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the person negotiating the same before he has paid the full amount, he will be deemed a
holder in due course only to the extent of the amount paid by him
Lack of notice of the infirmity in the instrument does not apply to accommodation party.
RIGHTS OF HDC
1. Free from personal defenses
2. Not free from real defenses
REAL DEFENSES
PERSONAL DEFENSES
Minority
Failure or absence of consideration
Forgery
Illegal consideration
Non delivery of Incomplete instrument
Non delivery of complete instrument
Material alteration
Conditional delivery of complete instrument
Ulta vires act of a corporation
Fraud in Inducement
Fraud in factum or in esse contractus
Filling up blank not within authority
Illegality
Duress or intimidation
Vicious force or violence
Filling up blank beyond reasonable time
Want of authority
Transfer in breach of faith
Prescription
Mistake
Discharge in insolvency
Insertion or wrong date
Ante dating or post dating for illegal or fraudulent
purpose
- If Not HDC - Subject to both personal and real defenses
- Except when a person not HDC derived his right from a person who is a HDC
- The law does not impose on a holder the obligation to inquire into the infirmity in the
instrument or defect of the title of the person negotiating the same.
- Except when circumstance indicate defect. EX: Crossed checks
- L to E but only to the extent of PHP 1,000. E wrote PHP 5,000. E to J who has knowledge of
the infirmity. J to Devi who has no knowledge. D to B who has knowledge.
- Baby may enforce the note against Larry. Although he is not a HDC but she has the rights
of a HDC because she took the instrument from a person who is a HDC
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REAL OR ABSOLUTE DEFENSE - Attached to the instrument and are available against ALL HOLDERS
whether in due course or not but only by the party entitled to raise them.
PERSONAL OR EQUITABLE DEFENSE - Available only against the holder who stands in privity with
the party who is entitled to set up or those who are not or do not have the rights of HDC.
EFFECTS OF FORGERY
- It is wholly inoperative and no right to retain the instrument or to give discharge therefor or to
enforce payment thereof against any party thereto unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.
- EXCEPTION: ESTOPPEL
- Only the forged signature is wholly inoperative NOT THE INSTRUMENT nor the GENUINE
-
SIGNATURES.
In case of forgery of indorsement of an instrument payable to order, it is not only the person
whose signature was forged who would NOT BE LIABLE but also the PARTIES PRIOR to such
person.
- Parties who shall be precluded from setting up forgery
1. Those who warrants like acceptors or indorsers
2. Those who ratified the forgery expressly or impliedly
3. Those who were negligence
GR: In case of forgery of indorsement of the payee of the check, the drawee bank cannot debit
the drawer’s account and that loss shall be borne by the drawee bank. The depositary or
collecting bank is liable to the drawee in case of forged indorsement because it guarantees all
prior indorsements.
GR: ASSOCIATED BANK VS CA - Drawer was also liable because there was also fraud on the part
of the drawer. They were issuing checks in the name of their retired employees.
- EXCEPTION: In a case, It was the trusted secretary who forged the instrument. SC: Negligent.
Not allowed to recover. (ILLUSORIO CASE)
- The forger shall be deemed as the principal debtor and in effect the maker of the instrument
- Where the instrument is wanting in any material particular the person in possession thereof, is
prima facie presumed authorized to complete it
- A signature on blank delivered by the person making the signature in order that it may be
converted into a negotiable instrument operates a prima-facie authority to fill it up as such
for any amount
- The instrument must be filled up strictly in accordance with the authority given and within
reasonable time in order that it may be enforced against any person who became a party
thereto prior to its completion. Persons negotiating after its completion are liable because
of their warranties
- A HDC may enforce the instrument as if it had been filled up strictly in accordance with the
authority given and within a reasonable time
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- A party may invoke against a person not HDC the defense that the check was not completed
strictly under the authority given or it has exceeded the authority to fill up and use the checks
- Delivery must be coupled with the intention of transferring title to the instrument
- Defense of want of delivery or conditional delivery or delivery for special purpose of a
-
complete instrument are only personal defenses
Non delivery of an INCOMPLETE instrument is a REAL DEFENSE
- If incomplete instrument has not been delivered, it will not, if completed and negotiated
-
without authority be a valid contract against any holder, even a HDC
In case of ambiguity, Words will prevail vs figure.
Written will prevail over printed in case of ambiguity.
Assumed name is equal to the real name. If Vice ganda signed as Vice ganda - ALLOWED.
Per Proc - Limited authority to sign.
UNDATED INSTRUMENT
- The insertion of a wrong date will not avoid the instrument in the hands of a subsequent holder
in due course. But as to him, the date so inserted is to be regarded as the true date.
- If an incomplete instrument after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands and he may enforce it as if it had been filled up
strictly in accordance with the authority given within reasonable time.
MATERIAL ALTERATIONS - Any alteration which changes the DATE, SUM PAYABLE, TIME OR PLACE
OF PAYMENT, NUMBER OR RELATION OF PARTIES, MEDIUM OR CURRENCY OF PAYMENT, or ADDS A
PLACE OF PAYMENT here none is specified or which alters the effect of the instrument in any
respect.
Effect: It avoids the instrument, except as against the party who made, authorized, or assented
to the alteration and subsequent indorsers. HDC can enforce it according to its original tenor.
- Alteration of the serial number of a check is NOT MATERIAL ALTERATION for it does not alter the
effect of the instrument, nor does it modify in any respect the obligation of a party.
FRAUD
FRAUD IN FACTUM (Fraud in execution or Fraud in Esse Contractus) - a person is induced to sign
an instrument NOT KNOWING ITS CHARACTER as a note or bill.
- Not intended to issue such negotiable instrument.
= REAL DEFENSE
FRAUD IN INDUCEMENT - Person who signs the instrument intends to sign the same as a
negotiable instrument but was induced to do so only through fraud, his consent to issue a
negotiable instrument was VITIATED BY FRAUD
= PERSONAL DEFENSE
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FAILURE, ABSENCE OF OR ILLICIT CONSIDERATION
- Only personal defenses.
- Illegality however may be a REAL DEFENSE if the statute declares the instrument voids for any
purpose.
- Absence of consideration cannot be invoked to a HDC
- Love and affection is not a valuable consideration
- GR: Consideration is presumed.
- In illegality - ONLY THE PARTIES ARE BOUND BY BY ILLEGALITY. Innocent third persons will not be
affected.
MINOR OR INCAPACITY OR WANT OF AUTHORITY
- It is a real defense that can be invoked only by the minor or incapacitated himself.
- Transfer of title by the minor is EFFECTIVE NEGOTIATION
- Ultra vires acts of corporation may be invoked as real defense
- A check itself does not operate as an assignment of any party of the funds to the credit of the
drawer with the bank and bank is not liable to the holder unless and until IT ACCEPTS or
certifies the checks
PRESCRIPTION
- Real defense
- The prescriptive period for filing of a claim based on Negotiable instrument is 10 YEARS from
the time the cause of action occurred
- SC ruled however that the contractual obligation remains even if the check is not presented
for payment
PERSONS LIABLE:
1. MAKER - Primarily liable
1. Engages to pay according to the tenor of the instrument
2. Admits the existence of the payee and his capacity to indorse
2. Acceptor (and drawee who pays without accepting the instrument) - Primarily liable:
1. Engages to pay according to the tenor of his acceptance
2. Admits the existence of the drawer the genuineness of his signature and his capacity and
authority to draw the instrument
3. Admits the existence of the payee and his capacity to indorse.
3. Drawer - Secondarily liable:
1. Admits the existence of payee and his capacity to indorse
2. Engages that the instrument will be accepted or paid by the party primarily liable
3. Engages that if the instrument is dishonored and proper proceedings are brought, he will
pay to the party entitled to be paid.
- In banks, Certification is equivalent to acceptance
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WARRANTIES
1. Qualified Endorser and persons negotiating by delivery
1. Instrument is genuine and in all respects what it purports to be, that he has a good title to
it.
2. All prior parties had capacity to contract
3. He has no knowledge of any fact which would impair the validity of the instrument
- The warranty of persons negotiating by mere delivery extends to the immediate transferee
only.
2. General Endorsers - Every indorser who endorses without qualification warrants:
1. Instrument is genuine and in all respects what it purports to be
2. Good title to it
3. All prior parties had capacity to contract
4. The instrument is at the time of the endorsement valid and subsisting
- General indorser also engages that on due presentment, it shall be accepted or paid or both
according to its tenor.
ACCOMMODATION PARTY - one who has signed the instrument as maker, drawer, acceptor or
indorser without receiving value therefor and for the purpose of lending his name to some other
person.
- He is liable to holder for value notwithstanding the knowledge that he is only an
accommodation party
- Lack of notice in the infirmity or defer WILL NOT APPLY IN THIS CASE
- A corporation cannot act as an accommodation party. It is ultra vires act. (CRISOLOGO VS
CA)
- If a corporation acted as an accommodation party, the corporation shall not be liable. It is
the President, VP or officers who signed are liable in their personal capacities.
- Accommodation party acts like the surety of the principal
- The one liable is the accommodation party WHO SIGNED in the instrument. The
accommodation party is only subject to the reimbursement from the accommodated party.
ENFORCEMENT OF LIABILITY
1. Primarily Liable
1. Maker/Drawer
2. Drawee the moment he accepts such order
2. Secondarily liable
HOW TO CHARGE SECONDARY PARTIES IN PN:
1. Presentment for payment within the required period to the maker
2. Notice of dishonor should be given, if PN is dishonored by non payment of maker
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HOW TO CHARGE SECONDARY PARTIES IN BOE:
1. Presentment for acceptance or negotiation within reasonable time after it was acquired.
2. If dishonored by non acceptance:
1. Notice of dishonor shall be given to the indorsers and drawer
2. If foreign bill , there must be protest for dishonor for non acceptance
3. If bill is accepted:
1. Presentment for payment to acceptor
1. If the bill is dishonored upon presentment for payment, notice of dishonor must be
given to person secondarily liable.
2. If Foreign bill, protest for dishonor
- The party who presented the defect cannot go after the INNOCENT PARTIES.
HOW TO CHARGE ACCEPTOR FOR HONOR AND REFEREE IN CASE OF NEED
1. Protest for non payment
RULES ON PRESENTMENT
- Presentment is not necessary to charge persons primarily liable
- It is only required to charge secondarily liable EXCEPT:
1. As to drawer where he has no right to expect or require that the drawee or acceptor will
pay the instrument (Applies only to negotiable instrument)
2. 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
3. When dispensed where after the exercise of reasonable diligence, presentment cannot
be made. or where the drawee is a fictitious person and waiver of presentment
REQUISITES FOR PRESENTMENT FOR PAYMENT
1. It must be by the holder or by some person authorized to receive payment on his behalf
2. It must be made at a reasonable hour on business day on the proper date
3. Made at proper place
4. Must be to person primarily liable or if he is absent, to any person found at the place where
the presentment is made
5. Person entitled to present must exhibit the instrument to the person from whom the payment
must be delivered.
SC: Check becomes STALE after more than 6 months or 180 days
- If the check becomes stale, the drawer is already discharged from secondary liability
because presentment and notice was made after an unreasonable length of time.
- However, he may still be liable to the holder if the latter is her contracting party. Failure to
present the instrument on time does not totally wipe all the liability based on a contract.
Although she might not be liable for the check, she will still be liable for the contract.
PRESENTMENT FOR ACCEPTANCE IS MANDATORY WHEN:
1. Bill is payable at a fixed period after sight
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2. Expressly stated
3. Payable elsewhere than at the residence or place of business of drawee
WHEN PRESENTMENT EXCUSED OR DISPENSED WITH:
1. Delay is excused
- Where a bill drawn payable elsewhere than at the place of business or the residence of
the drawee
2. Where the drawee is dead or has absconded or is fictitious person or a person not having
capacity to contract any bill
3. Where after the exercise of reasonable diligence, presentment cannot be made
4. Where although presentment has been irregular, acceptance has been refused on some
other ground.
ACCEPTANCE
- It must be in writing and signed by the drawee
REQUISITES:
1. Must be in writing
2. Signed by the drawee
3. Drawee must assent to the promise to pay a sum certain in money and not by any other
means
- When an acceptance is written on a paper other than the bill itself, it does not bind the
-
acceptor EXCEPT in favor of a person to whim it is shown and who received it for value
Constructive acceptance if DRAWEE destroys.
24 hours INACTION - Constructive acceptance
If the MAKER destroys - DISCHARGE
WHEN DEEMED ACCEPTED:
1. The bill was delivered to the drawee and the later destroys the same
2. Bill was delivered to the drawee but the drawee refuses within 24 hours to return the bill
accepted or non accepted.
- 24 HOURS CLEARING DOES NOT APPLY TO FORGERY. Period for forgery must be alleged within
10 years.
FUTURE BILL - An unconditional promise in writing to accept a bill before it is drawn is deemed an
actual acceptance in favor of every person who upon the faith thereof receives the bill for
value.
KINDS OF ACCEPTANCE:
1. Conditional - Dependent on the fulfillment of an obligation
2. Partial - Part only of the amount
3. Local - Acceptance only at a particular place
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4. Qualified as to time
5. Acceptance of some, one or more but not all of the drawees.
RIGHT TO UNQUALIFIED ACCEPTANCE
- The holder may refuse to take a qualified acceptance and if he does not obtain an
unqualified acceptance, he may treat the bill as dishonored by non acceptance
- Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability
unless they expressly or impliedly authorized
- When the drawer or indorser receives a notice of qualified acceptance, he must express his
dissent or else deemed to have assented.
- Acceptance is presumed to be unqualified or absolute
ACCEPTANCE FOR HONOR - Undertaking by stranger to the bills after protest to pay the bill.
- HE MUST BE A STRANGER TO THE INSTRUMENT
NOTICE OF DISHONOR
- NO PRESCRIBED FORM
WHO SHOULD GIVE:
1. Holder
2. Agent or representative of holder
3. Any party who may be compelled to pay like indorsers
4. Agent of any party who may be compelled
- If given by or on behalf of holder, it inures to the benefit of ALL SUBSEQUENT HOLDERS and Prior
parties who have a right of recourse against the party to whom it is given
- If given by the indorser, it inures to the benefit of the HOLDER and ALL PARTIES subsequent to
the party to whom notice is given
- M TO P TO A TO B TO C TO D.
- Notice to C inures to the benefit of all prior parties M,P,A,B,
- Upon valid notice of dishonor, immediate right of recourse against the indorser arises. It is as if
the indorser becomes primarily liable in the sense that the holder need not claim payment
form the person primarily liable
TIME TO GIVE NOTICE:
1. WHERE PARTIES RESIDE IN SAME PLACE
1. PLACE OF BUSINESS - Before the close of business hours on the day following
2. RESIDENCE - Before the usual hours of rest on the following day
3. MAIL - Deposited in the post office in time to reach him in usual course on the following
day
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2. WHERE PARTIES RESIDE IN DIFFERENT PLACES
1. MAIL - Deposited in post office in time to go by mail the day following the day of dishonor
2. OTHER THAN MAIL - Within the time that notice would be received in due course of mail
PROTEST: Applies to FOREIGN BILLS
- A HOLDER CANNOT MAKE A PROTEST. It is a Notarial act.
DISCHARGE:
1. Payment in due course
2. Intentional cancellation by holder
3. Any other act which will discharge an ordinary contract
4. When the principal debtor becomes the holder of the instrument or after maturity in his own
right
- If the instrument is discharged, parties are also discharged
- If the parties are discharged, the instrument is not discharged.
PAYMENT IN DUE COURSE - payment made at or after the maturity of the instrument to the
holder thereof in good faith and without notice that his title is defective.
-IT MUST BE ON THE MATURITY DATE.
- If destruction is by mere accident - NO DISCHARGE. IT MUST BE INTENTIONAL.
CHECKS - A bill of exchange drawn by the bank and is payable on demand
- It must be presented within a reasonable time: WITHIN 6 MONTHS.
- A check of itself does not operate as an assignment of any part of the funds to the credit of
the drawer with the bank and bank is not liable UNLESS it accepts.
KINDS OF CHECKS
1. Cashier’s check / Manager’s check - drawn by a bank upon itself and is accepted by
issuance.
2. Certified check - Drawn by a depositor upon funds to his credit in a bank which a proper
officer of the bank certifies will be paid when duly presented for payment
3. Crossed check - Done by writing 2 parallel lines diagonally on the left top portion of the
checks.
1. General - Words written between 2 parallel lines are and co. for payee’s account only
2. Special - the name of a bank or a business institution is written between 2 parallel lines.
- A crossed check may not be encased but only deposited in the bank
- Check may be negotiated only once to one who has an account with the bank
- Act of crossing serves as a 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 such purpose
4. Memorandum check - Ordinary check with the word memorandum written across its face.
5. Traveller’s Check - Instruments purchased from banks, express companies or the like which
can be used like cash upon second signature by the purchaser.
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- The drawer has the right to order the drawee to stop payment of a check.
- If a bank pays a check after it has been notified to stop payment, it pays on its own
responsibility and will not be permitted to charge the account
- The drawer may countermand payment if he has valid defense against the holder of the
check.
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INSURANCE
CONTRACT OF INSURANCE
- Agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown and contingent event.
CONTRACT OF SURETYSHIP
- An Agreement whereby a party called the surety guarantees the performance by another
called the principal or obligor of an obligation or undertaking in favor of a third party called
the obligor
- If made by a party doing insurance business - DEEMED INSURANCE CONTRACT
Doing an insurance or transacting an insurance business:
1. Making or proposing to make as insurer any insurance contract
2. Making or proposing to make as surety any contract of suretyship as a vocation not as a
mere incident to any other legitimate business
3. Doing any insurance business like reinsurance or similar acts
4. Doing or proposing to do any business equivalent to the above
MUTUAL INSURANCE COMPANY
- Entity owned by the policyholders that caters only to the insurance needs of the same
policyholders.
BANCASSURANCE
- Presentation and sale to bank customers by an insurance company of its insurance products.
Bank itself will not engage in insurance business because it is prohibited by law.
CHARACTERISTICS OF INSURANCE
1. Risk distributing
2. Contract of Adhesion or Fine Print Rule
- Most terms of the contract do not result from mutual negotiations between the parties
and that are prescribed by the insurer in printed form to which the insured may adhere if he
chooses but which he cannot change.
3. Aleatory
- Obligation arises only upon the happening of an event which is uncertain or which is to occur
at an indeterminate time
4. Contract of Indemnity
- Only entitled to recover the amount of actual loss sustained (For property insurance only)
5. Not a wagering contract
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UBERRIMAE FIDAE CONTRACTS (Contacts of Utmost goodfaith)
- Requires the parties to the contract of insurance to disclose conditions affecting the risk of
which he is aware or material fact which the applicant knows and those which he ought to
know.
- It applies both to the insured and insurer
ELEMENTS OF INSURANCE:
1. Existence of insurable interest
2. Risk of loss
3. Assumption of risk
4. Scheme to distribute losses
5. Payment of premiums
- Contracts of law firms with clients whereby in consideration of periodical payments, the law
-
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firm promises to represent such clients in all suits for or against them are not insurance
contracts
A contract by which a corporation in consideration of a stipulated amount agrees at its own
expense to defend a physician against all suits for damages for malpractice is an INSURANCE
CONTRACT and corporation will be deemed as engaged in the business of insurance
Insurance may take the form of a provision in CBA whereby the employer agreed to assume
under a self insurance basis hospitalization fixed expenses for the dependents of the regular
employees.
Insurance is a consensual contract and is perfected the moment there is meeting of minds
What is being followed in insurance is the COGNITION THEORY
The mere submission of the policy without approval does not result in perfection
Delivery of the policy is not required for its perfection.
Acceptance of an offer by letter does not bind the offerer except from the time it came to his
knowledge.
- Acceptance must be known by the other party in order for it to be come perfected.
- If not yet approved even though the party already paid premiums, it is not yet perfected.
COVER NOTES
- Protection before the perfection of the insurance contract. It shall be deemed as an
insurance contract
- It shall be issued or renewed only upon prior approval of Insurance Commissioner
- Valid and binding not more than 60 days from date of issuance
- No separate premiums is required
- May be cancelled by either party upon prior notice to the other of at least 7 days
- Policy should be issued within 60 days after the issuance of the cover note
- 60 day period may be extended upon written approval of the insurance commissioner (IC)
- Written approval of the IC is dispensed with upon the certification of the president, VP,
General manager of the insurer.
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POLICY
- Written instrument where the terms and conditions of the contract of insurance are set forth
- It is not necessary for the perfection of the insurance
- No insurance policy shall be issued or delivered unless in the form previously approved by the
IC
RIDER
- An attachment that modifies the conditions of the policy by expanding or restricting its
benefits or excluding certain conditions from the coverage
- Not binding unless the descriptive title or name thereof is mentioned and written on the blank
spaces provided in the policy
- When complied, it is considered part of the policy. Rider containing Automatic increase
clause is not a separate contract.
CANCELLATION OF NON LIFE POLICY
GROUNDS:
1. Non payment of premium
2. Conviction of a crime out of acts increasing the hazard insured against
3. Fraud or material misrepresentation
4. Willful and reckless acts or omissions increasing the risk insured against
5. Physical changes in the property insured making it uninsurable
6. Discovery of other insurance coverage that makes the total insurance in excess of the value
of the property insured
7. Determination by the IC
REQUISITES FOR CANCELLATION
1. Prior notice of cancellation to insured
2. Notice must be based on the occurrence after effective date of the policy of one or more
grounds mentioned
3. Notice must be in writing, mailed or delivered.
4. Notice must state the grounds relied upon.
KINDS OF PROPERTY INSURANCE
1. Open policy - Value of the thing insured is not agreed upon but left to be ascertained at time
of loss. Amount merely represents the maximum liability
2. Valued - Definite valuation
3. Running policy - Successive insurances and which provides that the subject of the policy may
from time to time be defined.
- Right to reinstate policy is not an absolute right. It is discretionary on the part of the insurer.
- Group life insurance policy must contain a provision that if the group policy terminates or is
amended so as to terminate the insurance of any class of insured persons, every person
insured shall be entitled to have issued him by the insurer an individual policy of life insurance
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- EXCEPT: That the group policy may provide that the amount of such individual policy shall
not exceed the amount of the person’s life insurance protection ceasing.
- Insurance life shall not be more than 500 times that of the current statutory minimum wage in
city of manila.
MICROINSURANCE - Financial product that meets the risk protection needs of the poor where
the amount of contributions computed on a daily basis does not exceed 7.5% of the current
daily minimum wage rate for non agricultural workers in metro manila.
- The maximum sum of guaranteed benefits is not more than 1000 times the current daily
minimum wage of metro manila
INSURER
- May be partnerships, associations or corporations who are duly authorized by IC to engage in
insurance business
- Individuals cannot become an insurer
- Cooperatives may be an insurer
FOREIGN INSURANCE CORPORATIONS
Requirements:
1. Appointment of a resident of the PH as general agent on whom any notice or proof of loss
may be served
2. Possess a paid up unimpaired assets of not less than 1 billion
3. Must deposit for the benefit and security of policy holders, securities, satisfactory to
commission
4. Investments should not exceed 20% of the net worth of foreign corporation or 20% of the
capital of the registered enterprise.
- Certificate of authority is required before they may engage in Insurance business. It is good for
3 years.
INSURED
- Person with capacity to contract and having an insurable interest in the life or property of the
insured.
- Public enemy cannot be insured.
- Public enemy is the country including its citizens where the PH is at war.
- The property insurance entered before war automatically loses its binding effect the
moment the insurer becomes a public enemy
- Minors cannot enter into insurance contract. It is voidable
- Consent of the spouse is not necessary for the validity of an insurance policy taken out by a
married person or his or her children
- All rights and interest in the policy of insurance taken out by an original owner on the life or
health of person insured shall automatically vest in the latter upon the death of the original
owner unless provided otherwise in the policy
BENEFICIARY - person designated to receive the proceeds
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- Any person may be designated as beneficiary regardless whether he or she has an insurable
interest.
- EXCEPT
1. Those guilty of adultery or concubinage at the time (CONVICTION IS NOT REQUIRED)
2. Made between persons found guilty of the same criminal offense in consideration thereof
3. Public officer or his wife, descendants or ascendants by reason of his office
- The designation is void but the policy is binding. The estate will get the proceeds.
FORFEITURE OF INTEREST OF BENEFICIARY
- When the beneficiary is principal, accomplice or accessory in willfully bringing about the
death of the insured
- IT SHALL BE PASSED ON TO:
1. Other beneficiaries unless disqualified
2. Paid in accordance with the policy
3. Estate of the insured
- The designation is revocable except expressly waived
- EXCEPT: Innocent spouse may revoke the designation of the other spouse as irrevocable
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beneficiary AFTER LEGAL SEPARATION.
Insured cannot assign the policy if the designation of beneficiary is irrevocable. Irrevocable
beneficiary has a vested right.
Assignment of policy may be deemed as implied revocation
If the insured refuses to pay premiums, the designated IRREVOCABLE beneficiary may
continue the payment
If premiums are paid out of the conjugal funds, the proceeds are considered conjugal
- If beneficiary is other than the insured’s estate, the source of premiums would not be
relevant
- Father or mother of minor who is insured or is a beneficiary may exercise in behalf of the said
minor any right under the policy without necessity of court authority or giving of bond, where
the interest does not exceed 500K or in such reasonable amount as may be determined by IC
- In the absence of parents: Grandparent, eldest brother or sister who are at least 18 or any
relative who has actual custody of the minor
- Rights included: Obtaining a policy loan, surrendering the policy, receiving the proceeds.
INSURABLE INTEREST
LIFE INSURANCE
1. Himself, spouse and of his children
2. Any person whom he depends wholly or in part for education or support or in whom he has
pecuniary interest
3. Any person under 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
4. Any person upon whose life any estate or interest vested in him depends.
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Interest of the creditor over the life of debtor ceases upon full payment
Friendship alone is not the insurable interest contemplated in life insurance
Parent may insure his child even after attaining the age of majority
In life insurance, Insurable interest must be present at the time the insurance policy is obtained.
- Legal separation does not remove the insurable interest of a spouse over the other.
In property insurance it is necessary that the insurable interest exists when the insurance takes
effect AND when the loss occurs but need not to exist in the meantime
INSURABLE INTEREST IN PROPERTY
INSURABLE INTEREST IN LIFE
Limited to the actual value of the interest
thereon
Unlimited
Necessary that the insurable interest exists
when the insurance takes effect and when the
loss occurs but need not exist in the
meantime.
Exists at the time the policy takes effect and need
not exist at the time of the loss
Expectation of benefit derived needs a legal
basis
No legal basis needed
INSURABLE INTEREST IN PROPERTY
1. Existing interest
2. Inchoate interest founded on an existing interest
3. Any expectancy founded on an existing interest
- PECUNIARY INTEREST IS NECESSARY IN PROPERTY INSURANCE
- Estoppel cannot be invoked
- A person having a mere right of possession of the property may insure its full value in his own
name even when he is not responsible for its safekeeping and even if he is not paying rentals.
- An heir has no insurable interest over the properties that he will inherit. Execution of last will
and testament does not vest him any right. Even if he is a compulsory heir.
- Owner of a property sold in public auction still has an insurable interest up until the redemption
period for he is still the owner until such time.
- The buyer also has an insurable interest over the property
- Carrier has insurable interest over the goods that are being shipped.
- Lessee has an insurable interest over the property
- Hope or expectancy in order to be insurable must be souped with existing interest out of
which the expectancy arises. It must be founded on an actual right to the thing or upon a
valid contract
- A depositary may insure the property deposited to him
- The transfer of the property does not include the transfer of insurance policy
- Annulment with the insured will not prevent the recovery in a life insurance
- Both the mortgagor and mortgagee have insurable interest over the property. They may take
out separate policies at the same or separate times.
MORTGAGOR
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- Has an insurable interest to the extent of the WHOLE VALUE of the property
MORTGAGEE
- To the extent of the debt secured and such interest continues until the mortgage debt is
extinguished.
STANDARD OR UNION MORTGAGE CLAUSE - Subsequent acts of the mortgagor cannot affect the
rights of the mortgagee.
OPEN OR LOSS PAYABLE MORTGAGE CLAUSE - The mortgagor does not cease to be a party to
the contract.
- The mortgage is only a beneficiary under the contract and recognized as such by the insurer
but not made a party to the contract itself.
- The insurance procured by a mortgagee will not inure to the benefit of the other or vice versa.
- Where a mortgagor of property effects insurance in his own name providing that the loss shall
-
be payable to the mortgagee or assigns a policy to a mortgagee, the insurance is deemed to
be upon the interest of the mortgagor who does not cease to be a party to the original
contract
When mortgagor takes out an insurance over the mortgaged property and endorsed the
same to the mortgagee, The insurance proceeds of the endorsed policy shall be applied
EXCLUSIVELY to the proper interest of the person for whose benefit it was made (MORTGAGEE)
INSURABLE INTEREST:
1. PROPERTY INSURANCE
- The beneficiary and assignee must have insurable interest.
- Consent of the insurer must be secured before the assignment
2. LIFE INSURANCE
- If on his own life - he can designate anybody who does not have insurable interest
- 3rd person takes policy - Beneficiary must have insurable interest
- In Assignment - assignee need not to have insurable interest.
- Automatic assignment of policy to a person under the provision in a lease contract is void
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being contrary to law or public policy
An owner of a business can insure against a contingency which may cause loss of profits
resulting from the cessation or interruption of his business.
GR: A change of interest in any part of a thing insured unaccompanied by a corresponding
change of 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
EXCEPTION:
1. In life, health and accident insurance
2. Change of interest in the thing insured AFTER the occurrence of injury
3. Change of interest in one or more of several distinct things separately insured
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4. Change of interest by will or succession on death of the insured
5. Transfer of interest by one of the several partners, joint owners, owners in common who are
jointly insured to the others.
6. Policy is so framed that it will insure to the benefit of whoever during the continuance of risk
may become the owner.
- When there is an express prohibition against the alienation of the policy, in case of alienation,
contract of insurance is not merely suspended but AVOIDED.
GR: A future event is the only event that can be covered by an insurance
EXC: A past event may be covered by a marine insurance if the loss of the vessel in the past
could not have been known by ordinary means of communication
PREMIUM - Consideration paid to an insurer for undertaking to indemnify the insured against a
specified peril.
GR: No insurance policy issued or renewed is valid and binding until actual payment of the
premium. Any agreement to the contrary is void.
EXCEPTIONS:
1. In case of life and industrial life whenever the grace period provision applies
2. Where there is an acknowledgement in the policy of insurance that the premium had
already been paid.
3. If parties have agreed to the payment of premium in installments and partial payment has
been made at the time of loss.
4. Where a credit term is agreed upon where the insurer granted a 60-90 day credit term for the
payment of the premium despite full awareness of Section 77
5. Barred by estoppel
- Employees of the republic of the PH may pay insurance premiums through salary deductions
- Insurer may contract and accept payments in addition to regular premiums
- Payment of premiums by postdated check
1. Maturity subsequent to the loss - INSUFFICIENT
2. Maturity Prior to the loss - Sufficient even if it remains unencashed at the time of the loss
INSURED IS ENTITLED TO RETURN OF PREMIUMS
1. Thing insured was never exposed to the risk insured against
2. Insurance is for a definite period and insured surrenders his policy before the termination
thereof.
3. Voidable and subsequently annulled
4. Annulled on account of fraud or misrepresentation of the INSURER or his agent
5. Default of the insured other than actual fraud, the insurer never incurred any liability
6. Overinsurance
7. Rescission is granted due to insurer’s breach of contract.
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- A PERSON INSURED is not entitled to return if policy is annulled, rescinded or if claim is denied
by reason of FRAUD
- Premium is also necessary in suretyship
- EXC: Where the obligee has accepted the bond, it is binding even if premium has not been
paid.
NON DEFAULT OPTIONS IN LIFE INSURANCE
1. Grace period
2. Automatic policy loan from policies’ cash surrender value
3. Application of dividend
4. Restatement clause
RESTATEMENT
- At any time within 3 years from the date of default of premium payment unless the cash
surrender value has been duly paid to the insurer or the extension period has expired.
- Policy may be transferred even without the consent of the insurer in LIFE INSURANCE
- But not in Property Insurance. CONSENT OF THE INSURER is required.
- If no consent, The insurance policy is suspended and will not be applied until the interest
in the thing and the interest in the insurance are vested in the same person.
DEVICES USED TO CONTROL RISKS AND LOSS
1. Concealment - Neglect to communicate that which party knows and ought to
communicate
2. Representations - Factual statements made by the insured at the time of or prior to the
issuance of the policy which induced him to enter into the contract
3. Warranties - Statements or promises by the insured set forth in the policy itself or incorporated
in it by proper reference, the untruthful or nonfulfillment of which will render the policy
voidable.
4. Conditions
5. Exceptions
CONCEALMENT
- It must be material
- Materiality is determined not by the event but solely by the probable and reasonable
influence of the facts
- It vitiates the contract and entitles the insurer to rescind even if the death or loss is due to a
cause not related to the concealed matter.
- Good faith is not a defense in concealment. Whether intentional or unintentional, it entitles the
injured party to rescind the policy
- Insurer may be deemed estopped from raising concealment if it accepts the premium
payments and issued the policy even if the insured already supplied the insurer such facts or
information which could hardly be overlooked in the application form considering its
prominence and its materiality
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- Insurer is not estopped if there was connivance between the insured and the soliciting
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insurance agent as well as the medical examiner.
Even if the agent is aware that the insured has a heart pacemaker, the insured can still be
considered to have concealed his heart condition. The duty not to conceal is imposed on the
insured.
- The fact that the insured has no medical knowledge will not excuse her concealment.
WARRANTY
REPRESENTATION
Part of the contract
Collateral inducement
Written on the policy or rider
Need not be written
Generally conclusively presumed material
Should be established to be material
Shall be strictly complied
Requires to be substantially true
REPRESENTATION
1. AFFIRMATIVE - Affirmation of a fact when the contract begins
2. PROMISSORY - Promise to be performed after the policy is issued.
- If there is misrepresentation, the injured party is entitled to rescind from the time when the
representation becomes false.
- Acceptance of premium will not estop the insurer from rescinding the policy on the ground of
misrepresentation
WARRANY
KINDS:
1. Express
2. Implied - Only in marine insurance
3. Affirmative - asserts the existence of a fact or condition at the time it is made
4. Promissory - Stipulates that certain facts or conditions shall exist or thing shall be done or
omitted.
- Breach of warranty gives the insurer the right to rescind
EXCEPT:
1. Loss occurs before the time of performance of the warranty
2. Performance becomes unlawful
3. Performance becomes impossible
- Immaterial provisions will not avoid the policy
- Except when the parties stipulate that violation of such shall avoid the policy
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INCONTESTABILITY CLAUSE
- If the policy is in force for a period of 2 years, The insurer cannot prove anymore that the
policy is void or voidable by reason of the fraudulent concealment or misrepresentation of the
insured or his agent
REQUISITES:
1. Life insurance payable on the death of the insured
2. In force during the lifetime of the insured for at least 2 years from its date of issue or of its last
reinstatement.
- Period of 2 years may be shortened by it may not be extended beyond
DEFENSES NOT BARRED BY INCONTESTABILITY CLAUSE
1. Lack of insurable interest
2. Cause of death of the insured is an excepted risk
3. Premiums have not been paid
4. Conditions of the policy relating to military or naval service have been violated
5. Fraud is of a particularly VICIOUS TYPE
6. Beneficiary failed to furnish proof of death to comply with any condition imposed by the
policy after the loss has happened.
7. Not brought within the time specified.
DOUBLE INSURANCE
- Same person is insured by several insurers separately in respect to same subject and interest
- Not prohibited by law but may be prohibited by other insurance clause.
REQUISITES:
1. Person insured is the same
2. 2 or more insurers insuring separately
3. Subject matter is the same
4. Risk or peril insured is the same
- The insured may claim payment from the insurers in such order as he may select up to the
amount for which the insurers are severally liable under their respective contracts
DOUBLE INSURANCE
REINSURANCE
Involves the same interest
Insurance of different interests
Insurer remains in such capacity
Insurer becomes insured in relation to reinsurer
Insured in the first contract is a party in
interest in the second contract
Original insured has no interest in the reinsurance
contract
Subject of insurance is property
Subject of insurance is the original insurer’s risk
Insured has to give his consent
Consent of original is not necessary
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REINSURANCE - A contract through which the insurer procures third person to insure him against
loss or liability by reason of such original insurance
- The original insurance and the reinsurance are separate and distinct contract from each other
and covered by separate policies.
- The original insured has no interest in the contract of reinsurance
- The original insured cannot file an action to recover from the reinsurer.
- EXCEPT: The original insured may be allowed to directly sue the reinsurer if the reinsurance
policy contains a stipulation POUR AUTRUI in favor of the original insured.
INSURER IS LIABLE IF:
1. Proximate cause is part of the coverage
2. Immediate cause is part of the coverage
3. Loss through negligence except where there was GROSS negligence amounting to willful
act.
4. Loss caused by the efforts to rescue the thing from peril insured against
INSURER IS NOT LIABLE:
1. Loss by insured’s willful act or gross negligence
2. Loss due to connivance of the insured
3. Loss where the excepted peril is the proximate cause.
- Motor insurance policy covering the insured’s liability for accidental injury caused by his
negligence even though GROSS and attended by criminal consequences such as homicide
through reckless imprudence, it will not avoid the policy
- Notice of loss should be given without unnecessary delay in fire insurance otherwise insurer is
-
exonerated.
A stipulation in a policy requiring that the consent of the insurer must first be obtained before
any payment by the person responsible for the loss in the settlement of claim against the
insured is valid.
CLAIMS SETTLEMENT
1. Life insurance
- The proceeds shall be paid immediately upon the maturity of the policy if there is such
maturity date
- If the policy matures by the death of the insured, within 60 days after the presentation of the
claim and filing of the proof of the death of the insured.
2. Property insurance
-Proceeds shall be paid within 30 days after proof of loss is received
- If no ascertainment is made within 60 days after receipt of proof, the loss shall be paid within
90 days from the receipt of proof
IF DELAY IN PAYMENT beneficiaries are entitled to:
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1. Interest for the duration of the delay at the rate twice the legal interest
2. Attorney’s fees and other litigation expenses
3. Appropriate damages under civil code
COLLATERAL SOURCE RULE - If an injured person received compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not be deducted from the
damages which he would otherwise collect from the tortfeasor.
- Not applied in NO FAULT INSURANCES
- Hence a no fault insurer cannot be obliged to pay the hospitalization of the insured
which already had been paid by separate health insurance providers.
PERIOD OF PRESCRIPTION
- In absence of stipulation, 10 YEARS
- PARTIES MAY AGREE: But not shorter than 1 year
- The cause of action accrues from the final rejection of the claim and not from the loss
- IN CMVLI - Claim must be filed within 6 months from the date of accident the claim shall be
deemed waived.
- Action or suit must be filed in proper courts within 1 year from the denial of the claim
otherwise it shall prescribe
RIGHT OF SUBROGATION
- It inures to the insurer without any formal assignment or any express stipulation to that effect.
- Insurer can only recover from the third person what the insured could have recovered.
- Thus there can be no recovery when the insurer voluntarily paid the insured even though
such peril is exempted in the policy
- The insured can no longer recover from the offending party what was paid to him by the
insurer but he can recover any DEFICIENCY.
- The insurer must present the policy as evidence to determine the extent of its coverage
NO RIGHT OF SUBROGATION IN:
1. Insured by his own act releases the wrongdoer/third party liable
2. Insurer pays the insured voluntarily even when exempted peril
3. Life insurance
4. Recovery of loss in excess of insurance coverage
MARINE INSURANCE
- Includes ship, cargo, freightage, profits, inland marine insurance
- In cargo, There is always an implied warranty of seaworthiness.
INSURABLE INTEREST IN MARINE INSURANCE
1. SHIPOWNER
- Value of the ship minus amount of Loan on Bottomry if any
2. CARGO
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- Over the cargo and expected profits
3. CHARTERER
- Over the vessel up to the extent of the amount he is liable to the shipowner
- Over his expected profits
- Over his cargo or client’s cargo
- In the absence of any stipulation, the risks insured against are only perils of the sea
- In all risk policy all risks are covered unless expressly excepted.
BARRATRY - Willful misconduct on the part of the master or crew in pursuance of some unlawful
or fraudulent purpose without the consent of the owners and to the prejudice of the owners. This
may be expressly covered but there should be proof of willful and intentional act.
CONCEALMENT
- Belief and expectation of third person in reference to a material fact is material and must be
disclosed in marine insurance
- Matters concealed need not be the cause of the loss.
MATTERS ALTHOUGH CONCEALED WILL NOT AVOID THE CONTRACT:
1. National charter of the insured
2. Liability of insured thing to capture or detention
3. Liability to secure from breach of foreign laws
4. Want of necessary documents
5. Use of false or simulated papers
GENERAL AVERAGE - Loss or damages deliberately caused by the MASTER of the vessel in order
to save the vessel, her cargo or both from a real or known risk. It must be borne equally by all
interests concerned in the venture.
REQUISITES:
1. Common danger to vessel or cargo
2. Part of vessel was sacrificed deliberately
3. Sacrifice must be for the common safety or for the benefit of all
4. Made by master or upon his authority
5. Vessel or cargo was successfully saved
6. Necessary
PARTICULAR AVERAGE - Damage or loss which have not inured to the common benefit and
profit of all persons interested in the vessel.
COINSURANCE - where the property is insured for less than its value, the insured is considered a
coinsurer for the difference between the amount of insurance and the value of the property
COINSURANCE IN MARINE INSURANCE REQUISITES:
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1. Partial loss
2. Amount of insurance is less than the value of the property
COINSURANCE IN FIRE: It has to be expressly stipulated
SEAWORTHINESS - When reasonably fit to perform the service and to encounter the ordinary
perils of the voyage.
- There should be due consideration to the nature of the ship and service to be performed.
- It extends not only to the structure of the ship but also to the competent masters and officers
in the ship.
PERILS OF THE SEA
PERILS OF THE SHIP
Perils of navigation include only those
casualties due to the unusual violence or
extraordinary causes connected with
navigation.
Loss which in ordinary course of events results
from the ordinary, natural, and inevitable action of
the sea.
Those arising from some overwhelming power
which cannot be guarded against by ordinary
exertion of human skill or prudence
Ordinary wear and tear of the ship or from the
negligent failure of the ship’s owner to provide the
vessel with the proper equipment
- An implied warranty of seaworthiness is complied if it is seaworthy AT THE TIME OF THE
COMMENCEMENT OF THE RISK
- EXCEPTIONS:
1. Time policy - Must be seaworthy at the time of the commencement of every voyage
2. Cargo - at the commencement of each particular voyage
3. Different portions of voyage - At the commencement of each portion
- When the ship was seaworthy at the commencement of the voyage but 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.
- The fact that the unseaworthiness was unknown to the insured is immaterial and may not be
used by him as a defense in order to recover on the marine insurance policy
- If a vessel is unseaworthy and the owner of cage was not aware of it, The insurer cannot be
held liable because of implied warranty of seaworthiness.
- Payment made by an insurer to the insured for the latter’s lost cargo operates as a waiver of
the insurer’s right to enforce an implied warranty of seaworthiness.
- This only extends in favor of the insured. There is no waiver in favor of the carrier that
transported the cargo. The insurer may still claim payment against the carrier for breach of
contract
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DEVIATION IS PROPER WHEN:
1. Due to circumstances outside the control of the ship captain or owner
2. If done to comply with the warranty
3. Made in good faith to avoid peril
4. Made to save human life or another distressed vessel
- Relying on the information of Pagasa is proper deviation provided that the master acted in
good faith
LOSS AND ABANDONMENT
1. ACTUAL LOSS IF:
1. Total destruction
2. Loss by sinking
3. Damage rendering things valueless
4. Total deprivation of owner of possession
2. CONSTRUCTIVE LOSS
1. Actual loss of MORE THAN 3/4 of the value
2. Damage reducing the value by MORE THAN 3/4
3. Expenses of shipment EXCEEDS 3/4 of value of cargo
- In constructive total loss, Owner must abandon to the insurer the vessel or cargo
- If only partial actual loss, no need to abandon
ABANDONMENT
REQUISITES:
1. Actual relinquishment by the person insured
2. Constructive total loss
3. Total and absolute abandonment
4. Made within reasonable time after receipt of information of loss
5. Factual
6. Made by giving notice to the insurer orally or in writing
7. Explicit and must specify the particular cause of the abandonment
FIRE INSURANCE
- May include loss by lightning, windstorm, tornado, or earthquake when COVERED by
extension to fire insurance
EXTENT IN OPEN POLICY: Actual loss at the time but it shall not exceed the total value of the
policy
ALTERATION
REQUISITES:
1. Use or condition of the thing insured is specially limited or stipulated in the policy
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2.
3.
4.
5.
6.
Such use or condition is altered
Made without the consent
Made by means within the control of the insured
Alteration increases risk
Violation of a material policy provision
- Insurer may rescind the contract
- EX: Residential house to factory
FRIENDLY FIRE - Fire that burns in a place where it is supposed to burn. (Gas stove)
HOSTILE FIRE - Fire that escapes and burns in a place where it is not supposed to be. It may also
refer to fire that started as a friendly fire nut escapes and becomes out of control
CASUALTY INSURANCE
- Insurance covering loss or liability excepting intentional injuries inflicted by the insured or any
other person implies the exercise of the reasoning faculties, consciousness and volition.
ACCIDENT -Happens by chance or fortuitously without intention or design which is unexpected. It
does not exclude events resulting in damage or loss due to fault, recklessness or negligence of
third parties.
THIRD PARTY LIABILITY
- Casualty insurance may provide for third party liability
- Third party may directly sue the insurer upon the occurrence of the loss.
- BUT the insurer is NOT SOLIDARILY LIABLE with the insured or the tortfeasor for the later’s
obligation.
- If the insurer pays the third person, the right of subrogation operates.
- If there is no stipulation in favor of third person but the insurance is an insurance against liability
to third persons, any third person who might be injured MAY NOT SUE THE INSURER. Only the
insured sought to be held liable to the third party can recover from the insurer.
- Liabilities arising out of acts of negligence which are also criminal are also insurable on the
ground that such acts are accidental. But liability consequences of deliberate criminal acts
are not insurable.
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)
- Insurance code makes it unlawful for any LAND TRANSPORTATION OPERATORS OR OWNERS to
operate the same in public highways unless there is an insurance guaranty to indemnify death
or injuries of third party or passenger arising from such.
- NO REGISTRATION IF NOT COMPLIED WITH
- May be complied either by insurance, surety bond or cash bond.
- Includes school buses
- Includes employer’s liability, MVLI, Plate glass, burglary and theft, personal accident and
health insurance.
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- Covers death, bodily injury and or damage to property.
NO FAULT CLAUSE - The injured party or passenger is given the option to file a claim for the death
or injury WITHOUT THE NECESSITY OF PROVING FAULT OR NEGLIGENCE OF ANY KIND UNDER THE
FOLLOWING CONDITIONS:
1. Not exceed 15k
2. Proofs of loss shall be sufficient evidence to substantiate:
1. Police report
2. Death certificate
3. Medical report
3. Claim may be made against one motor vehicle only
FROM WHOM TO RECOVER:
1. OCCUPANT OF THE VEHICLE - Against the insurer of the vehicle in which he is riding
2. NOT AN OCCUPANT - Against the insurer of the directly offending party
TIME TO FILE AND PROCESS CLAIM:
- Period to file notice: Must be presented within 6 months from the date of accident or else
deemed waived
- Action must be filed in court within 1 year from DENIAL OF THE CLAIM
- If there is an agreement already - Must make payment within 5 days after agreement
- If no agreement reached - Insurer shall only pay the NO FAULT INDEMNITY without prejudice to
the claimant from pursuing his claim further.
- No quitclaim can be compelled
- If the policy provides for indemnity against third party liability, the insurer can be sued directly
-
by a third person.
If the policy provides for reimbursement after actual payment by the insured or for indemnity
against loss, a third person has no cause of action against the insurer.
- INSURER IS NOT SOLIDARILY LIABLE WITH THE INSURED.
- Insurer’s liability is based on CONTRACT
- Insured’s liability is based on TORTS
- In a third party liability insurance, the insurer assumes the obligation of paying the insured to
whom the insured is liable. Such interest may be garnished just like any other credit.
EXTENT OF LIABILITY
1. COVERAGE: PHP 100,000 PLUS ADDITIONAL 100K IF PUBLIC UTILITY
2. DEATH INDEMNITY: 70k Plus 30K funeral expenses (100K TOTAL)
- The limit now is PER PERSON/INJURY under the LTFRB mandated insurance.
AUTHORIZED DRIVER CLAUSE
- A stipulation stating that the driver other than the insured owner must be DULY LICENSED
otherwise the insurer is excused from liability
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- If insured was the driver, he need not prove that he has driver’s license at the time of the
-
accident.
There is a presumption that the driver’s license is genuine.
A driver other than the insured who holds an expired license is NOT AN AUTHORIZED DRIVER
THEFT CLAUSE
- If there is a stipulation in the policy, authorized driver clause will not apply when the vehicle
was unlawfully taken.
- It applies where the vehicle is taken with intent to gain without the consent of the insuredowner even if it was returned, or was stolen by the driver of the insured.
MALICIOUS DAMAGE CLAUSE
- Excludes malicious damage from the risk insured
- When it is the direct result from the deliberate and willful act of the insured, members of the
family, and any person in the insured’s service whose clear plan or purpose was to cause
damage to the insured vehicle.
SURETYSHIP
- Agreement whereby the surety guarantees the performance of another of an undertaking or
an obligation in favor of a third party.
FIDELITY BOND - Contract of insurance against loss from misconduct
FIDELITY GUARANTY INSURANCE - One for a consideration agrees to indemnify the assured
against loss arising from the want of integrity, fidelity or honesty of employees or other persons
holding positions of trust.
LIFE INSURANCE - Insurance on human life
ANNUITY - Every contract or undertaking for the payment of annuities including contracts for the
payment of lump sums under a retirement program
DEATH THROUGH SUICIDE: Insurer is still liable:
1. Suicide was committed after the policy has been in force for a period of 2 years from the
date of its issue or its last reinstatement unless the policy provides shorter period
2. Committed in state of insanity regardless of the date of commission of suicide.
KINDS OF LIFE INSURANCE:
1. Ordinary life, General Or Old line policy - Surrender value after 3 years
2. Limited - Payment for a limited period. If he dies within the period, beneficiary gets. If not,
Beneficiaries will not get anything
3. Endowment Policy - If he outlives the period, the face value of the policy is paid to him. If not
his beneficiaries will receive the benefits
4. Term Insurance - Paid only once for a specified period. If he dies within such period,
Beneficiary gets. If not, edi wala.
5. Industrial
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VARIABLE CONTRACT - Any policy on either group or individual basis issued by an insurance
company providing for benefits or other contractual payments or values to vary so as to reflect
investment results of any segregated portfolio
POWERS OF INSURANCE COMMISSIONER
1. Concurrent jurisdiction with Regular Courts
- Cases where any SINGLE CLAIM does not exceed 5M involving Insurance, Reinsurance,
Suretyship, membership certificate issued by members of mutual benefit association.
2. Primary and exclusive jurisdiction:
- Claim for benefits involving PRE NEED CONTRACTS where amount does not exceed
100K
- Insurance Commission has no jurisdiction to decide the legality of contract of agency
-
between insurance company and agent because it is not covered by the term doing or
transacting insurance business.
Insurance commissioner may revoke the certificate of authority of companies
If the company is determined by the IC to be insolvent or cannot resume business, he shall if
public interest requires order its liquidation.
IC may also appoint conservator if he finds that the company is in the state of continuing
inability or unwillingness to maintain a condition of solvency or liquidity
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BUSINESS ORGANIZATIONS
BASIC TYPES OF BUSINESS ORGANIZATIONS:
1. Sole proprietorship
2. Partnership
3. Joint Account or Cuentas en participación
4. Business trust
5. Joint venture
6. Cooperative
7. Corporation
- A sole proprietorship does not possess a juridical personality and has no legal personality to file
or defend an action in court.
MERCHANTS REQUISITES:
1. At least 18 years of age
2. Must have free disposition of his properties
3. Habitually engaged in commerce.
HABITUALITY - Repetition and continuation of commercial acts in such manner that they re
related to each other.
- Habituality is presumed the moment a person who intends to engage in commerce
announces it.
JOINT ACCOUNTS (Accidental Partnership)
Arrangement whereby merchants may interest themselves in the transaction of other merchants,
contributing thereto the amount of capital and participating and favorable and unfavorable
results.
- Joint account has no juridical personality
BUSINESS TRUST - A legal relation whereby one person called the trustor conveys a property to
another for the benefit of beneficiary
JOINT VENTURE - An association of persons or companies jointly undertaking some commercial
enterprise. Generally all contribute assets and share risks.
- It requires a community interest.
- Governed by law on partnership
- Corporations may enter joint venture agreements
COOPERATIVES - An autonomous and duly registered association of persons with a common
bond of interest who have voluntarily joined to achieve their social, economic and cultural
needs and aspirations.
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GENERAL BANKING LAW
BANKS - Engaged in lending of funds obtained in the form of deposits from the public.
PUBLIC - Deposits of 20 or more persons.
- Banks should be stock corporations
- Investment company is not a bank if it is engaged solely in investing, reinvesting or trading
securities.
- Investment company which loans out the money of its customers, collects interests and
charges a commission to both lenders and borrowers is engaged in banking.
QUASI BANKS - Entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relenting or
purchasing receivables and other obligations.
DEPOSIT SUBSTITUTES - alternative forms of obtaining funds from the public other than deposits
through the issuance of debt instruments for borrower’s own account for the purpose of
relenting or purchasing or receivables and other obligations.
- Banking is fiduciary in nature
- Exercise of UTMOST DILIGENCE is required in handling deposits.
- If strike and lockouts are not settled after 7 days, BSP shall report it to DOLE who may assume
-
jurisdiction or certify the same to NLRC for compulsory arbitration
The President of PH may intervene anytime and assume jurisdiction over such labor dispute.
- Banking and quasi banking cannot be incorporated with the authority from BSP
- Articles of incorporation shall be accompanied by Favorable recommendation of the BSP
-
otherwise it shall not be accepted or approved.
Certificate of authority from BSP is required.
CLASSIFICATION OF BANKS (CUTRICO)
1. Universal bank - Authority to exercise functions of Commercial banks, investment house and
power to invest in Non allied enterprises.
2. Commercial bank - Power to accept drafts, issue letters of credits, discounting, negotiating of
negotiable instruments, evidence of debt, accept and create demand deposits and the like.
3. Rural bank - Created to make needed credit available and readily accessible in rural areas
for the purpose of promoting comprehensive rural development.
4. Thrift Bank - Savings, mortgage banks, private development banks, and stock savings and loan
associations
5. Cooperative banks - Provide financial and banking services to cooperative organizations and
their members.
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6. Islamic Banks
- Only universal and commercial bank may issue demand deposits without separate authority
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from MB
Only Universal and Commercial may engage in quasi banking
Public officers may be directors only in RURAL BANKS
Cooperatives and corporations may be incorporators of RURAL BANKS
A rural bank must be wholly owned by Filipinos
100% of outstanding capital of other banks may be acquired by foreign banks
Public offering is necessary for Universal banks
FOREIGN BANKS’ MODES OF ENTRY
1. Acquiring, purchasing, or owning up to 100% of voting stock of an existing bank
2. Investing up to 100% of voting stocks of a new banking subsidiary incorporated under laws of
PH
3. Establishing branches with full banking authority
- Banks are prohibited from engaging in insurance business
- Except: BANCASSURANCE
- Outsourcing functions are generally prohibited. A bank cannot hire another corporation to
receive deposits on their behalf.
DEPOSIT FUNCTION
- Simple loan relationship
- Third party who may have a right to money deposited cannot hold the bank responsible
UNLESS there is a court order or garnishment.
- Officers of the bank cannot be held liable for ESTAFA
- Bank has the right of compensation. It may set off the deposits with the indebtedness that are
due and demandable.
- Minors can open bank accounts provided that:
1.
2.
3.
4.
At least 7 years old
Able to read and write and have sufficient discretion
Not disqualified or incapacitated
Only SAVINGS and TIME DEPOSITS
KINDS OF DEPOSITS:
1. Demand deposits
2. Savings account
3. Negotiable order of withdrawal accounts (NOW) - Interest bearing deposit accounts that
combine the payable on demand feature of checks and investment feature of savings
account. (CHECK + SAVINGS)
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- Anonymous accounts are prohibited.
- EXCEPT: Foreign currency deposits which mat be a numbered account.
- Joint accounts may be subject of survivorship agreement
SECRECY OF BANK ACCOUNTS
- All deposits of whatever nature with banks or banking institutions in PH including GOVERNMENT
ISSUED BONDS AND SECURITIES or political subdivision or instrumentalities are considered
ABSOLUTELY CONFIDENTIAL and may not be examined, inquired or looked into by any person,
government official, bureau or office.
PROHIBITED ACTS:
- Bank deposits may not be examined by any person, government official, bureau or office
- Non disclosure of an official or employee of banking institution
- Camera inspection of bank deposit records is not allowed. It is in the nature of examination.
EXCEPTIONS TO THE RULE:
1. Written permission by the depositor
2. Impeachment cases
3. Upon order of competent court in cases of Bribery or dereliction of duty of public officials
4. Upon order of competent court in cases where MONEY DEPOSITED IS THE SUBJECT of litigation
5. Upon order of competent court in cases involving unexplained wealth under AGCPA
6. Upon inquiry of commissioner of BIR for the purpose of determining the net estate of the
deceased
7. Upon order of competent court in AMLA cases
8. Examination of AMLC even without court order under AMLA
9. Disclosure of the treasurer of the PH for dormant deposits
10. Report of banks to AMLA of covered and suspicious transactions
11. Upon order of CA in terrorism cases
12. Investigation of AMLC
13. PDIC’s inquiry and examination of deposit accounts and all information related thereto
14. Waiver in case of DOSRI Loans
15. Disclosure of BSP in the examination of AMLC
- In written waiver, mere silence is not sufficient and failure to object during the proceedings
-
where a bank deposit is invalid does not amount to waiver.
If Subject matter of litigation, the money deposited in the account itself must be the subject of
the action
FOREIGN CURRENCY DEPOSIT
- Exceptions do not apply to foreign currency deposits
- Exceptions to the exceptions above: AS STATED UNDER THE ANTI MONEY LAUNDERING LAW
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- AMLC may inquire into deposits upon the order of the court when there is probable cause
that deposits are related to a crime of unlawful activities defined in RA 9160
COURT ORDER IS NOT REQUIRED IF:
1. Kidnapping for random
2. Acts under Comprehensive dangerous drugs
3. Hijacking
- Bank accounts may be garnished by creditors of the depositors upon proper order of the
court.
DEPOSITS EXEMPT FROM GARNISHMENT:
1. Foreign currency deposits
- EXC: American tourist who was found guilty of repeatedly raping a 12 year old child
2. Those exempt under Rules of Civil procedure.
DEPOSIT INSURANCE
= Insured by PDIC
Deposit - unpaid balance of money or its equivalent received by a bank in the usual course of
business.
- Includes commercial, Savings, time, thrift accounts.
- Insured deposit for every LEGITIMATE DEPOSITOR - Max of PHP 500,000
HOW TO ADJUST MAXIMUM DEPOSIT INSURANCE:
1. Monetary board determined that there is a condition that threatens the monetary and
financial stability of banking system
2. Approved by unanimous vote of BOD of PDIC
3. Approved by the President of PH
DEPOSITS NOT COVERED BY INSURANCE:
1. In excess of 500k
2. Payable outside PH
3. Investment products such as bonds, securities, trust accounts
4. Fictitious deposits
5. Transactions emanating from unsafe and unsound banking practices
6. From unlawful activity according to AMLC
7. Deposits that resulted from splitting of deposit
8. Money placements by the head office of a foreign bank in its branch in PH
- Interbranch deposits are not covered. They will be counted as one. Aggregate amount
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SPLITTING OF DEPOSITS - Deposit account with balance of more than 500K under the name of
person is broken down and transferred to two or more accounts in the name of persons who
have no beneficial ownership WITHIN 120 DAYS immediately preceding or during a bank
declared bank holiday or immediately preceding a closure order.
- It is a criminal act.
- Joint accounts are insured separately
- The aggregate interest of each co-owner over several joint accounts, whether owned by the
same or different combinations of individuals, juridical persons shall likewise be subject to the
maximum insured deposit of 500K
- Proceeds shall be paid within 6 months to the depositor counted from the filing of the claim
- The claim must be filed within 2 years from actual takeover of the receiver
- The insurance coverage may be terminated if a bank does not comply with the cease and
desist order issued within 30 days from receipt thereof.
UNCLAIMED BALANCES
- Deposits that have become dormant for a period of 10 years may be escheated in favor of
the government.
- There should be notice to the depositor for the unclaimed balance
- The bank is required to report to the Treasurer of the PH the existence of dormant deposits.
- Treasurer will inform the SOLGEN who will then initiate the proper escheat proceedings.
- Publication of list of unclaimed balances is also required.
- Unclaimed balances shall be deposited with the Treasure of the PH
SINGLE BORROWER’S LIMIT (SBL) - 25%
- The total amount of loans, credit accommodations and guarantees that may be extended by
a bank to a person, partnership or corporation shall not exceed 25% of the net worth of the
bank
- Basis is the total credit commitment
- It may be increased by additional 10% if additional liabilities if adequately secured by trust
receipts, shipping documents, warehouse receipts or other similar documents
DOSRI ACCOUNT
- Restriction and not total prohibition are imposed on borrowings and security arrangement by
DIRECTORS, OFFICERS, STOCKHOLDERS OF BANK DIRECTORS AND THEIR RELATED INTERESTS.
REQUISITES:
1. Borrower is a director, Officer, stockholder of a bank and related interest.
2. Contracts a loan or any form of financial accommodation
3. The loan or financial accommodation is from his bank, subsidiary or a bank which a
controlling portion of the shares is owned by the same interest that owns a controlling portion
of the shares of his bank.
4. The loan or financial accommodation is in excess of 5% of the capital surplus of the lending
bank or in the maximum amount permitted by law.
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- Before DOSRI accounts be approved, there should be a written approval of the majority of all
the directors of the lending bank excluding the vote of director concerned.
ARMS LENGTH RULE - The account should be won the terms not less favorable to the bank than
those offered to others
- Resolution approving such loan shall be transmitted to BSP
- The borrower shall be required to waive the secrecy of his deposits of whatever nature in all
banks in the PH.
- The accounts are subject to examination but are all confidential
COLLATERALS OF LOANS
- Loans shall not exceed 75% of the appraised value of the real property plus 60% of the
appraised value of the improvement or 75% of the appraised value of the chattel
REDEMPTION PERIOD
1. Natural person - 1 year after the sale of the real estate counted from the date of registration
2. Juridical person on extrajudicial foreclosure - Before the registration of the certificate of
foreclosure sale which shall in no case be more than 3 months after foreclosure.
- Redemption may be exercised by paying the amount due with interest and all costs
- The purchaser at the action sale whether judicial or extrajudicial shall have the right to
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immediately take possession after the date of confirmation of the auction sale.
- FOR BANKS ONLY
Any petition to enjoin or restrain the conduct of foreclosure proceedings shall be given due
course only upon the filing of a bond
- Foreign individuals and non bank corporations may own or control up to 40% of the voting
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stock of domestic bank
- FOREIGN BANKS may acquire 100% of voting stocks of a domestic bank
The percentage of foreign owned voting stocks in a bank shall be determined by the
citizenship of INDIVIDUAL STOCKHOLDERS in that bank
The citizenship of the corporation shall follow the citizenship of the controlling stockholders of
the corporation
Law does not prohibit ownership of the stock by members of the same family or related
interest
- DIRECTORS AND OFFICERS OF BANKS
- BOD - 5 - 15 persons. 21 if consolidated or merged.
- Foreigners may become members of BOD
- No appointive or elective public official whether full time or part time shall at the same time
serve as officer of any PRIVATE BANK
- EXCEPT IN RURAL BANKS
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- Teleconferencing or video conferencing is allowed as a mode to have a meeting
FIT AND PROPER RULE - The monetary board is authorized to pass rules providing for the
qualifications and disqualifications of individuals elected or appointed bank directors or officers
- Integrity, experience, education, training and competence may be the basis.
- Any bank may acquire real estate as shall be necessary for its own use in the conduct of
business.
- The Total investment in such real estate including bank equipment shall not exceed 50% of
combined capital accounts
- Any real property held by bank in the course of its dealings shall be disposed within 5 years or
as may be prescribed by the Monetary Board
- The BSP may extend loans and advances to banking institutions without collateral for a period
of not more than 7 days for the purpose of liquidity
- BSP may also grant emergency loans in the amount not exceeding 50% of its total deposits
and deposit substitutes.
CONSERVATORSHIP
- Conservator shall be appointed if MB finds that a BANK OR QUASI BANK is in the state of
continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of the depositors and creditors.
- Shall not exceed 1 year
POWERS OF CONSERVATORS:
1. Take charge of the assets, liabilities and management
2. Reorganize the management
3. Collect all monies and debts due
4. Exercise all powers necessary
RECEIVERSHIP AND LIQUIDATION
GROUNDS:
1. Bank is unable to pay its liabilities as they become due in the ordinary course of business.
- EXCEPT: Extraordinary demands induced by financial panic in banking community
2. Insufficient realizable asset as determined by BSP
3. Cannot continue in business without probable losses
4. Willfully violated a cease and desist order
CLOSE NOW HEAR LATER SCHEME
- No prior hearing is necessary in appointing receiver and closing a bank. It is enough that
subsequent judicial review may be resorted.
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EFFECT OF RECEIVERSHIP AND LIQUIDATION:
1. Assets shall be deemed in custodia legis. It is exempt from any order of garnishment, levy,
attachment or execution
- Judge or officer of the court who issues such shall be criminally liable
2. There will be no preference even if claimant obtained a writ of preliminary attachment
3. Banks under liquidation retain their legal personality.
4. The bank may sue or be sued.
5. BSP may forbid bank from doing business but it can still foreclose mortgage and the
prescriptive period to foreclose is not tolled.
6. Insolvent bank that was closed by the BSP is not liable to pay interests on deposits
JUDICIAL REVIEW
- Actions of MB regarding receivership or conservatorship shall be final and executory
- It can only be set aside by Certiorari: GRAVE ABUSE OF DISCRETION
- Petition for Certiorari may only be filed by the stockholders of record representing the majority
of the capital stock within 10 days from the receipt of the board of directors of the institution of
order directing receivership and conservatorship
BANKO SENTRAL NG PILIPINAS (BSP)
- Central monetary authority maintained by the state to function and operate as an
independent and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking or credit.
FUNCTIONS:
- Maintain price stability conducive to a balanced and sustainable growth of the economy
- Promote and maintain monetary stability and convertibility of the peso.
- Supervision over the operations of banks
- Regulatory powers over the operations of finance companies and non bank financial
institutions performing quasi banking functions.
- Sole power to issue currency in PH
- Banker of the gov
SUPERVISION includes:
1. Issuance of rules of conduct or standard operations
2. Conduct of examination of the bank and its whole owned or controlled enterprise.
- Regular examination shall not be oftener than once a year
- Decisions by the Governor of BSP on matters regarding the application or enforcement of laws
pertaining to banks may be reversed or modified by the MB.
PDIC
- Examination of banks by PDIC requires consent of the MB
- EXCEPT: If there is an impending bank closure
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ANTI MONEY LAUNDERING ACT:
MONEY LAUNDERING - A crime committed by any person who knowing that any monetary
instrument or property represents, involves or relates to the proceeds of an unlawful activity
COVERED TRANSACTION: In cash or other equivalent monetary instrument involving a total
amount IN EXCESS of 500k within 1 banking day
COVERED ENTITIES:
1. Banks, non banks, quasi banks, foreign exchange dealers, pawnshops, money changers,
remittance and transfer companies and other similar entities and all other persons and their
subsidiaries and affiliates supervised or regulated by BSP
2. Jewelry dealers in precious metals and stones who as a business trade in precious metals and
stones for transaction IN EXCESS OF 1M
- Lawyers and accountants acting as independent legal professionals are not covered with
respect to privilege information covered by confidentiality and attorney-client relationship.
SUSPICIOUS TRANSACTIONS (Regardless of the amount where any is present:)
1. No underlying legal or trade obligation purpose or economic justification
2. Client is not properly identified
3. Amount involved is not commensurate with the business or financial capacity
4. Taking into account all known circumstances, it may be perceived that the client’s
transaction is structured in order to avoid being the subject of reporting requirements
5. Any circumstance relating to the transaction which is observed to deviate from the profile of
the client
6. Related to unlawful activity
7. Analogous circumstances
OBLIGATIONS OF COVERED INSTITUTIONS
1. Establish and record the true identity of the clients based on official documents
2. All records shall be stored for 5 years from dates of transaction
3. Covered institutions shall report to AMLC all covered or suspicious transactions within 5
working days from occurrence
- Conviction of unlawful activity is not necessary before report is made.
FREEZING OF MONETARY INSTRUMENT OR PROPERTY
- CA may issue Freeze order under the following conditions:
1. Exparte petition by AMLC
2. CA must determine probable cause that such property is related to an unlawful activity
3. Freeze order shall be effective immediately
4. Freeze order shall be for a period of not exceeding 6 MONTHS
5. ONLY SC may issue TRO or writ of injunction against freeze orders
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- AMLC may inquire and examine banks with or without court order in exceptional
circumstances.
WITH COURT ORDER:
1.Examination based on exparte application on deposits or investments including related
accounts.
- CA must act within 24 hours from application
NO COURT ORDER:
1. Kidnapping for ransom
2. Comprehensive dangerous drugs
3. Hijacking
4. Terrorism and conspiracy to commit terrorism
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WAREHOUSE RECEIPTS LAW
Document of title to goods - Includes any bill of lading, dock warrant, quedan, or warehouse
receipt or order for the delivery of goods or any other document used in the ordinary course of
business in the sale or transfer of goods as proof of possession or control of the goods or
authorizing or purporting to authorize the possessor of the document to transfer or receive either
by indorsement or delivery
Bill of Lading - receipt of goods for shipment issued by common carrier
Warehouse receipt - issued by warehouseman
Quedan - warehouse receipt of sugar
Dock warrant - given by the dock owners to the owner of the merchandise imported and
warehoused on the dock
- A warehouse receipt in which it stated that the goods received will be delivered to order or to
bearer or to any person named in such receipt is NEGOTIABLE.
- Any insertion stating that it is non negotiable shall be VOID.
NEGOTIATION:
1. Delivery only if:
1. To bearer
2. To the order of a specified person and such person or subsequent indorsee of receipt has
indorsed it in blank
- A bearer instrument is not always a bearer instrument. A special enforcement has the effect of
converting it into order instrument.
2. Indorsement and Delivery if:
1. Order document - If it states that the goods are to be delivered to the order of a
person named therein
- The transfer of title to the purchaser for value is not affected by the rights of the vendor.
- No seller’s lien or right of stoppage in transitu may defeat the rights of any purchaser for
value and in good faith to whom such receipt is negotiated.
- A pledgee is in the same footing as a vendee except that the former is under obligation of
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surrendering his title upon the payment of debt
Even a thief or one who defrauds another may negotiate a receipt but it should be in such a
form that he need not to forge any signature
- Forged indorsement - inoperative
- The transferor is not a guarantor to the performance of the obligation of the warehousemen
as the case may be. The indorser will not be liable upon the failure of warehouseman to
deliver.
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NON NEGOTIABLE RECEIPTS
- If it states that the goods received will be delivered to the DEPOSITOR or to any other specified
person
- No words of negotiability (order or bearer)
- A non negotiable receipt shall have plainly placed upon its face NON NEGOTIABLE.
- Failure to do so: A holder may at his option treat such as if negotiable
- The transferee has the right to notify the warehouseman of the transfer to him
- Prior such notification, the title of the transferee and the right to acquire the obligation may
-
be defeated by levy or attachment or execution upon the goods by a creditor of the
transferor or by a notification to the warehouseman by the transferor or a subsequent
purchaser.
If there is levy before the transferee notified the warehouseman, WAREHOUSEMAN SHOULD
RESPECT THE LEVY. IT DEFEATED THE TRANSFER OF NON NEGOTIABLE INSTRUMENT
- If the warehouseman withholds delivery of goods without any valid reason, he is liable for the
loss of the goods and liability cannot be eliminated by proof of exercise of due diligence
WAREHOUSEMAN’S LIEN
1. All lawful charges for storage and preservation of the goods
2. All lawful claims for money advanced, interest, insurance, transportation, labor, or other
charges and expenses
3. All reasonable charges and expenses for notice and advertisement of the sale and for sale
of goods where default had been made in satisfying the warehouseman’s lien
- Such charges must be stated and are present at the time of the issuance of the receipt
PROPERTIES SUBJECT TO LIEN:
1. Against all goods, whenever deposited, belonging to the person who is liable as debtor for
the clads in regard to which the lien is asserted
2. Against all goods belonging to others which have been deposited at any time by the person
who is liable as debtor for the claims in regard to which the lien is asserted if such person had
been so entrusted with the possession of the goods that a pledge of the same by him at the
time of deposit to one who took the goods in good faith for value would have been valid.
LOSS OF LIEN:
1. Surrendering the thing
2. Refusing to deliver the goods when demand is made with which he is bound to comply
- While in the possession of the warehouseman, goods cannot be attached or garnished or
-
levied upon under an execution UNLESS receipt be first surrendered to the warehouseman or
negotiation enjoined.
- Remedy: Creditor may seek for the attachment of the receipt or compel the holder to
deliver the receipt by Injunction.
Warehouse receipts law is not applied if owner merely rents space to certain groups of
persons.
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LETTERS OF CREDIT
LETTERS OF CREDIT (LC)
- An engagement by a bank or other person made at the request of a customer that the issuer
will honor drafts or other demands for payment upon compliance with the conditions
specified in the credit.
- It must be issued in favor of a definite person
- Amount shall be fixed and maximum shall be stated exactly
PARTIES IN LC
1. BUYER - One who procures the letters of credit and obliges himself to reimburse the issuing
bank upon receipt of the documents of title
2. ISSUING BANK - Undertakes to pay the seller upon receipt of the draft and proper documents
of title and to surrender the documents to the buyer upon reimbursement
3. SELLER - one who ships the goods and delivers the documents of title and draft to the issuing
bank to recover payment
OTHER PARTIES:
1. ADVISING BANK - Convey to the seller the existence of credit
2. CONFIRMING BANK - Directly liable to pay the seller
3. PAYING BANK - encase the drafts drawn by exporter or seller
4. NEGOTIATING BANK -Discounting the drafts issued
- The liability of the issuing bank is SOLIDARY with the buyer.
INDEPENDENT CONTRACTS:
1. Contract of sale between buyer and seller
2. Contract of the buyer and issuing bank
3. Contract of the issuing bank and the seller (LC proper)
DOCTRINE OF INDEPENDENCE - Contracts involved in LC are to be maintained in a state of
perpetual separation.
- The undertaking of the bank is not subject to the claims or defenses by the applicant resulting
from his relationship with the issuing bank or the beneficiary.
- The beneficiary cannot avail himself of the contractual relationships existing between banks or
between the applicant and issuing bank
- The bank only deals with the documents and not with goods which they may relate
- The bank has no duty to verify whether the goods shipped are the goods stipulated by buyer
and seller
FRAUD EXCEPTION PRINCIPLE
- Doctrine of independence will not be applied as an exception when there is fraud or forgery
in the underlying transaction or tender of documents
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DOCTRINE OF STRICT COMPLIANCE
- The issuing bank or confirming bank must examine the tender documents and must make sure
that the terms and conditions of the LC are strictly complied with.
- The tender documents must not only be complete but they must on their faces be in
compliance with the terms of the LC.
- Documents which are not stipulated as tender documents will not be examined.
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TRUST RECEIPT LAW
TRUST RECEIPT - A security transaction intended to aid in financing importers or dealers in a
merchandise by allowing them to obtain delivery of goods under certain covenants
Entrustee - Person having or taking possession of goods, documents, or instruments under a trust
receipt transaction
Entruster (Bank) - Person holding title over the goods, documents, or instruments subject of a trust
receipt transaction.
Goods - Include chattels and personal property other than money, things in action or things so
affixed to land as to become party thereof
Security Interest - Property interest in goods, documents or instruments to secure performance of
some obligations of the entrustee or of some third persons to the entruster
- Sale of goods, documents, instruments by person in the business of selling goods, documents
-
or instruments for profit who at the outset of the transaction has as against the buyer general
property rights in such goods who sells the same to the buyer on credit retaining title as
security of the payment of the purchase price does not constitute trust receipt.
Entruster usually releases the goods to entrustee so that the latter may sell.
Entrustee may be held liable under TRL even if goods where released by virtue of trust receipt
but were not resold but used as spare parts for machineries.
OBLIGATION OF ENTRUSTER: To release the possession of the goods to entrustee upon the latter’s
execution of the TR
OBLIGATIONS OF ENTRUSTEE:
1. Bind himself to hold the goods in trust for the entrusted
2. Sell or otherwise dispose of the goods and turn over to the entruster the amount still owing
3. Return the goods if unsold.
- Entrustee is still liable to pay the entruster even if he returned the goods
REMEDIES OF ENTRUSTER
1. Proceeds not remitted:
1. Estafa
2. Collection case
2. Goods are still with the entrustee:
1. Cancel trust and take possession of goods
2. Sell goods and apply the proceeds to the indebtedness
3. Retaking possession and sale
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- The obligation of the entrustee is not extinguished in case of repossession and sale of the
goods. The entrustee is entitled to any surplus and entruster is entitled for the deficiency
-
No agency in TRL
Breach of TRL - Estafa
Entruster (bank) merely acquires SECURITY INTEREST over the goods.
Entrustee shall bear the loss of goods after delivery to him
Entrustee cannot mortgage the property because he does not have the free disposal of the
property to be mortgaged
Security interest of the entruster prevails as against all creditors of the entrustee for the
duration of the TR Agreement
Novation of agreement extinguishes the obligation under the TRL.
- In this case, principal conditions are incompatible with the Trust agreement.
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FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010 (FRIA)
DEBTOR - Refer to sole proprietorship duly registered with DTI, Partnership, Corporation, Individual
debtor.
INDIVIDUAL DEBTOR - Natural person who is a resident and citizen of the PH that has become
insolvent
GROUP OF DEBTORS - Corporations that are financially related to one another as parent
corporations, subsidiaries and affiliates , partnerships that are owned more than 50% by the
same person and single proprietorship that are owned by the same person
CREDITOR - Natural or juridical person which as a claim against the debtor that arose on or
before the commencement date.
COMMENCEMENT DATE - Date on which court issues the commencement order which shall be
retroactive to the date of filing of the petition.
WHO SHALL FILE AND OR APPROVE THE PETITION:
VOLUNTARY REHABILITATION
SOLE PROPRIETORSHIP
Owner/Proprietor
PARTNERSHIP
Majority of partners
CORPORATION
1. Majority of directors
2. Stockholders representing 2/3 of Outstanding capital (2/3 of members in non stock)
INVOLUNTARY REHABILITATION
SOLE PROPRIETORSHIP/ PARTNERSHIP/ CORPORATION
Creditors or group of creditors with a claim of or aggregate of
whose claim is at least 1 MILLION or at least 25% of the
subscribed capital stock or partner’s contributions which ever
is HIGHER
PRE NEGOTIATED REHABILITATION
SOLE PROPRIETORSHIP/ PARTNERSHIP/
CORPORATION
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The insolvent debtor and the rehabilitation plan is endorsed
and approved by creditors holding at least 2/3 of the total
liabilities of the debtor INCLUDING secured creditors
holding more than 50% of the total secured claim and
unsecured creditors holding more than 50% of unsecured
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- Group of debtors may JOINTLY FILE a petition for voluntary rehabilitation when one or more of
its members foresee the impossibility of meeting debts when they respectively fall due and the
financial distress would likely adversely affect the financial condition and or operations of the
other members of the group
VOLUNTARY LIQUIDATION
SOLE PROPRIETORSHIP/ PARTNERSHIP/
CORPORATION
Insolvent Debtor
INVOLUNTARY LIQUIDATION
SOLE PROPRIETORSHIP/ PARTNERSHIP/
CORPORATION
1. Three or more creditors
2. And Aggregate of whose claims is at least 1M
or at least 25% of the subscribed capital stock
or partner’s contributions of the debtor
whichever is higher
SUSPENSION OF PAYMENT
INDIVIDUAL DEBTOR
Individual Debtor
VOLUNTARY LIQUIDATION
INDIVIDUAL DEBTOR
Individual debtor with at least PHP500,000 debts
who does not have sufficient assets to cover his
liabilities
INVOLUNTARY LIQUIDATION
INDIVIDUAL DEBTOR
Any creditor or group of creditors with a claim of
or with claims aggregating to at least 500,000
EXCLUDED DEBTORS:
1. Banks
2. Pre need companies
3. Insurance companies
4. National and local government agencies
REHABILITATION - Restoration of the debtor to a condition of successful operation and solvency
REHABILITATION OF SPC (SOLE/PAT/CORPO)
1. VOLUNTARY REHABILITATION
- In a verified petition the following must be alleged:
1. Insolvency of the debtor
2. Viability of its rehabilitation
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2. INVOLUNTARY REHABILITATION
- May be filed if:
1. There is no genuine issue of fact or law on the claim of the petitioner and that the due and
demandable payments thereon have not been made for at least 60 days of that the debtor
has failed generally to meet its liabilities when they fall due.
2. A creditor other than the petitioner has initiated foreclosure proceedings against the debtor
that will prevent the debtor from paying its debts as they become due or will render it
insolvent
VOLUNTARY
Debtor is insolvent
INVOLUNTARY
Debtor is insolvent
Acts of insolvency need not be alleged and proved
Acts of insolvency mist be proved and alleged
Debt must be at least 500k
Debts must be at least 500K
Individual debtor files the petition
A creditor or group of creditors files the petition
Debtor is not absent as he files the petition
May be filed even in the absence of the debtor
Posting of bond is not required
Posting of bond is required
Liquidation Order is issued without trial
Order is issued after trial
INVOLUNTARY LIQUIDATION OF INDIVIDUAL
DEBTORS
BUSINESS ORGANIZATION
At least 3 creditors
1 or more creditors
Debt must be at least 500k
Debt or aggregate of debts must be at least 1M or
equivalent to 25% of the subscribed capital or
partner’s contribution whichever is HIGHER
Continues to do business
Business organization is dissolved
There must be an act of insolvency
Act of insolvency is not required
REHABILITATION PLAN - A plan by which the financial well being and viability of an insolvent
debtor can be restored using various means.
- A rehabilitation plan is attached to the petition for rehabilitation. It is indispensable
- It may be approved by the creditors or confirmed by the court after approval of the creditors
even without such approval or even without such approval or even over the objection of the
creditors.
CRAM DOWN RULE -Rehabilitation plans confirmed by the court shall be binding upon the
debtors and all persons who may be affected by it including creditors, whether or not such
persons have participated in the proceedings, opposed the plan or whether or not their claims
have been scheduled.
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STAY ORDER - Included in the commencement order.
It shall:
1. Suspend all actions or proceedings in court or otherwise for the enforcement of claims
against the debtor.
2. Suspend all actions to enforce any judgment attachment or other provisional remedies
against the debtor
3. Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in ordinary course of business.
4. Prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided therein.
- Commencement order and Stay order shall be effective for the entire duration of the
rehabilitation.
SUSPENDED CLAIMS:
CLAIM - All claims or demand of whatever nature or character against the debtor or its property.
- Claims of passengers against common carrier for missing luggages is a money claim that
-
requires to be suspended pending the rehabilitation proceedings
Employees’ claims are covered by the suspension
Cases for revocation of a contract of sale and restitution of the price filed before the HLURB is
covered by the suspension
- Stay order covers all creditors, secured or unsecured. The preferred status over the unsecured
creditors relative to the mortgage liens is retained but the enforcement of such preference is
suspended.
EXCEPTIONS TO STAY OR SUSPENSION ORDER:
1. Cases already pending in the SC as of the commencement date.
2. Cases pending or filed at a specialized court or quasi judicial agency which upon
determination of the court is capable of resolving the claim quickly
3. Enforcement of claims against sureties and other persons solidarily liable and third party
accommodation mortgagors as well as issuers of letters of credits unless the property subject
of the third party accommodation is necessary for the rehabilitation of the debtor.
4. Any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter.
5. Actions of licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities.
6. Clearing and settlement of financial transactions through the facilities of a clearing agency
or similar entities duly authorized, registered and or recognized by appropriate regulatory
agency.
7. Criminal action against the individual debtor or owner or partner or officer SHALL NOT BE
AFFECTED by any proceeding commenced under FRIA
- The existing board or management of the debtor shall continue
- Management can be replaced upon motion in the following cases:
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1. Actual or eminent danger or dissipation, loss, wastage or destruction of the debtor’s assets or
properties.
2. Paralyzation of the business operations of the debtor
3. Gross mismanagement of the debtor or fraud or other wrongful conduct on the part of or
gross or willful violation of the FRIA by existing management of the debtor owner, partner,
director, officer or representative.
COURT ACTION FOR PETITION FOR REHABILITATION:
1. GIVE DUE COURSE IF:
1. Debtor is insolvent
2. Substantial likelihood for the debtor to be successfully rehabilitated.
2. DISMISS THE PETITION:
1. Debtor is not insolvent
2. Petition is sham filing intended for delay
3. Attachments in Rehabilitation plan contains materially false and misleading statements
4. Debtor has committed misrepresentation or fraud of creditors
3. CONVERT TO LIQUIDATION IF:
1. Debtor is insolvent
2. There is no substantial likelihood for the debtor to be successfully rehabilitated.
OUT OF COURT REHABILITATION REQUIREMENTS:
1. Debtor must agree to the out of court or informal restructuring/workout agreement or
rehabilitation plan
2. Approved by the creditors representing at least 67% of the SECURED OBLIGATIONS
3. Approved by creditors representing at least 75% of the UNSECURED OBLIGATIONS
4. Approved by the creditors holding at least 85% of the TOTAL LIABILITIES. SECURED AND
UNSECURED.
STANDSTILL PERIOD REQUISITES:
1. Agreement is approved by creditors representing at least 50% of the total liabilities of the
debtor
2. Notice is published in newspaper 1 for 2 weeks
3. Standstill period shall not exceed 120 days from the date of effectivity
- Cram down rule applies upon PUBLICATION of the notice of the out of court approved
rehabilitation plan.
SUSPENSION OF PAYMENTS
- Only an INDIVIDUAL DEBTOR may file
REQUISITES:
1. Debtor has sufficient properties to cover all his debts but he forces the impossibility of
meeting his debts when they respectively fall due
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2. Purpose is to suspend or delay the payment of debts
3. Amount of indebtedness is not affected, reduced or discharged
4. Number of creditors is immaterial
SUSPENSION ORDER IN SUSPENSION OF PAYMENT
- Filed by the individual debtor, the court may issue an order suspending any pending
execution against the individual debtor
- Secured properties shall not be subject to suspension orders
- Suspension orders shall lapse when three months shall have passed without the proposed
agreement being accepted by the creditors or as soon as such agreement is denied.
- No creditor shall sue or institute proceedings to collect his claim from the debtor from the time
of the filing for suspension of payments and for as long as proceedings remain pending
SUSPENSION OF PAYMENTS
LIQUIDATION
Debtor is not insolvent.
Debtor is insolvent
Payment of obligations is stayed
Obligations are DISCHARGED
Applies only to individual debtors
Covers juridical persons and individual debtors
May be filed by the debtor
May be initiated by the debtors or creditors
No minimum amount prescribed
Debt shall be not less than 500K
Rules on concurrence and preference of credits DO
Concurrence
NOT APPLY
and preference of credits applies
EXCEPTIONS: (NOT AFFECTED BY THE STAY ORDER)
1. Creditors having claims for personal labor, maintenance, expense of the last illness and
funeral of the wife or children of the debtor incurred in the 60 days immediately prior to the
filing of the petition.
2. Secured creditors
PROHIBITED ACTS
1. Individual debtor is prohibited from selling, transferring except those used in the ordinary
operations of commerce or of industry in which the petitioning individual debtor is engaged.
2. Making any payment outside the necessary or legitimate expenses of his business or industry
- Proposed agreement shall be approved or rejected in Creditors’ meeting.
- The presence of creditors holding claims amount to at least 3/5 of the liabilities of the debtor is
-
necessary for the meeting
A creditor has NO RIGHT TO VOTE IF HE INCURRED HIS CREDIT within 90 days prior to the filing of
the petition for suspension.
DOUBLE MAJORITY - necessary for the approval.
1. 2/3 of the creditors voting unite upon the same proposition
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2. Majority vote to at least 3/5 of the total liabilities of the debtor mentioned in the petition.
- If no approval from the creditors, suspension shall be terminated and creditors shall have the
liberty to enforce their rights to the debtor
LIQUIDATION OF INDIVIDUAL DEBTORS:
LIQUIDATION PROCESS
- Proceeding where claims are filed and the assets of the insolvent debtor are disposed and the
proceeds are divided among the creditors
EFFECTS OF LIQUIDATION ORDER:
1. Juridical debtor shall be deemed dissolved and juridical existence terminated
2. Legal title to and control of all assets shall be deemed vested in the liquidator except those
exempted from execution
3. All contracts of the debtor shall be deemed terminated unless the liquidator within 90 days
from the date of his assumption of office declares otherwise and parties agree
4. No separate action for collection of the unsecured claim shall be allowed.
5. No foreclosure proceeding shall be allowed for a period of 180 days
- Liquidation order shall not affect the right of the secured debtor to enforce his lien
- Secured creditor may waive his right or maintain his right
- Even if a secured creditor will maintain his right over the security or lien, the right is subject to
-
temporary stay of foreclosure proceedings for a period of 180 days from the issuance by the
court of the Liquidation order.
The assets of the insolvent debtor shall be divided among the creditors in accordance with
the liquidation plan.
The rules on the concurrence or preference of credits shall be observed in the liquidation plan
There is preference with respect to taxes ONLY under Art 2241 and 2242
As to all other claims or liens, there is no order of preference
The excess of the specific property if any after the payment of the credits which enjoy
preference shall be added to the free property which the debtor may have for the payment
of the other credits
BIR cannot require that a tax clearance is first secured before the distribution is made
The trust fund of the insolvent Pre need company is not part of the estate of the said insolvent.
CROSS BORDER INSOLVENCY
- If there is a rehabilitation proceeding filed by a foreign entity in another jurisdiction, a petition
may be filed by the latter’s representative and the court may issue orders:
1. Suspending any action to enforce claims against the entity located in the PH
2. Requiring the surrender of the property of the foreign entity to the foreign representative
3. Providing other reliefs.
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TRANSPORTATION LAW:
COMMON CARRIER (CC)- Persons, corporations, firms or associations engaged in the business of
carrying or transporting goods or passengers or both by land, water or air for compensation
offering their service to the public.
COMMON CARRIERS
PRIVATE CARRIER (PC)
Persons, corporations, firms or associations
Undertaking is a single transaction, not part of the
engaged in the business of carrying or transporting general business or occupation although involving
goods or passengers or both by land, water or air
the carriage of goods for a fee - ONLY PC
for compensation offering their service to the
public.
Available to all persons who chose to employ
him, ready to carry for hire
Agrees in some special case with some private
individual
Subject to regulation of public service act
Not subject to such
Bound to exercise extraordinary diligence
Only Diligence of a good father of a family
(DOAGFOAF)
Cannot stipulate that it is exempt from liability
for the negligence of agents or employees
(VOID - AGAINST PUBLIC POLICY)
May validly enter such stipulation
TRUE TEST: Whether the undertaking is part of the activity engaged in by the carrier that he has
held out to the general public as his business or occupation.
-
Pipeline operators are common carriers. Business of transporting oil can be considered CC
Motor vehicle is not required to be CC
It is not required that there is a known route
BAREBOAT OR DEMISE charter transforms CC to Private carrier.
Contract of affreightment like voyage and time charter does not transform it to Private carrier.
A customs broker who offers services to select parties to transfer goods to warehouse is CC.
You may be a CC even when you have a limited clientele
If the principal business of the petitioner is that of lighterage and drayage and it offers its
barges to public for transporting by water for compensation - CC
Whether it is done on an irregular basis or scheduled manner, May still be considered as CC
School bus operators are CC
Civil code does makes no distinction whether the business activity must be principal or merely
ancillary. Hence it may be either provided that they comply with the requisites of CC
GOVERNING LAWS:
1. Coastwise shipping: NCC and Code of commerce
2. By sea from Foreign to PH: NCC, COC Cogsa
3. By sea from PH to foreign: Law of the country to which the goods are to be transported
4. Overland transportation: NCC and COC
5. Air transportation: NCC and COC. For international - WARSAW CONVENTION
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PRESUMPTION OF NEGLIGENCE: In case of loss, death or injuries to passengers, CC is presumed to
be at fault or have acted negligently. The court need not make an express finding of fault or
negligence
- Presumption makes the doctrine of proximate cause inapplicable.
DEFENSES OF COMMON CARRIERS: (SC: EXCLUSIVE)
1. Exercise of extraordinary diligence
2. Floor, storm, earthquake, lightning, other natural disasters or calamities
3. Acts of the public enemy in WAR whether international or civil
4. Act or omission of the shipper or owner of the goods
5. Character of goods or defects in the packing or in the containers
6. Order or act of the competent public authority
- Hijacking of carrier does not fall among the exceptions. Thus, common carrier is presumed to
-
be at fault or have acted negligently unless there is proof of extraordinary diligence on the
part of the common carrier.
In a case, CC was not held liable where the goods were lost as a result of robbery attended
by grave irresistible threat, violence or force.
Also a CC was not held liable for its failure to install grills on its buses to protect passengers from
injuries caused by rocks hurled at the bus by lawless elements
FORTUITOUS EVENT (FE)
1. Cause of the unforeseen and unexpected occurrence or of the failure of the obligor to
comply with the obligation independent of human will
2. Impossible to foresee or impossible to avoid
3. It must render it impossible to fulfill the obligation
4. Obligor must be free from any participation in or the aggravation of the injury
-
Barge tossed by the strong winds - FE
FE to be a valid defense must be established to be the proximate cause of the loss
Contributory negligence on the part of the negligence is ONLY MITIGATING
Carrier knowing the fact of improper packing of goods and still accepts the goods IS NOT
RELIEVED FROM LIABILITY OR LOSS RESULTING THEREFROM
DURATION OF LIABILITY
1. Goods (Extraordinary diligence only is required)
- Starts from the time the goods are unconditionally placed in the possession of and received
by the carrier UNTIL delivered actually or constructively by the carrier to the consignee or to
the person who has the right to receive.
- Remains in full force even them temporarily unloaded or stored in transit.
- UNLESS: RIGHT TO STOPPAGE IN TRANSITU IS INVOKED. (CC is only a bailee)
2. PASSENGERS (Utmost diligence)
- The moment the person who purchases the ticket from the carrier presents himself at the
proper place and in a proper manner to the transported.
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There must be bonafide intention to use the facilities of the CC
Once a bus stops, it is in effect making a continuous offer to bus riders.
Alighting or stepping and standing on the platform of the bus - LIABILITY ARISES.
A person bought a ticket in LRT and fell while he was on the platform waiting for the train - CC
is liable.
TERMINATION: Until the passenger after reaching his destination safely alighted from the carrier’s
conveyance or has reasonable opportunity to leave the premises.
- A person after alighting from the train who walks along the station platform is STILL considered
-
passenger.
The passenger should be given reasonable time to leave the premises.
In a case, the husband was still getting the baggage to the truck, the child followed and the
child died - STILL PASSENGER. CC IS LIABLE
- If he is still in the premises and received a call that his brother was shot in the bus, he
-
immediately returned in the bus. - STILL A PASSENGER PROTECTED BY LAW.
Passenger was waiting to retrieve her baggage - still passenger
LIABILITY FOR ACTS OF EMPLOYEES AND STRANGERS
EMPLOYEES
- CC is liable for the death or injuries through the negligence or willful acts of his employees
although they acted beyond the scope of their authority.
- It does not cease upon the proof that they exercised DOAGFOAF in the selection and
supervision of the employees.
- It extends only to those acts which the CC could foresee or avoid through the exercise of
diligence
- IF NOT ON DUTY - NOT EMPLOYEE. treated as Strangers
STRANGERS/PASSENGERS:
- CC is liable for the injuries suffered by a passenger on account of willful acts or negligence of
other passengers if the CC through the exercise of DOAGFOAF could have prevented such
act.
REDUCTION OF DILIGENCE:
- Parties cannot stipulate TOTAL EXEMPTION of the carrier from exercising degree of diligence or
be it less than DOAGFOAF.
- May only stipulate LESS THAN EXTRAORDINARY DILIGENCE BUT NOT LESS THAN DOAGFOAF
REQUISITES FOR REDUCTION:
1. In writing signed by both parties
2. Valuable consideration other than the service rendered
3. Stipulation is reasonable and not contrary to law.
VALID STIPULATIONS LIMITING LIABILITY:
1. Agreement limiting the common carrier’s liability for delay on account of strikes and riots
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2. CC’s liability shall be limited to the value of the goods appearing in the bill of lading
3. Contract fixing the sum to be recovered as long as it is freely agreed upon
4. When passenger is carried GRATUITOUSLY, a stipulation limiting LIABILITY for negligence is valid
but not for willful acts or gross negligence. MERELY REDUCING THE FARE IS NOT SUFFICIENT.
INVALID STIPULATIONS WITH CC:
1. Goods are transported at the risk of the owner
2. Carrier will not be liable for any loss or destruction or deterioration of the goods
3. Carrier need not observe any diligence
4. Diligence less than DOAGFOAF
5. Not responsible for acts of employees
6. Not liable to acts committed by thieves or robbers who do not act with grave or irresistible
threat, violence or force
7. Not responsible for the loss of goods on account of the defective condition of the car,
vehicle, ship
CARRIAGE OF GOODS BY SEA ACT (COGSA)
- Goods shipped FROM FOREIGN to PH by Sea
- Liability of carrier is $500 per package in the absence of a shipper’s declaration of a higher
value.
- if shipped in carton, Each carton is considered a package regardless if they are stored in
container vans.
- Declaration of the shipper of a higher value may be expressed in bill of lading
- It does not require that all details must be written down
- It is sufficiently complied by incorporating the invoice by way of reference to the bill of
lading. There must be an incorporation by reference and mere indication of the invoice
number is not sufficient
REGISTERED OWNER RULE: The person who is the registered owner of a vehicle is liable for any
damage caused by the negligent operation of vehicle although it was already sold or
conveyed to another person at the time of the accident.
EXCEPTION: When the vehicle is taken from his garage without the consent or knowledge = NOT
LIABLE
KABIT SYSTEM - Arrangement whereby a person who has been granted with the certificate of
public convenience allows other persons to operate under his license or name.
- Not outrightly penalized by law but is VOID because it is contrary to public policy
- REGISTERED OWNER RULE IS STILL APPLICABLE
- A jeepney under kabit system may still be levied upon by the creditors of the registered owner.
The registered owner is still the owner of the vehicle.
CAUSE OF ACTION
1. Driver - Quasi delict
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2. Common carrier - Culpa contractual
- In culpa contractual, the registered owner is only liable because the driver is only an
employee.
- If the negligence of third persons concurs with the breach, the liability of the their person who
was driving the vehicle is based on QUASI DELICT. The third person alone may be held
criminally liable.
- In case of negligence of driver and third person concurs, the liability is JOINT AND SEVERAL.
- The legal relationship of Arrastre operator and consignee = DEPOSITOR AND WAREHOUSEMAN
- Consignee and Common carrier - Similar as above
- The duty of the arrastre operator is to take care of the goods that are in its custody and deliver
them in good condition to the consignee.
- Arrastre and common carrier may be held SOLIDARILY LIABLE
BAGGAGE IN PERSONAL CUSTODY OF THE PASSENGER:
- Considered as necessary deposits
- If loss due to passenger’s fault - CC is not liable
BAGGAGE IN CUSTODY OF THE CARRIER:
- Extraordinary diligence must be observed
- If lost, destroyed - CC presumed negligent
- In maritime law, the second carrier shall assume obligation of the first carrier but the second
-
carrier has cause of action against the first if the latter is directly responsible for the fault.
An airline ticket providing that carriage of successive air carriers is to be regarded a SINGLE
OPERATION. The issuer-carrier shall be liable. A printed provision in the ticket shall not be
enough to rebut liability
MARITIME LAW
MARITIME LAW - System of laws which particularly relates to the affairs and business of the sea to
ships, crews and navigation and to marine conveyance of persons and property
Ship - Any kind, class or type of craft or artificial contrivance capable of floating in water,
designed to be used or capable of being used as a means of water transport for the carriage of
passengers or cargo.
- Vessels are registered in marina
- An unregistered transfer hall not affect third persons but is considered binding on the parties
- Philippine flag vessel is one that is registered in PH laws
REAL AND HYPOTHECARY RULE - Obligations are secured or hypothecated by the vessel. The
security is real because the obligation follows the verse NO VESSEL. NO LIABILITY. THUS, There is
limitation of the liability to the actual value of the vessel and freight money (LIMITED LIABILITY
RULE)
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- The total destruction of the vessel extinguishes maritime lien, as there is no longer any res to
which it can attach
IT APPLIES:
1. Civil liability for indemnities in favor of third persons which arise from the conduct of the
captain in the care of the goods which the vessel carried
2. Civil liability arising from collisions
3. Unpaid wages of captain and crew.
IT IS NOT APPLICABLE:
1. When the injury or the death of a passenger is due either to the fault of the ship owner or to
concurring negligence of the ship owner and captain
2. Vessel is insured but only to the extent of the insurance proceeds
3. Workmen’s compensation claims
- Limited liability rule does not apply if the carrier failed to overcome the presumption of
-
negligence
Ship owner may be except from liability by abandoning the vessel with all her equipment and
freight
It is the SHIPOWNER who can invoke the limited liability rule.
Charterer cannot invite the limited liability rule as a defense especially against shipowner.
No claimant shall be given preference over the others by the simple expedience of having
filed or completed its action earlier than the rest
A foreign vessel that is undertaking co-loading and cabotage is not considered a common
carrier. Carriage shall be governed by COGSA
CO LOADING - agreements between two or more international or domestic sea carriers
whereby a sea carrier is bound for a specified destination agrees to load, transport and unload
the container van or cargo of another carrier bound by the same.
MARITIME PROTEST - Written statement by the master of the vessel or any authorized officer
attested by proper officer or a notary to the effect that damages has been suffered
IT IS REQUIRED IN:
1. Arrival under stress
2. Shipwreck
3. Where vessel has gone through hurricane or captain believes that the cargo has suffered
damages
4. Collision
COLLISION
DOCTRINE OF INSCRUTABLE FAULT -Where the fault is established but it cannot be determined
which of the two vessels were at fault, both shall be deemed to have been at fault.
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- If collision was due to fault of a party, he shall be liable for loss or damage
- If both vessels are at fault - each vessel shall suffer its own losses but the owners of the vessels
shall be SOLIDARILY liable for the cargoes
- If the cause is a Fortuitous event - EACH SHALL BEAR ITS OWN DAMAGE
- By reason of third vessel - Third vessel will be liable
- A vessel which is properly anchored and by reason of storm caused damage - vessel shall
suffer own expense.
DOCTRINE OF ERROR IN EXTREMIS
- If a vessel having right of way suddenly changes its course during the third zone in an effort to
avoid an imminent collision due to the fault of another vessel, such act may be said DONE IN
EXTREMIS and if wrong cannot create responsibility on the part of the said vessel.
1. FIRST ZONE - Time up to the moment when risk of collision begins
2. SECOND ZONE - Time between women when risk of collision begins up to the moment that it
becomes practical certainty
3. THIRD ZONE - When collision is certain up to the time of impact
ARRIVAL UNDER STRESS - Arrival to the nearest and most convenient port if during the voyage,
the vessel cannot continue the trip to the port of destination because of:
1. Lack of provisions
2. Well founded fear of seizure, privateers or pirates
3. Any accident of the sea disabling it to navigate
PERSONS INVOLVED IN MARITIME COMMERCE
1. Ship owners and agents
2. Captains and masters
3. Officers and crew
4. Supercargoes
SHIP AGENT - Entrusted with the provisioning and representing the vessel in the port in which it
may be found.
His liability is the same as the shipowner. He is solidarily liable with the owner.
ROLES OF CAPTAIN/MASTER
1. General agent of shipowner
2. Commander and technical director
3. Government representative of the country under whose flags navigates
- The captain has management and fiduciary functions.
- The responsibility of the captain remains even if the vessel is on a compulsory pilotage
GROUNDS FOR DISCHARGE OF CAPTAIN
1. Insubordination in SERIOUS matters
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2. Robbert or theft
3. Habitual drunkenness
4. Damage caused to the vessel through malice or manifest negligence
SUPERCARGOES - Person who discharges administrative duties assigned to him by ship agent or
shippers keeping an account and record of transaction as required in the accounting
DESERTION -A seaman deserts and abandons a ship or vessel before the expiration of his term or
duty.
GENERAL AND PARTICULAR AVERAGE (Check discussion in insurance)
FORMALITIES TO BE COMPLIED FOR GENERAL AND PARTICULAR AVERAGE:
1. Resolution of the captain adopted after a deliberation with the other officers of the vessel
and after hearing
2. Entered in the log book
CHARTER PARTY - A contract by which with the entire ship or some principal part thereof is let by
the owner to another person for a specified period of time or use.
TYPES:
1. Demise or Bareboat - Let to the charterer which transfers to him ITS ENTIRE COMMAND and
possession and consequent control over its navigation including the master and crew.
- OWNER PRO HAC VICE. It becomes a PRIVATE CARRIER
2. Contract of Affreightment - Involves the use of shipping space leased by the owner in part or
as a whole to carry goods for others.
KINDS OF AFFREIGHTMENT
1. Time Charter - for a fixed period of time
2. Voyage Charter - For a single voyage
BILL OF LADING (BOL) - Written acknowledgment of receipt of goods and agreement to
transport them to specific place to a person named or his order.
- Consignee and shipper who accepts a bill of lading even without signing are bound by the
terms and conditions thereof.
- Obligation of carrier is also terminated if the goods are delivered even if the bill of lading was
-
not surrendered.
Surrender of BOL is not necessary for discharge
Acceptance is implied if he claims reimbursement for missing goods and files.
LOANS ON BOTTOMRY AND RESPONDENTIA
1. Bottomry - Loan secured by the shipowner or ship agent by the vessel itself and payable only
upon arrival of vessel at destination
- This can also be secured by the captain outside the residence of the shipowner
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2. Respondentia - Loan secured by the owner of the CARGO payable upon safe arrival of
cargo at destination. The shipowner, ship agent or captain cannot secure this loan
ORDINARY LOAN
Right to recover from the debtor is not
extinguished if thing put up as security is lost
or destroyed.
LOAN ON BOTTOMRY AND RESPONDENTIA
Right to recover is extinguished if the thing put up
as security is lost or destroyed.
PROCEDURE AND PRESCRIPTIVE PERIOD FOR CLAIMS
1. COASTWISE OR WITHIN PH: (PH LAW APPLIES)
1. CLAIM WITH CARRIER (CONDITION PRECEDENT)
1. File immediately if damage is APPARENT
2. Within 24 hours from delivery if NOT APPARENT
2. FILE A CASE IN COURT
1. Within 6 years if no bill of lading was issued
2. Within 10 years if BOL was issued
2. INTERNATIONAL CARRIAGE (COGSA APPLIES)
1. CLAIM WITH CARRIER (NOT CONDITION PRECEDENT)
1. File Immediately if APPARENT
2. Within 3 DAYS from delivery if NOT APPARENT
2. FILE A CASE IN COURT
1. Within 1 year from discharge
- In COGSA, Prescription of 1 year will start after the DELIVERY of goods or the date the goods
-
should have been delivered.
- It does not apply with conversions or misdelivery. In such case, it starts from the delivery to
arrester operator
A stipulation reducing 1 year period is NULL AND VOID.
A written stipulation to SUSPEND is valid.
Rule of prescription applies with collision but it starts when the goods should have been
delivered had the cargoes been saved.
Prescription period is not suspended by EXTRAJUDICIAL DEMAND.
The insurer who is exercising its right of subrogation shall also be bound by the prescriptive
period.
The period does not apply to claim against the insurer for insurance proceeds. It shall be
bound by the policy or it expires for 10 years if no stipulation
Period shall NOT APPLY to damage arising from delay or late delivery. Applicable period is 10
years.
MARITIME LIEN - Akin to a mortgage lien that in spite of the transfer of ownership the lien is not
extinguished.
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- Maritime lien is inseparable from the vessel. (Quasi in rem)
SALVAGE - Where a person or persons picks up and conveys to a safe place a vessel or its cargo
which are beyond the control of the crew or shall have been abandoned by them
- It may be subject to a contract (Voluntary salvage)
REQUISITES:
1. Marine peril
2. Vessel is shipwrecked beyond the control of the crew or shall been abandoned
3. Service of picking up and conveying the vessel is voluntary rendered
4. Service must have been successful in whole or in part
- The salvor is entitled to reward or compensation.
- The reward shall be divided between the owner, captain ad crew
WARSAW CONVENTION
- Applies to international transportation BY AIR.
INTERNATIONAL TRANSPORTATION WHEN:
1. The place of departure and place of destination are within the territories of two contracting
countries regardless of whether or not there was a break in the transportation
2. Place of departure and place of destination are within the territory of a single contracting
country if there is an agreed stopping place within a territory subject to the sovereignty,
mandate or authority of another power.
- It does not cover any transportation by land, sea or outside airport.
CARRIER’S LIABILITY
1. Passenger - If injury took place on board or in the course of any operations of embarking or in
the course of disembarking or when there was or because of delay
2. Checked baggage - Occurred DURING air transportation or when there is delay.
LIMIT OF LIABILITY
1. PASSENGERS: $100,000 FOR THE DEATH
Except: By special contract the carrier and passenger agrees higher limit
2. Carriage of registered baggage and cargo: $1,000 per kilo
EXCEPT:
1. Special declaration of interest and has paid additional payment
2. Damage due to willful misconduct
3. Damage or loss due to gross negligence
4. Absence of baggage check
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5. Did not issued ticket
6. Waiver by the carrier
- Total weight of the package shall be considered.
3. HAND CARRY BAGGAGES: $1,000
- Complaint for quasi delict can still be filed even if the filing is beyond the prescriptive period as
stated in the convention as long as it is within the prescriptive period of 4 years under NCC
JURISDICTION:
1. Court where the carrier is domiciled
2. Court where the carrier has its principal place of business
3. Carrier has establishment by which the contract has been made
- Allegations of tortious conduct committed against an airline passenger during the course of
international carriage do not bring the case outside the ambit of warsaw convention.
NOTICE OF CLAIM
- Mandatory and condition precedent.
- It must be filed with the international carrier within:
1. Baggage - 3 days from receipt
2. Baggage - In case of delay of delivery, within 14 days from the time the bag was placed at
the disposal of the passenger
3. Goods: 7 days from delivery
PRESCRIPTION:
1. 2 years from receipt in case of Action for damage to passenger baggage
2. 4 years - Tort including humiliation at the hands of airline employees.
-
Overbooking is not per se prohibited.
However the expense must be shouldered by the carrier.
meals and accommodations shall be provided.
Passenger may also refund the value of the ticket plus liquidated damage of 3k for domestic
and 5k for international
- Aircraft companies are authorized to open and investigate suspicious packages and cargoes
-
in the presence of the owner or shipper or authorized representatives.
If the owner refuses, the airline is authorized to refuse the loading thereof.
Every ticket shall contain such condition above
No aircraft shall be eligible for registration unless it is owned by or leased to a citizen or citizens
of PH or corporations or associations organized under the laws of PH.
- Foreign owned or registered aircrafts may be registered if utilized by members of aero clubs
for recreation, sports or flying skills.
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PUBLIC SERVICE ACT
REQUISITES FOR GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE:
1. Citizen of PH or a corporation or entity 60% of which is owned by Filipinos
2. Sufficient financial capacity to undertake the service
3. Service will promote public interest
CERTIFICATE OF PUBLIC CONVENIENCE - Mere license of privilege but not a franchise nor a
contract. It confers no vested right
- It has value and may be levied upon
CERTIFICATE OF PUBLIC CONVENIENCE
Authorization to operate public service issued
by Public service commission for which no
franchise is required by law
CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY
Franchise is required by the legislative department
PRIOR OR OLD OPERATOR RULE - First licensee will be protected un his investment and will not be
subjected to ruinous competition
GROUND FOR REVOCATION OF CERTIFICATE
1. Holder violates or contumaciously refuses to comply with any order
2. Mere dummy
3. Ceases operations or abandons service
FRANCHISE - Includes not only authorizations issuing directly from congress but also those
granted by administrative agencies to which the power to grant franchises has been delegated
by congress.
LEGISLATIVE FRANCHISE
Grant from the sovereign pows
CERT OF PUBLIC CONVENIENCE
Form of regulation through an administrative
agency
- Legislative franchise is ONLY REQUIRED when there is statute requiring the same.
PUBLIC UTILITY - business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation,
telephone or telegraph
-
State has the right to prescribe rates but it shall be reasonable and just.
Operating expenses may be considered.
Income tax shall not be considered. It is not an operating expense.
Administrative body that regulates public utility may grant provisional rate increase without
prior evidentiary hearing. EXAMPLE: LTFRB for jeepney fares.
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FOREIGN EQUITY IN PUBLIC UTILITIES
- No franchise, certificate or any other form of authorization for the operation of public utility shall
be granted EXCEPT to citizens of PH or corporations organized under PH laws having at least 60%
ownership by filipinos.
- The limit imposed by constitution on foreign equity applies only to the operation of PUBLIC
UTILITY. Not to the “OWNERSHIP OF FACILITIES”. The right to operate and ownership of facilities
are separate.
VOTING CONTROL TEST AND BENEFICIAL OWNERSHIP TEST
- Full beneficial ownership of 60% of the OCS and 60% of the voting shares are BOTH required.
- Non voting stocks are not included in the computation
BENEFICIAL OWNERSHIP TEST REQUISITES:
60% MUST APPLY SEPARATELY ON:
1. Outstanding shares ENTITLED TO VOTE in the election of directors
2. Total OCS whether entitled to vote or not in the election of directors.
- Constitution prohibits the issuance of franchise, cert or authorization that is EXCLUSIVE or for a
period longer than 50 years.
OTHER CONSTITUTIONAL LIMITATIONS IMPOSED ON PUBLIC UTILITIES:
1. In times of national emergency, when the public interest so requires, the state may during
emergency and under reasonable terms temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest.
2. The state may in the interest of national welfare or defense upon payment of just
compensation transfer to public ownership utilities and other private enterprises to be
operated by the government.
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INTELLECTUAL PROPERTY CODE
KINDS:
1. Copyright and related rights
2. Trademarks and service marks
3. Patents
4. Geographic indications
5. Layout designs of integrated circuits
6. Protection of undisclosed information
7. Industrial design
GEOGRAPHIC INDICATION - Indications which identify a good as originating in the territory or
region or locality in that territory
PROTECTION OF UNDISCLOSED INFORMATION - Natural and legal person shall have the possibility
of preventing information lawfully within their control from being disclosed to, acquired by, or
used by others without their consent in a manner contrary to honest commercial practices.
UTILITY MODEL - Models of implement or tools of any industrial product even if not possessed of
the quality of invention but which is of practical utility
INDUSTRIAL DESIGN - Any composition of lines or colors or any three dimensional form whether or
not associated with colors
- There is rule of reciprocity in IP.
- Copyrighted works are still deposited with the National lib and SC.
COPYRIGHT - Right over literary and artistic works which are original intellectual creations in the
literary and artistic domain protected from the moment of creation
- Letters and other private communication in writing are owned by the person to whom they
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are addressed and delivered but they cannot be published or disseminated without the
consent of the writer or HIS HEIRS.
Rights are conferred from the moment of creation.
The work is deemed created if something original is expressed in a FIXED MANNER.
WHO OWNS THE COPYRIGHT?
ONE CREATOR
Creator, Heirs or assigns
JOINT CREATOR
Co authors shall be the original owners in the
absence of any agreement to the contrary
EXCEPT: Can be used SEPARATELY - Separate
ownership
COMMISSIONED WORK
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WORK - Person commissioning
COPYRIGHT - Creator
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AUDIO VISUAL WORK
PRODUCER - For exhibition
PRODUCER/AUTHOR/COMPOSER/DIRECTOR/
PHOTOGRAPHER - For all other purposes
PSEUDONYMOUS AND ANONYMOUS WORKS
Publisher shall be presumed to be the
representative of the author
EMPLOYEE’S WORK DURING COURSE OF
EMPLOYMENT
Employer owns IP if regular function
Employee if not part of his duties
DURATION OF COPYRIGHT
1. Literary artistic works and derivative works - During the lifetime of the creator PLUS 50 years
after death
2. Joint creation - During the life of the LAST SURVIVING AUTHOR PLUS 50 years
3. Anonymous/Pseudonymous work - 50 years following the death of FIRST PUBLICATION
4. Work of applied art - 25 years from making
5. Photographic works - 50 years from publication of work or making if unpublished
6. Broadcast - 20 years from date of broadcast
COPYRIGHTABLE OBJECTS:
1. Books, pamphlets, articles and other writings
2. Periodicals and newspapers
3. Lectures, sermons, addresses, dissertations, prepared for oral delivery, whether or not
reduced in writing or other material form
4. Letters
5. Dramatic or dramatico musical compositions, choreographic works or entertainment in
dumb shows
6. Musical compositions with or without words
7. Works of drawing, painting, architecture, scripture, engraving, lithography or other works of
art
8. Original ornamental designs or models for articles of manufacture whether or not registrable
as an industrial design
9. Illustrations, maps, plans, sketches, charts and three dimensional works relative to geography,
topography, architecture or science
10. Drawings or plastic works of a scientific or technical character
11. Photographic works and cinematographic works and works produced by a process
analogous
12. Pictorial illustrations and advertisements
13. Computer programs
14. Other literary, scholarly, scientific and artistic works
15. Dramatizations, translations, adaptations, abridgement, arrangements and other alterations
of literary or artistic works
16. Collections of literary, scholarly or artistic works and compilations of data and other materials
which are original by reason of the selection or coordination arrangement of their contents.
- The author of speeches, lectures, sermons, addresses and dissertations shall have the exclusive
right of making a collection of his works
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UNPROTECTED WORKS:
1. Any idea, procedure, system, method or operation, concept, principle, discovery or mere
date as such even if they are expressed, explained, illustrated or embodies in a world
2. Format of a television game show is not subject to copyright
3. News of the day and other miscellaneous facts
- However the WRITINGS in the column itself is copyrightable.
4. Any official text of legislative, administrative or legal nature as well as any official translation
5. Any work of the government
- Prior approval however is NECESSARY for exploitation for PROFIT
6. Trade name and container of a medicated cream is proper subject of TRADEMARK not
COPYRIGHT.
- Copyright gives no exclusive right to the art disclosed but only to the EXPRESSION.
- Copyright shall only be on the DRAWING and it cannot protect the design depicted in such
drawing.
RIGHTS OF AUTHORS
1. ECONOMIC RIGHTS
1. Reproduction of the work or substantial portion
2. Dramatization, translation, adaptation, abridgment, arrangement or other transformation
of the work
3. First public distribution of the original and each copy of the work
4. Rental of the original or a copy of an audio visual or cinematographic work
5. Public display of the original or a copy of the work
6. Public performance
2. MORAL RIGHTS
1. Attribution of proper authorship of his works
2. Make any alterations of his work or to withhold it from publication
3. Object any distortion, mutilation, or other modification of or other derogatory action
4. Restrain the use of his name with respect to any work not of his own creation
PUBLISHER’S RIGHTS
1. Right to publish granted by the author, his heirs or assigns
2. Copyright consisting merely of the right of REPRODUCTION of the typographical arrangement
of the published edition
3. If submitted to newspaper, magazine, the right to publish once materials sent by a writer,
photographer, artist to a periodical. But such artists or writers retains his copyright over it
PERFORMER’S RIGHTS
1. Right of authorizing the broadcasting and other communication to the public of their
performance and the fixation of their unfixed performance
2. Right of authorizing the direct and indirect reproduction of their performances fixed in sound
recordings or audiovisiual works.
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3. Right of authorizing the first public distribution of the original and copies of their performance
through sale or rental or other means
4. Right of authorizing commercial rental
5. Right of authorizing the making available to public of their performances by wire or wireless
means.
MORAL RIGHT OF PERFORMERS
1. Right to claim to be identified as the performer
EXCEPT: Omission prejudicial to his reputation
ACTS THAT DO NOT INFRINGE COPYRIGHT
1. Recitation or performance of work made accessible to public, privately done, free of
charge, strictly for a charitable or religious institution
2. Making quotations from published work:
1. Compatible with fair use
2. Justified by the purpose
3. Source and name of the author must be mentioned
3. Reproduction or communication to the public by mass media of articles on current political,
social, economic, scientific, or religious topic, lectures, addresses and other works delivered in
public.
1. For information purposes
2. Not expressly reserved
3. Source is already indicated
4. Reproduction of reports of current events by means of photography, cinematography,
broadcasting
5. Inclusion of a work in publication if for teaching purposes compatible with fair use and source
must be mentioned
6. Recording made in school of a work for the use of such school. Recorded must be deleted
within a reasonable period
7. Making ephemeral recordings by broadcasting organization, by means of own facilities and
for use in its own broadcast.
8. Use made of a work by tor under the direction of government
9. Public performance or communication to the public of a work in a place where no admission
fee is charged by a club or institution for charitable or educational purpose only
10. Any use made of a work for the purpose of any judicial proceedings
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11. Single copy reproduction of a published work by natural person EXCLUSIVELY for research
and private study even without the authorization of the owner.
12. Reproduction by non profit libraries of fragile works, isolated articles, brief portions or work, to
preserve or replace a copy that is lost, destroyed or rendered non usable
13. One back up copy of computer program
FAIR USE - A privilege to use the copyrighted material in a reasonable manner without the
consent of the copyright owner or as copying the theme or ideas rather than their expression.
- Fair use for criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research and similar purposes is not infringement
FACTORS TO CONSIDER:
1. Purpose or character
2. Nature of work
3. Amount and substantiality of portions used
4. Effect of the use upon the potential market
TRANSFORMATIVE TEST - Used in reviewing the purpose and character of the usage of
copyrighted work. Courts shall consider whether the copy of the work adds new expression,
meaning or message to transform it to something else.
META USE - The kind of use that does not necessarily transform the original work by adding
expression, meaning or message but only changes the purpose of the work.
- An exact reproduction of a copyrighted work compared to small portion of it can result in the
-
conclusion that it is not fair.
A parody suing a substantial amount of copyrighted work may be PERMISSIBLE as fair use
If the use will have a negative impact on the copyrighted work, then it is deemed unfair.
DECOMPILATION - Reproduction of the code and translation of the forms of a computer
program to achieve the interoperability of an independently created computer programs
- It may still constitute fair use.
IMPORTATION FOR PERSONAL PURPOSES:
- FOR PERSONAL PURPOSES: Permitted even without authorization of the owner.
INFRINGEMENT
- When there is piracy or substantial reproduction.
ACTS OF INFRINGEMENT:
1. Directly commits infringement
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2. Benefits from the infringing activity of another person who commits an infringement if the
person benefitting has been given NOTICE of the activity and has the right and ability to
control the activities of another person.
3. With knowledge of infringing activity, induces, causes or materially contributes to the
infringing conduct of another.
REMEDIES:
1. Injunction
2. Action for damages within 4 years
3. Criminal case
Re transmission
- A corporation that provides satellite television service is not infringing the broadcasting and
copyright of the TV Station if the provider merely carries or simultaneously transmits the signal
of TV Station.
MUST CARRY RULE - Satellite and cable television provide shall carry all local stations.
- Circumvention of technological measures does not by itself constitute infringement.
- It may only increase the penalty if infringement is established
- Jailbreaking or rooting is not by itself illegal. They are violations of warranty and they can
increase the penalty for infringement if it can be established that it was used in infringing the
copyright.
- A lessor or owner of the place (mall) wherein infringement of copyright may be held liable
only if:
1. Benefited from the activity
2. Notice of infringement activity
3. Right and ability to control the activities of the person doing infringement.
- Distribution in specialized formats is not infringement.
- Although news or events are not copyrightable, expression of news, particularly when it
underwent creative process is entitled to copyright.
- Rebroadcasting is a neighboring right.
- Defense that the infringer is not aware that he is infringing is not a defense. KNOWLEDGE IS
MATERIAL ONLY WHEN A PERSON IS CHARGED OF “AIDING OR ABETTING” COPYRIGHT
INFRINGEMENT.
- Letters are protected works under copyright. Publication of letters is an infringement. Letters
may be in written or electronic form
TRADEMARKS - Any visible sign capable of distinguishing goods or services of an enterprise and
shall include a stamped or marked container of goods.
TRADE NAME - The name or designation identifying or distinguishing an enterprise.
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REQUISITES FOR TRADEMARK:
1. Visible sign
2. Capable of distinguishing the goods of an enterprise (Distinctiveness)
COLLECTIVE MARK - Any visible sign designated as such in the application for registration and
capable of distinguishing the origin or any other common characteristic.
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There is no need to register trade names in order to secure protection
Rights in a mark shall be acquired through the registration with IPO.
Registration is necessary before one can file an action for infringement.
PRIOR USE is not required in PH.
ACTUAL USE is required.
- File a declaration of actual use within 3 years from the filing date of application otherwise it
may be cancelled.
- Registration is not important to protect the goodwill that identifies in the mind of the public the
goods he manufactures or deals in.
- Registration of mark is not necessary for the purposes of filing a case for unfair competition or
false designation or origin.
- Subject to the rule on reciprocity, where the application is filed in the PH and same applicants
previously filed an application in countries covered by reciprocity rule, the application is
deemed filed as of the day the application was first filed in the foreign country.
- There will be no registration in PH until registered as such in the foreign country.
MARKS THAT CANNOT BE REGISTERED:
1. Immoral, deceptive, scandalous or falsely suggest a connection with persons, living or dead,
institutions beliefs or national symbols.
2. Flag or coat of arms or other insignia of the PH or political subdivisions or of any foreign nation
3. Name, portrait or signature identifying a particular living individual except BY HIS WRITTEN
CONSENT or the name, signature, or portrait of deceased President go PH during the life of
his widow, if any, except by written consent of his widow.
4. Identical with a registered mark belonging to different proprietor
5. Generic terms for goods or services
6. Descriptive marks including characteristics of goods
7. Customary sign in everyday language
8. Color by itself
9. Shapes
DOCTRINE OF SECONDARY MEANING - A generic or descriptive mark may later acquire the
characteristic of distinctiveness and can later be registered if it acquires a meaning which is
different from its ordinary connotation.
- There must be exclusive and continuous use for a period of at least 5 years.
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- Although they cannot be registered by themselves, generic, descriptive marks, colors, shapes
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may be part of a composite mark but there should be a disclaimer and the person who
registers them as part of mark will not acquire ownership thereto.
Marks may be registered even if they are contractions or coined from generic and descriptive
terms
Generic and descriptive terms may also be registered as ™ when they are used in an arbitrary
or fanciful manner.
INTERNATIONALLY WELL KNOWN MARKS
- Whether or nor registered may oppose registration or sue for unfair competition.
- Foreign marks that are not registered are still accorded protection against infringement and or
unfair competition under the paris and Nice convention
- It is expressly provided that other persons or entities CANNOT USE the internationally well
known mark EVEN FOR UNRELATED GOODS.
DURATION OF ™: 10 years subject to indefinite renewal for periods of 10 years each
ELEMENTS OF INFRINGEMENT IN ™:
1. Registered in IPO. However trade name need not be registered.
2. ™ is Reproduced, counterfeited, copied or colorably imitated.
3. Used in connection with the sale, offering, or advertising of any goods.
4. Use or application will likely cause confusion as to the goods and services or as to the source
or origin of such goods or services.
5. Without the consent of owner of ™
CONFUSION OF GOODS - when an otherwise prudent purchaser is induced to purchase one
product in the belief that he is purchasing another.
CONFUSION OF BUSINESS - The goods of the parties are different but the defendant’s product
can reasonably be assumed to originate from the plaintiff thus deceiving the public into
believing that there is some connection between the two.
2 TESTS
1. DOMINANCY TEST - Similarity of the PREVALENT FEATURES of the completing trademarks which
might cause confusion or deception.
- Duplication is not necessary
- Macjoy and Big Mack to Mcdo
- S of sketchers
- Papaboy vs Papa catsup.
2. HOLISTIC TEST - The entirety of the marks in question be considered in resolving confusingly
similarity.
AURAL EFFECTS/ IDEM SONANS RULE - In dominancy test, what are taken into account are signs,
color, design, shape or name of the brand that readily attracts and catches the attention of
ordinary consumer.
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- Pycnogenol and PCO-Genol - confusingly similar
- Dermaline and dermalin - Confusingly similar
EXPANSION BUSINESS RULE - The protection to which the owner of a ™ is entitled is not limited to
guarding his goods or business from ACTUAL market competition with identical or similar
products but EXTENDS to all cases in which the use by a junior appropriator is likely to lead a
confusion of source as where the prospective purchasers would be misled into thinking that the
complaining party has extended business into such field
- Use of identical marks are not necessarily prohibited.
- Shell to gas and shell to cigarettes - allowed
- CANNON to camera and sandals - allowed
- NICE CLASSIFICATION OF GOODS NOT CONTROLLING IN INFRINGEMENT CASES.
- The mere uniformity in categorization by itself does not automatically preclude the
registration of what appears to be an identical mark.
- Locus as soysauce and edible oil - allowed
- Kolin aloud
- Hickok for Marikina shoes and belts allowed
RELATED GOODS - Although not in actual competition, are related to each other that it can
reasonably be assumed that they originate from one manufacturer.
- There is no infringement of trademarks or trade names of imported or sold drugs and
medicines which bears marks that have not tampered, unlawfully modified or infringed upon.
- Use of LPG container without the consent of another - infringement
UNFAIR COMPETITION - Employing deception or any other means contrary to good faith by
which a person passes off his goods or business or services for those of one who has already
established goodwill thereto.
REQUISITES:
1. Confusing similarity in the general appearance of goods
2. Fraud or intent to deceive the public.
INFRINGEMENT
UNFAIR COMPETITION
Unauthorized use of ™
Passing off of one’s foods as those of another and
giving one’s goods the appearance of that of
another
No need to establish fraud
Fraudulent intent is necessary
Registration of ™ is necessary to file
No registration needed to file
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INTER PARTES CASES - Contested cases filed before IPO.
- An administrative complaint for violations of laws involving IP can be filed with IPO where the
total damages claimed are NOT LESS THAN 200k
THEORY OF DILUTION - A mark cannot be registered if it is identical with or confusingly similar to or
constitutes a translation of a mark considered well known which is registered in the PH with
respect to goods and services which are not similar to those with respect to which registration is
applied for.
- Provided that the use the mark in relation to those goods would indicate a connection
between those goods and services and the owner of the registered mark
- It is also necessary that public may have been or actually had been deceived or misled as to
the source of goods.
PATENTS
- Any technical solution of a problem in any field of human activity which is new, involves an
inventive step and is industrially applicable
REQUISITES:
1. Technical solution of a problem in any field of human activity
2. Inventive step
3. new
4. Industrially applicable
Prior act - Made available to public anywhere in the world before the filing date
IN MEDICINE OR DRUGS, NO INVENTIVE STEP IF IT RESULTS FROM:
1. Mere discovery of a new form or new property of a known substance which does not result in
the enhancement of the known efficacy of the substance
2. Mere discovery of any new property or new use for a known substance
3. Mere use of a known process unless results in a new product that employs at least one new
reactant.
- Microorganisms are patentable
NON PATENTABLE INVENTIONS:
1. Discoveries, scientific theories, mathematical method
2. Schemes, rules, methods of performing mental acts, playing games, doing business and
programs for computer
3. Methods for treatment of the human body or animal by surgery
4. Plant varieties or animal breeds
5. Aesthetic creations
6. Contrary to public order or morality
PERSON ENTITLED:
1. Inventors, Heirs or assignees
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FIRST TO FILE RULE - If two or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the person who FIRST FILED
an application
NOT PROHIBITED ACTS:
- Distribution with consent of inventor
- Parallel importation - Importation of drugs and medicine by government agency or private
third party
- Acts done privately and non commercial scale
- Experimental use or educational purposes
- Patent exhaustion - The exclusive right of the patent owner is exhausted after the first
authorized sale. The purchaser may thereafter use, repair and resell the product.
PREJUDICIAL DISCLOSURE
- If the inventor voluntarily discloses it, such as by offering it for sale, the world is free to copy
and use it with impunity. Ideas once disclosed to the public without the protection of valid
patent ares without significant restraint
NON PREJUDICIAL DISCLOSURE
- Any disclosure of the invention made within 12 months before the filing date DOES NOT
PREJUDICE THE APPLICATION if the disclosure is:
1. Made by inventor himself
2. Patent office
3. Third party
TERM: 20 YEARS FROM THE FILING DATE OF APPLICATION
INFRINGEMENT - Making, using, offering for sale, selling or importing patented product or a
product obtained directly or indirectly from a patented process without authorization
REQUISITES:
1. Literal infringement
2. If no literal infringement, Doctrine of equivalence shall be applied.
LITERAL INFRINGRMENT:
A. EXACTNESS RULE - The idea that is being sold is exactly the same
B. ADDITION RULE - All the elements of the patent claim of another plus other elements are
present.
DOCTRINE OF EQUIVALENCE
- Infringement also takes place when a device appropriates a print invention by incorporating
its innovative concept and although with some modification and change, performs
substantially SAME FUNCTION in substantially the same way.
- It cannot be applied when infringing invention is clearly beyond what is written in the claim
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- When the language of claim is clear and distinct, the patentee may not claim anything
beyond them
COMPULSORY LICENSING - Issued by Director general to exploit a patented invention WITHOUT
THE PERMISSION OF THE PATENT HOLDER either by manufacture or parallel importation
GROUNDS:
1. National emergency
2. Public interest in National security, nutrition, health, or development of vital sectors
3. Judicial or administrative body has determined that it is Anti competitive
4. Non commercial use of the patent by the patentee without reason
5. If patented invention is not being worked in PH without reason.
6. Demand is not being met as determined by DOH
- Maybe granted to any person
- Application for CL CANNOT BE APPLIED before the expiration of period of 4 years from the
date of filing of application or 3 years from the date of patent which ever expires last
- CL will only be granted after the petitioner has made efforts to seek authorization of patent
holder. But is not required in (#1,3,4,6 above)
PROHIBITED PROVISIONS IN VOLUNTARY LICENSING
1. Reservation of right to fix the sale or resale prices
2. Reservation on the volume and structure of production
MANDATORY PROVISIONS:
1. Applicable laws are PH laws and venue shall be in the place where the licensee has principal
office.
2. Continued access to improvements
3. If arbitration is provided for in the technology transfer arrangement, The applicable
procedure is:
1. Arbitration law of PH
2. UNCITRAL
3. ICC
and venue shall be the PH or any neutral country
4. Payment of philippine taxes by licensor
- If did not comply with mandatory and prohibited provisions - UNENFORCEABLE
- Registration with IPO will not necessary make it enforceable
DIVISIONAL APPLICATIONS - When two or more inventions are claimed in single application but
are if such nature that a single patent may not be issued for them.
- The applicant is required to divide the claims.
- If the applicant is not the inventor, Authorization by inventor is required.
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TRADE SECRETS - A plan or process, toll, mechanism or compound known only to its owner and
those of his employees.
- May consist of formula, pattern, device or information.
- Still protected even if not patentable
- Owner cannot be compelled to disclose its trade secrets. GR: No injunction allowed.
- Ingredients of consumer products are not trade secrets. They shall be indicated in the label.
- Trade secrets protection is not covered by the constitutional right to information.
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CORPORATION LAW
CORPORATION - An artificial being created by operation of law, having a right of succession
and the powers and attributes and properties expressly authorized by law or incident to its
existence.
- Corp is entitled to own properties in its own name
- Properties of the Stockholders or directors are not properties of the corporation
- Corp an incur obligations and its obligations are not the obligations of its SH or directors
LIMITED LIABILITY RULE - While as a general rule, SH may not be liable for obligations of the
corporation, He may be liable if he has not fully paid the subscription price.
- Unpaid subscriptions are assets of the corporation
- Rights of the corporation cannot be invoked by the SH even if he owns substantial majority of
the shares in that corporation.
- The constitutional right of individuals against unreasonable searches and seizures is PERSONAL
-
TO HIM and cannot be invoked by the corporation
Corporation has also a constitutional right against unreasonable searches and seizure. It is also
considered as a PERSON under due process clause.
However it cannot invoke right against self incrimination particularly on the production of
corporate documents.
It may be liable for tort
PLACE OF INCORPORATION TEST - The corporation is considered a national of the country where
it was incorporated.
- For investment purposes PHILIPPINE NATIONAL IF:
1. A corporation organized under PH law of which 60% of the OSC and voting sacks is owned
and held by PH citizens.
2. A corporation organized abroad and registered as doing business in PH under CorpCode of
which 100% of the capital stocks entitled to VOTE belong to Filipinos
GRAND FATHER RULE - The method of attributing the shareholdings of a given corporate
shareholder to the second or even the subsequent tier of ownership to determine the ultimate
ownership in a corporation.
- In the case of multitiered corporation, the stock attribution rule must be allowed to run
continuously along the chain of ownership until it finally reaches the individual stockholders.
- The percentage of shares held by the second corporation in the first is multiplied by the lathers
own filipino equity and the product of these percentages is determined to be the ultimate
filipino ownership of the subsidiary corporation.
- GFR applies if:
1. The Filipino equity is less than 60% of the OCS that owns shares in a partly nationalized
enterprise.
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2. There is an attempt to circumvent the nationalization requirement or when there is doubt as
to the real owners where there is layering.
- Corporation sole has no nationality
- To determine nationalization, Beneficial ownership test and Voting control test shall BOTH be
applied.
- 60% Filipino ownership must be applied both to:
1. Voting stocks
2. Total number of OCS whether or not entitled to vote.
- Corporation can only act through its directors, officers and employees.
- If a crime is committed by Corp, The DIRECTORS, OFFICERS, EMPLOYEES responsible for the
offense shall be penalized.
- Corporation cannot be arrested. But fine may be imposed.
- GR: Corporation cannot claim for moral damages.
- EXC: He may if it was the victim of defamation
DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY - When the veil of corporate fiction is
used as a shield to perpetuate fraud, defeat public convenience, justify wrong or defend a
crime, the fiction shall be disregarded and the individuals composing it will be treated identically
- It cannot be used to shield blatant violations of prohibition against forum shopping
ELEMENTS:
1. CONTROL - Not mere stock control but complete domination not only on the finances but of
the policy and business practice
2. MERE INSTRUMENTALITY - Merely used to commit a fraud or wrong to perpetuate violation of a
statutory or other positive legal breach of duty.
3. Said control and breach of duty must have proximately caused the injury
- Same manager, same customers, same office, merged business operations - MERE ALTER
EGO.
- The doctrine cannot be applied to make the corporation liable for PERSONAL OBLIGATIONS of
-
DOS (Director, officers, Shareholders).
Doctrine is normally used to make DOS liable for the obligations of the CORPORATION.
SC allowed the SH to file a complaint asking a bank to render accounting of the income of
the corporations to preclude multiplicity of suits.
DOCTRINE WAS APPLIED:
1. Used to evade obligations to employees
2. Used to evade lawful obligations
3. Corporation is a mere alter ego, adjust or business conduit
- Mere ownership by a single stockholder or by another corporation of ALL OR NEARLY ALL of
the capital stock of the corporation alone does not justify the application of doctrine. There
must be other circumstances present
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CONCESSION THEORY - Principle in the creation of corporations under which a corporation is an
artificial creature without any existence until it has received the IMPRIMATUR of the state acting
according to law through SEC.
- Primary franchise is vested in the individuals who compose the corporation and not in the
-
corporation itself.
- It cannot be transferred without the approval of the congress.
Special franchise is vested in the CORPORATION and may be conveyed or mortgaged except
when they are charged for public use.
- It may be subject of levy, sale on execution
- Private corporations are generally created under the provisions of the Cooperation code.
- Public corporations are created through special laws EXCEPT: GOCC (Private corporation)
- Personality of corporation continues despite the change of SH, Members, BOD, Officers.
CLASSIFICATIONS OF CORPORATIONS:
1. Public
2. Private
3. De Jure - Corporation organized in accordance with the requirements of the law
4. De Facto - There exists a flaw in its incorporation.
REQUISITES OF DE FACTO:
1. Existence of valid law under which it may be incorporated
2. Attempt in good faith to incorporate
3. Use of corporate powers
5. Corporation by estoppel - Group of persons which holds itself out as a corporation and enters
into a contract with third person on the strength of such appearance cannot be permitted
to deny its existence in an action under said contract.
- Not a real corporation
- They shall be liable as general partners or up to their personal properties
- All those who derived benefit from the transaction despite knowledge of its legal defects MAY
BE HELD LIABLE for contracts they impliedly assented to or took advantage of.
6. Corporation by prescription - Not formally organized as such but has been duly recognized
by IMMEMORIAL USAGE
- EX: Roman Catholic Church
7.
Stock Corporation - A corporation which capital stock is divided into share and is authorized
to distribute dividends.
- Even though there is a statement of capital stocks in the AOI, The corporation is still non stock if
it do not distribute dividends.
8. Non stock corporation - Does not issue stocks and does not distribute dividends
9. Domestic
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10. Foreign
11. Closed
12. Special
13. Educational
14. Religious
1. Corporation Sole
2. Religious societies
CORPORATION GOING PUBLIC - When it decides to list its shares in stock exchange
CORPORATION GOING PRIVATE - When it would restrict the shareholders to a certain group.
REAL ESTATE INVESTMENT TRUST (REIT) - A stock corporation established in accordance with
Corporation code and rules and regulations by SEC principally for the purpose of owning
income generating real estate assets.
CORPORATION
PARTNERSHIP
Existence upon the issuance of the Certificate
of incorporation by SEC
Created my mere agreement
5-15 inocorporators
Min of 2
Limited personality
Subject to those agreed by partners
Stockholders are not agents of corporation
Mutual agency
Corporate shares are freely transferable
without the consent of the SH
Cannot be transferred without the consent of the
other partners
Right of succession
No right of succession
DE JURE
DE FACTO
One created in strict or substantial conformity
with the requirements of incorporation
Actually exists for all practical purposes as a
corporation but which has no legal right to
corporate existence
Right to exist cannot be successfully attacked
even in a direct proceeding by the state
Can be attacked in a direct proceeding by the
state through Quo warranto
- A corporation created by Special law. Such special law was declared invalid.
- Corporation is not a de facto. There is no valid law allowing its organization.
- Defense of being De facto corporation cannot be used when there is no attempt in good
faith to incorporate. Thus, when AOI is not yet passed, NOT DE FACTO
INCORPORATORS - Originally forming and composing the corporation having signed the AOI.
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REQUISITES:
1. Must be a natural person
2. At least 5 but not more than 15
3. Legal Age
4. Majority must be residents of PH
5. Each must own or subscribe to at least one share
CORPORATORS - All SH and members of corporation including Incorporators who are still
stockholders.
STOCKHOLDERS - Stock
MEMBERS - non stock
DIRECTORS - Stock
Trustees - Non stock
CORPORATE OFFICERS - Officers who are identified as such in corp code, AOI and By laws
PROMOTER - Self constituted organized who finds an enterprise and helps to attract investors,
forms a corporation and launches it in business.
- Corporation is not bound by the contract entered into by the promoter before incorporation
unless ratified.
- Promoter is personally liable for contracts, agreements with third persons contracted in behalf
of future corporation if the corporation does not ratify the same or unless agreed expressly
- Promoter shall remit to the corporation profits.
FOREIGN STOCKHOLDERS
- All the stockholders in a corporation may be foreigners
- EXCEPT: Fully or partly nationalized corporation
FULLY OR PARTLY NATIONALIZED CORPORATIONS
1. NO FOREIGN STOCKHOLDER ALLOWED:
1. Mass media except recording
2. Retail enterprises with paid up capital of less than $2.5M
3. Private security agencies
4. Small scale mining
5. Utilization of natural resources
6. Cockpits
7. Manufacture, repair, stockpiling or distribution of nuclear weapons
8. Manufacture of fire crackers
2. UP TO 20%
- Private radio communications network
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3. UP TO 25%
1. Private recruitment whether local or oversees
2. Construction and repair of locally funded works
3. Construction of defense related structures
4. UP TO 40%
1. Exploration, development of Natural resources.
2. Realty companies
3. Operation and management of Public Utilities
4. Culture, production, milling except retail of rice and corn
5. Adjustment companies
6. Sauna and steam bath houses and massage clinics
7. Domestic market enterprises with Paid up capital of $200,000
5. UP TO 60%
1. Financing companies
2. Investment houses
- Life of corporation commences from the issuance of the certificate of registration by the SEC
DOCUMENTS FILED FOR SECURING CERT OF REGISTRATION OF STOCK CORPO:
1. AOI
2. Treasurer’s Affidavit certifying that 25% of the total authorized capital stock has been
SUBSCRIBED and 25% of such has ben fully paid in cash or property
3. Bank certificate covering Paid up capital
4. Letter of authority authorizing the SEC to examine the bank deposit and other corporate
books and records
5. Undertaking to change corporate name in case there is similar
- Corporate names which are identical, deceptively or confusingly similar to a corporation
-
including internationally well known marks shall not be used in PH
Name which is contrary to law shall not be allowed
A corporation which seeks to prevent another from using its name must show that it acquired
prior right to use the name
- Principal place of business as stated in AOI determines the venue of court actions.
- Must be SPECIFIC ADDRESS
TERM OF CORPO: 50 years and may be extended for a period not exceeding 50 years.
- No extension shall be made earlier than 5 YEARS PRIOR TO THE DATE OF EXPIRATION OF TERM.
- MAY EXTEND ON THE 46th year onwards.
AUTHORIZED CAPITAL STOCK - Amount fixed in AOF to be subscribed and paid
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SUBSCRIBED CAPITAL STOCK - Portion of ACS that is covered by subscription agreement whether
paid or not.
PAID UP CAPITAL - Subscribed and fully and actually paid.
OUTSTANDING CAPITAL STOCK - Total shares of stock issued to subscribers or stock holders
whether or not fully or partially paid EXCEPT treasury shares
- Corporate name must contain the word Corporation, Corp, Incorporated or INC
- Number of shares must be stated in AOI. Not merely the amount
AMENDMENT OF AOI
1. Majority vote of directors and trustees & Written assent of the SH representing 2/3 of the OCS
or members
- It is effective upon the approval of SEC or if not acted within 6 months from the date of filing.
- Passage of statutes amending the cooperation code or special laws may result in the
amendment of AOI provided that there is no vested right impaired.
- Amendment of name does not result in extinguishment of corporation
ACCOMPLISHED FACT RULE - Entries in the AOI that cannot be amended because they are
accomplished facts. ex: Incorporators or original directors.
GROUND FOR SUSPENSION OR CANCELATION OF CERTIFICATE OF REGISTRATION:
1. Fraud in procuring reg
2. Serious misrepresentation as to objectives of corporation
3. Refusal to comply with lawful orders
4. Continuous inoperation for at least 5 years
5. Failure to file by laws within the required period
6. Failure to file reports
BY LAWS - Rules of action adopted by the corporation for its own government
REQUISITES:
1. Consistent with Corpo Code
2. Consistent with AOI
3. Must not disturb vested rights
- If there is conflict, AOI prevails over By laws
- Provision granting permanent seat of director is void
- By laws shall not undermined the security of tenure of an employee by declaring the position
non existent
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ADOPTION AND AMENDMENT OF BY LAWS:
1. ORIGINAL BY LAWS
1. May accompany the AOI
2. Filed within 1 month from notice of issuance of certificate of incorporation
1. It must be approved by the SH constituting at least majority of OCS
2. A copy signed by the approving SH certified by the majority of the directors must be
filed with SEC
- Non filing within 1 month is a ground to forfeit franchise BUT it will not result to automatic
dissolution.
2. AMENDMENT
1. Stockholders together with the board: Majority of board plus majority of OCS
2. Board only as delegated by the 2/3 of OCS
- By laws is binding not only upon the corporation but also on its stock holders, members and
-
those having direction, management and control of its affairs.
It is not binding to third persons unless there is actual knowledge. Third person is not even
bound to know the by laws
POWERS OF THE CORPORATION:
1. Express
2. Implied - Necessary for the exercise of the express powers
3. Incidental power
ULTRA VIRES ACTS - One committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it by law.
ULTRA VIRES
Merely voidable which
may be enforced by
performance,
ratification or
estoppel.
ILLEGAL ACT
Void and cannot be
validated
NOT COMPLIED WITH
FORMALITIES
Not ultra vires. The
contract to a third
person may be valid if
he is not familiar with
the by laws
UNAUTHORIZED
ACTS
Not within the power of
a particular officer
EFFECT OF ULTRA VIRES:
1. Executed contract - Courts will not set aside or interfere
2. Executory - No enforcement even at the suit of either party
3. Partly executed and partly executory - principle against unjust enrichment applies
- Board of Directors exercises the powers of corporation
NOT EXERCISED BY THE BOARD:
1. Management contract
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2. Powers of board are delegated by majority vote to an executive committee
POWERS THAT CANNOT BE DELEGATED TO THE EXECUTIVE COMMITTEE:
1. Approval of action requiring concurrence of SH
2. Filing of vacancies in the board
3. Adoption, amendment or repeal of by laws
4. Amendment or repeal of board resolution
5. Distribution of cash dividends
- President can also bind the corporation
- Corporate officer or agent may represent and bind the corporation in the transactions with
third persons to the extent that the authority to do so has been conferred upon him.
- An officer may also bind the corporation if he has APPARENT AUTHORITY. Apparent authority is
-
derived not merely from practice.
It is not the quantity of similar acts which establishes apparent authority but the vesting of a
corporate officer with power to bind the corporation.
VOTES NEED:
1. Approval of the majority of the BOD AND Concurrence of the SH representing 2/3 of the
OCS:
1. Power to extend or shorten corporate term
2. Increase/decrease corporate stock
3. Incur or create bonded indebtedness
4. Deny preemptive right
5. Sell, dispose, lease, encumber all or substantially all of the corporate assets
6. Invest in another corporation business other than the primary purpose
7. Declare stock dividends
8. Enter into management contract
2. Approval of the stockholders representing majority of OCS with board approval:
1. Enter into management contract if any of the two instances above are absent
2. Adopt and amend or repeal by laws.
3. Without board resolution, SH may:
1. Delegate to the board the power to amend by laws (2/3 of OCS)
2. Revoke the power of the board to amend by laws (majority of OCS)
CORPORATION MAY ACQUIRE ITS OWN SHARES WHEN:
1. There is unrestricted retained earnings
2. For a legitimate purpose like:
1. Eliminate fractional shares arising out of stock dividends
2. Collect or compromise an indebtedness to the corporation arising out of the unpaid
subscription in a delinquency sale
3. Pay dissenting or withdrawing SH
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DIVIDENDS
Who may declare?
1. BOD alone - Cash and Property dividends ONLY
2. BOD with the approval of SH representing not less than 2/3 - Stock Dividends
REQUISITES TO DECLARE DIVIDENDS:
1. Unrestricted retained earnings
2. Resolution of the board with the concurrence of 2/3 of OCS
- Declaration of dividend is discretionary
- EXCEPT: Stock corporations are prohibited from retaining surplus profit in excess of 100% of its
paid in capital.
- EXCEPTION TO THE EXCEPTION:
1. Justified by definite corporate expansion approved by the board
2. Corporation is prohibited under any loan agreement with any financial institution or creditor
whether local or foreign from declaring dividends without its consent and such consent is not
yet procured.
3. Clearly shown that retention is necessary under special circumstances.
- GR: Dividends cannot be declared out of the capital.
- EXCEPTION:
- 1. Wasting assets corporation - Engaged in the exploitation of mines, oil wells, patents and
-
leaseholds without allowance or deduction for depletion
2. Liquidating dividends
UNRESTRICTED RETAINED EARNINGS - Shall only include accumulated profits and gains realized
out of the normal and continuous operations of the company after deducting distributions of
Ohs and transfer of capital stock or other accounts which is:
1. Not appropriated by BOD for corporate expansion
2. Not covered by a restriction for dividend declaration
3. Not required to be retained under special circumstances
- Surplus profit must be bonafide income founded upon actual earnings
- Existence of URE is a condition precedent for the declaration of dividends
- Actual earning or profit shall be the net income for the year based on Audited financial
statements
UNREALIZED ITEMS AND NOT AVAILABLE FOR DIVIDEND DECLARATION:
1. Share/Equity in net income of the associate or joint venture
- It is only after the investee company declares such income as dividend that said is
actually realized.
2. Unrealized foreign exchange gains
3. Unrealized actuarial gains
4. Fair value adjustment
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5. Deferred tax asset
6. Paid in surplus - The difference between the par value and the issued value or selling price of
the shares. They are considered part of capital
7. Revaluation Surplus - They are by nature fluctuations
8. Reduction surplus
- Gains on the sale of corporation’s real property can be considered as part of URE
- Retained earnings include not only earnings realized from the ordinary course of business but
also those arising from transactions which are incidental or necessary
- Treasury sales can ONLY BE DECLARED as Property Dividend. Not cash or stock because they
-
are not considered part of the earned or surplus profit.
SH are entitled to dividends pro rata in accordance to the number of shares
Dividends declared before the transfer of shares belong to the transferor and those declared
after the transfer belongs to the transferee.
UNPAID SUBSCRIBERS ARE ENTITLED TO DIVIDENDS.
SALE OF ALL OR SUBSTANTIALLY ALL PROPERTIES
REQUISITES:
1. Approval of MAJORITY OF DIRECTORS
2. Assent of SH representing 2/3 of OCS or member in a meeting duly called for the purpose
3. Comply with the formalities under bulk sales law.
- Deemed sale of Substantially all if the corporation would be rendered incapable of continuing
business or accomplishing the purpose for which it is incorporated.
NELL DOCTRINE - Transferee/buyer of all or substantially all of the assets or even shares will not be
liable for the debts of the transferor
EXCEPTIONS TO NELL DOCTRINE:
1. Express assumption of liabilities
2. Consolidation or merger
3. Purchase was in fraud of creditors
4. Purchaser becomes a continuation of the seller (Business enterprise transfer)
BUSINESS ENTERPRISE TRANSFER - The transferor transfers both its assets and business and
transferor is left with its juridical existence devoid of its industry or earning capacity.
NOT APPLICABLE IF:
1. Sale of the entire property and assets is necessary in the usual and regular course of business
2. Proceeds if the sale or other disposition of such property and assets will be appropriated for
conduct of the remaining business.
INCREASE/Decrease OF CAPITAL:
1. Increasing/Dec the number of shares and retaining the par value
2. Increasing/Dec the par value of existing shares without changing the number of shares
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3. Increasing/Dec the number of shares and increasing/Dec the par value
QUALIFICATIONS OF DIRECTORS:
1. Stock corporations
1. Must own one share. He must be a SH in his own right. It must be legal title not beneficial
title. SH Trustor in Voting stock agreement cannot be a director. Trustee may be elected.
2. Majority must be residents of PH
3. Not convicted by final judgment of an offense punishable by imprisonment for a period
EXCEEDING 6 YEARS or a violation of the corp code committed within 5 years before
date of election
4. Of legal age
5. Possesses qualifications as stated in AOI and By laws.
BUSINESS JUDGMENT RULE - Questions of policy or management are left solely to the honest
decision of officers and directors of a corporation and the courts are without authority to
substitute their judgment for the judgment of BOD. Orders of BOD in Good faith are not
reviewable by courts or SEC
- Directors, Officers, employees will be individually answerable for the crime if they corporation
commits a crime through their default or omission
METHODS OF VOTING:
1. Straight voting - May vote such number of shares for as many persons as there are directors.
2. Cumulative - Allowed to concentrate his votes and give one candidate as many votes as
the number of directors multiplied by the number of his shares
- Cumulative voting is not available in NON STOCK unless provided in by laws.
- Election should be at large in stock corp
REMOVAL AND VACANCIES
REQUISITES:
1. Take place either at a regular meeting or special meeting
2. Previous notice to SH and members of intention to remove
3. Vote of 2/3 of SH representing OCS
4. May be removed with or without causes unless he was elected by MINORITY in which case it
is required that there is a cause for removal
FILLING OF VACANCIES IN BOARD
1. SH or members - If vacancy results from:
1. Removal
2. Expiration
3. Ground other than removal and expiration where the remaining directors do not
constitute quorum.
4. Increase in numbers of directors
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2. By board if remaining directors constitutes quorum.
- The loss of right of directors is automatic upon the expiration of their term.
- If election is not held, Director whose term expired may continue to hold such position in HOLD
-
OVER CAPACITY
If one of the Hold over director resigns, The remaining hold over directors cannot replace him
even if they constitute quorum
Even if a director was invalidly removed, he cannot be ordered reinstated to his position if his
term already expired and a valid election of new directors was held.
DOCTRINE OF CORPORATE OPPORTUNITY -I f a director seizes the opportunity which corporation is
financially able to undertake and from its nature is inline with the corporations business, thereby
obtaining profits to the expense of the corporation, he must account all the profits by refunding
the same to the corporation.
EXCEPT: When ratified by 2/3 of OCS
- Applies only to directors.
CONFLICT OF INTEREST (Violation of duty of loyalty)
1. Seizing corporate opportunity by a director
2. Directors, trustees or officers acquire any personal or pecuniary interest in conflict with their
duty as such directors - THEY SHALL BE JOINTLY AND SEVERALLY LIABLE FOR ALL THE DAMAGE
SUFFERED BY CORPORATION
3. DTO who violates his or her duty shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have accrued to the corporation.
INTERLOCKING DIRECTORS - One of the directors in one corporation is a director of another
corporation
1. INTEREST OF INTERLOCKING DIRECTOR IN THE CORPORATIONS ARE BOTH SUBSTANTIAL
- SUBSTANTIAL - Stockholdings exceed 20% of OCS
GR: A contract between two or more corporations having interlocking directors shall NOT BE
INVALIDATED on that ground alone
EXC: If contract is fraudulent or not fair or unreasonable
2. INTEREST OF ID IN ONE OF THE CORPORATIONS IS NOMINAL AND SUBSTANTIAL TO ANOTHER.
GR: Merely voidable.
EXCEPTIONS (VALID IF):
1. The presence of such director in the board meeting in which the contract was approved was
not necessary to constitute a quorum
2. Vote of such director was not necessary for the approval of the contract
3. Contract is fair and reasonable
- Contract may be ratified by the 2/3 vote of OCS provided that:
1. Full disclosure of adverse interest of directors involved
2. Fair and reasonable
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- Obligations incurred by DTO acting as corporate agents are not theirs but the direct
accountabilities of the corporation.
DTO ARE SOLIDARILY AND PERSONALLY LIABLE IF:
1. Votes or assents to patently unlawful acts
2. Acts in BF or with gross negligence
3. Guilty of conflict of interest to the prejudice of corporation
4. When director has consented to the issuance of watered stocks
5. When they expressly agreed
6. Expressly provided by law
SELF DEALING DIRECTORS - Those who personally contract with the corporation in which they are
directors
GR: VOIDABLE.
EXCEPTION (VALID IF PRESENT)
1. Presence of such director in the meeting approving the contract was not necessary for
constituting a quorum for such meeting
2. Vote of such direct was not necessary for the approval
3. Contract is fair and reasonable
4. Previous authorization by the board of directors
- The contract with SDD may be ratified by a vote of SH representing at least 2/3 of OCS if:
1. There is full disclosure of the adverse interest of the directors
2. Contract is fair and reasonable
CORPORATE OFFICERS - Those provided in by laws.
REQUISITES TO BE CONSIDERED CORPORATE OFFICERS
1. Creation of the position us under charter or bylaws
2. Election of the officer is by directors or SH
- BOD seal have the power to remove a corporate officer
MEETINGS OF BOARD
- 1 day notice prior to the scheduled regular or special meeting
- Quorum: Majority of BOD
- The quorum is the same even if there is a vacancy
- By laws may require more than the majority of BOD
- Directors cannot attend by proxy
- President can also vote in the meeting
- If shares are pledged or mortgaged, the shareholder can still attend the meeting unless the
right is given to the pledgee or mortgagee and such right is recorded in the books
- Board meeting through Teleconference or video conference is ALLOWED provided that:
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1. Secretary must include in the notice an inquiry if director will attend physically or via
teleconferencing
2. Director must give notice
3. Recorded and recording shall be stored by corporate secretary
TRUST FUND DOCTRINE - The capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of the corporate creditors. The subscribed capital
stock is a trust fund for the payment of the debts of the corporation which the creditors have the
right to look up to satisfy their credits.
- The corporation may not dissipate this
- Money received for subscription of increase of authorized capital are not covered by the trust
fund doctrine prior to the approval of such increase.
VIOLATION OF TRUST FUND DOCTRINE:
1. Corporation releases or condones payment of unpaid subscription
2. Payment to dividends without unrestricted retained earnings
3. Properties transferred in fraud of creditors
4. Properties are disposed or undue preference is given to some creditors even if the
corporation is insolvent
5. Rescission of Pre subscription agreement will effectively result in unauthorized distribution of
the capital assets and properties of the corporation.
STOCKHOLDERS AND SHARES
SUBSCRIPTION CONTRACT - Any contract for the acquisition of unissued stock in an existing
corporation or a corporation to be formed.
A person becomes a shareholder when:
1. Enters into a subscription contract whether the consideration is fully paid or not
2. Purchases treasury shares from corporation
3. Acquires shares from existing shareholders
KINDS OF SUBSCRIPTION CONTRACTS:
1. Pre incorporation subscription - entered into before the incorporation and irrevocable for a
period of 6 months from the date of subscription UNLESS all other subscribers consent or if the
corporation failed to materialize. It cannot be revoked AFTER THE FILING OF AOI.
2. Post incorporation subscription - entered into after incorporation
- Promissory note or future services are not valid considerations.
UNDERWRITING AGREEMENT - An agreement between a corporation and third person termed as
underwriter by which the latter agrees for a certain compensation to take a stipulated amount
of stocks and bonds specified in the underwriting agreement.
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DOCTRINE OF INDIVIDUALITY AND INDIVISIBILITY OF SUBSCRIPTION - A subscription is one, entire
and indivisible contract even if two or more shares are covered. The subscriber shall not be
entitled to certificate if part or all of the certificates until full payment.
Certificate of stock - Evidence of holder’s ownership
CLASSIFICATION OF SHARES:
1. Common shares - No preference
2. Preferred shares - Par value shares which enjoy preference as to DIVIDENDS OR ASSETS upon
dissolution
1. Cumulative - Entitled to recover dividends in arrears.
2. Non Cumulative - Not entitled to arrears. Only to present dividends
3. Participating - Participates with common shares after receiving dividends at preferred
rate
4. Non participating - No participation
3. Redeemable shares - Those which permit the issuing corporation to redeem or purchase its
own shares.
- Redeemable shares may be issued only when provided in AOI
- Terms and conditions must be stated in AOI
- Redeemable shares MAY BE DEPRIVED OF VOTING RIGHTS
- Corporation is required to maintain a sinking fund to answer redemption price
- Deemed retired upon redemption
- URE is not necessary before shares can be redeemed but there must be sufficient assets
to pay the creditors and to answer for operations.
- Redemption cannot be made if it will result in insolvency
4. Treasury Shares - Earlier issued as fully paid and have been acquired by corporation by
purchase, donation, redemption or some lawful means.
5. Par value and No par value shares
PAR VALUE - Have nominal value
NO PAR VALUE - No nominal value
- Both have issued values.
- Issued value of no par value shares may be fixed by AOI
6. Founders Shares - Given certain rights and privileges.If the right is the exclusive right to vote
and be voted for director, it must be for a period NOT EXCEEDING 5 YEARS from approval of SEC
7. Escrow shares - Subjected to agreement by virtue of which the shares are deposited by the
grantor or his agent with a third person to be held by the latter until the performance of the
condition.
- Preferred shares must have par value.
- Preferences do not give them a lien upon the property nor make them creditors of the
corporation.
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INSTANCES WHERE NON VOTING STOCKS MAY VOTE:
1. Amendment of AOI
2. Adoption and amendment of by laws
3. Increase or decrease of bonded indebtedness
4. Increase or decrease of capital stock
5. Sale or disposition of all or substantially all of corporate property
6. Merger or consolidation
7. Investments of funds in another corporation
8. Corporate dissolution
LIMITATIONS OF NO PAR VALUE:
1. No par value shares cannot have an issued price of LESS THAN 5 PESOS
2. Entire consideration for its issuance constitutes capital so that no party of it should be
distributed as dividends
3. They cannot be issued as preferred stocks
4. Cannot be issued by banks, trust companies, insurance companies, public utilities and
building and loan association
5. AOI must state the fact that it issued no par value shares
6. Once issued, they are deemed fully paid and non assessable
DOCTRINE OF EQUALITY OF SHARES - Where the AOI do not provide for distinction of shares, all
shares issued are presumed to be equal and enjoy the same rights and privileges
WATERED STOCKS - Issued not in exchange of its equivalent either in cash, property, share, stock
dividend, or services.
IT INCLUDES:
1. Issued without consideration (Bonus Shares)
2. Issued as fully paid when the corporation has received a lesser sum than its par or issued
value (Discounted shares)
3. Issued for consideration other than actual cash, the fair valuation of which is less than its par
or issued value
4. Issued a stock dividend where there are no sufficient retained earnings
- Certificate of stock must be signed by the president or VP and countersigned by the
corporate secretary or assistant secretary otherwise it is not deemed issued.
TRANSFER OF SHARES
IF REPRESENTED BY CERTIFICATE OF STOCK
1. Delivery of certificate TO THE ASSIGNEE OR TRANSFEREE. Not the corporation
2. Indorsement by the owner or agent
3. Recorded in the books to be binding to third parties.
IF NOT REPRESENTED BY CERTIFICATE:
1. Deed of assignment
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2. Recorded in the books
- The corporation whose shares of stocks are subject of transfer is not a party to the transaction.
- A stock holder may bring suit to compel corporate secretary to register valid transfer of stocks.
- Attachment or mortgage of shares need not be registered in the corporation’s stock and
-
-
books in as much as a chatter mortgage over shares does not involve TRANSFER.
The Transfer books is the basis for ascertaining the persons entitled to the rights of SH
Mandamus should not issue to compel the secretary of the corporation to make a transfer of
stock on the books unless it affirmatively appears that he has failed or refused to do so upon
demand either of the person in whose name for the purpose from the REGISTERED OWNER of
the stock.
The action to enforce the right of registration of the transfer of shares does not accrue until
there has been a demand and a refusal concerning the transfer.
DERIVATIVE SUIT - Brought by one or more stockholders/Members in the name and on behalf of
the corporation to redress wrongs committed against it or protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue or the ones to be sued or has control of
the corporation
REQUISITES:
1. Stockholder at the time the acts or transactions subject of the action occurred and at the
time the action was filed.
2. SH exerted all reasonable efforts and alleges the same with particularity in the complaint to
exhaust all remedies available under the AOI, By laws, laws to obtain reliefs he desired.
3. No appraisal rights are available for the act or acts complained
4. Suit is not a nuance or harassment suit
5. Corporation is impleaded as a plaintiff
INDIVIDUAL ACTIONS - Brought by SH in his own name when a wrong is directly inflicted against
him
REPRESENTATIVE ACTIONS - Brought by SH in behalf of himself and all other SH similarly situated
when a wrong is committed against a group of SH.
PRE-EMPTIVE RIGHT - SH’s right to subscribe to all issues or disposition of shares of any class in
proportion to his present stockholdings.
PRE-EMPTIVE RIGHT IS NOT AVAILABLE:
1. Shares to be issued to comply with the laws requiring minimum stock ownership
2. Shares issued in GF in exchange for property needed for corporate purposes
3. Shares issued in payment of previously contracted debts
4. Denied in AOI
5. If one SH declined his right, the other SH cannot invoke such right of the other SHs
NOTICE OF MEETING FOR SH
1. Regular meeting
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1. As provided in by laws
2. In absence of provision - 2 weeks prior to meeting
2. Special meeting
1. As provided in by laws
2. If no provision, 1 week prior to the meeting
Quorum - Majority of OCS
Excluded in computation of quorum:
1. Delinquent shares
2. Non voting shares
WHO WILL CALL:
1. Officer designated in BL
2. BOD or trustees if nobody is designated
3. SEC if no person authorized or person authorized refuses
EXCEPTION: REMOVAL OF DIRECTORS - Corporate secretary makes the call upon order of the
president or majority of the OCS. Without call, REMOVAL IS VOID.
Place of meeting - City or municipality of principal office and if practicable principal place of
business.
PROXY - Allowed.
- It must be in writing signed by the SH and filed BEFORE THE SCHEDULED MEETING with Corp Sec
- Unless otherwise provided, it shall be valid only for such meeting.
- No proxy shall be valid and effective for a period longer than 5 years.
VOTING TRUST
- Period not exceeding 5 years
- Trustee can also be voted as director
- If the voting trust was a requirement for a loan agreement, period may exceed 5 years but
shall automatically expire upon full payment of the loan.
LIMITATIONS ON RIGHT TO VOTE:
- Non voting shares are not entitled to vote unless as stated in section 6
- Preferred or redeemable shares may be deprived of right to vote
- Fractional shares cannot be voted unless they constitute at least one full share
- Treasury shares have no voting rights as long as they remain in the treasury.
- Holders of stock declared delinquent for unpaid subscription are NOT ENTITLED TO VOTE or be
represented
- A transferee of stock cannot vote if his transfer is not registered in the stock and transfer of
books
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- SH is still entitled to vote even if it is mortgaged or pledged.
APPRAISAL RIGHT - Right to withdraw from the corporation and demand payment of the fair
value of his shares after dissenting from certain corporate acts.
- Upon demand, all rights accruing to the shares shall be suspended.
WHEN EXERCISED:
1. Extension or reduction of corporate term
2. Change in rights of SH, authorize preferences superior to those SH or restrict the right of any
SH
3. Corporation authorized the board to invent corporate funds in another business or purpose
4. Sell of all or substantially all of assets of the corporation
-
SH must be a DISSENTING SH.
Written demand on the corporation within 30 days after the vote was taken
Proposed action is one of the instances enumerated above
Price to be paid is fair value of share on the ate before the vote was taken.
Fair value shall be agreed upon but in case there is no agreement within 60 days from the
date the vote was taken, the fair value shall be determined by the majority of the three
disinterested persons one whom shall be named by stockholders and another by the
corporation and third is chosen by the 2 person.
RIGHT OF APPRAISAL IS EXTINGUISHED WHEN:
1. SH Withdraws the demand. Consent of the Corp is necessary
2. Proposed action is abandoned or rescinded
3. SEC Disapproves action
4. Failure to make demand within 30 days
5. Transfer of the shares by dissenting SH
6. Failure to submit stock certificate within 10 days from demand
UNPAID SUBSCRIPTION
REMEDIES TO ENFORCE PAYMENT:
1. Extrajudicial sale at public auction - Upon failure to pay within the grace period of 30 days
from the date specified in contract or call by the BOD.
2. Judicial action
3. Collection from cash dividends and withholding of stock dividends
CALL - Declaration by the board of directors that the unpaid subscription are due and payable
to the corporation.
- A call is necessary if no time to make payment is stated .
- It is not necessary if the corporation becomes INSOLVENT
- Notice of call is necessary to bind the SHs
- If the SH does not pay within 30 days from the date specified in the call, all the stocks covered
shall be declared DELINQUENT and shall be subject to sale.
- Notice to SH is needed plus publication
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- The highest bidder is the person offering to pay the full amount of the balance on the
subscription and other amount that are due for the SMALLEST NUMBER OF SHARES or fraction
of a share.
DELINQUENT SHARES
- No right to be voted for
- Not entitled to vote
- Not entitled to representation at meeting
- Not entitled to any rights of the SH but he is still entitled to receive DIVIDENDS.
- If delinquent SH is a DIRECTOR, he shall continue to be a director but HE CANNOT RUN FOR
REELECTION.
BOOKS
- The corporate secretary is the officer who is duly authorized to make entries on the stock and
transfer books. Entries made by the Chairman or president are invalid.
- The stock and transfer book is the best evidence of the transactions
REQUIREMENTS FOR SH RIGHT TO INSPECT BOOKS:
1. Exercised at reasonable hours on business days
2. Not improperly used any information he secured through any previous examination
3. Demand is made in GF and for legitimate purpose.
- Mandamus is the proper remedy
MERGER AND CONSOLIDATION (MC)
MERGER - One where a corporation absorbs the other and remains in existence
CONSOLIDATION - One where a new corporation is created and consolidating corporations are
extinguished.
- It does not become effective by mere agreement. Approval of SEC is required
DE FACTO MERGER - One corporation acquires all or substantially all of the properties of another
corporation in exchange of SHARES OF STOCK of the acquiring corporation.
- The acquiring corporation would end up with business enterprise of the target corporation
and target corporation would end up basically its only remaining assets being the Shares of
stock of the acquiring corporation
EFFECTS OF MERGER
- Constituent corporation becomes single corporation
- Separate existence of constituents shall cease EXCEPT that of the surviving corporation or
consolidated corp
- Surviving corp shall possess all rights, privileged, immunities, franchises of EACH CONSTITUENT
corporation and properties shall be deemed transferred to the surviving corp.
- All liabilities of the constituents SHALL PERTAIN TO SURVIVING OR CONSOLIDATED CORP.
- Employment contracts are AUTOMATICALLY ASSUMED by the surviving corp even in absence
of express stipulation in the merger plan.
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- However IT DOES NOT IMPAIR the right of the employer to terminate the employment of the
absorbed employees for a lawful or authorized cause
PROCEDURE:
- Boards of each corporation shall draw up a plan of merger and consolidation
- Plan of MC shall be approved by the majority vote of each Board at SEPARATE MEETINGS and
approved by 2/3 of OCS or members
- Amendment must also be approved by Board and 2/3 of ohs
- Articles of MC shall be executed by each of the constituent corporations
- Signed by the president or VP and certified by Corp Sec or Assistant Corp Sec
- Articles of MC shall be submitted to SEC.
- MC of banks, insurance, building and loan associations, trust companies, public utilities,
educational institutions REQUIRES FAVORABLE RECOMMENDATION of Government agencies.
NON USE OF CORPORATE CHARTER
1. Deemed dissolved - Not fully organize or commence transaction of business within 2 years for
date of incorporation
2. SUSPENDED OR REVOKED - If commenced transaction but Continuously inoperative for a
period of at least 5 years (NOT AUTOMATIC)
- EXCEPTION: Beyond the control of corporation
- The presence of an election is not absolutely necessary to determine if the corporation is
already organized.
DISSOLUTION - Extinguishment of the franchise of a corporation and the termination of its
corporate existence
Modes:
1. Voluntary Dissolution
2. Involuntary dissolution
3. Shortening of term
4. Expiration of term
1. VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED:
1. Meeting must be held on the call of BOD
2. Notice of meeting to SH
3. Publication of notice for 3 weeks
4. Resolution to dissolve must be approved by the majority of BOD AND approved by 2/3 of
OCS
5. Copy of resolution must be certified by Majority of directors and countersigned by the
secretary
6. Filed with SEC
7. Certificate of dissolution
2. VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED:
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1.
2.
3.
4.
5.
Approval of SH representing 2/3 of OCS in a meeting called for that purpose
Filing of petition with SEC signed by the majority of BOD verified by secretary.
SEC shall issue order fixing hearing date for objection
Order shall be published
Objection must be filed no less than 30 days nor more than 60 days after the entry of
order
6. Hearing shall be conducted
7. Judgement shall be rendered.
3. DISSOLUTION BY SHORTENING CORPORATE TERM
- Done by amending the AOI.
- Corporation is deemed dissolved upon approval of the amended AOI or upon the
expiration of the new term
4. INVOLUNTARY DISSOLUTION.
- Filing of the verified complaint with SEC
GROUNDS:
1. Failure to organize and commence business within 2 years from incorporation
2. Continuously inoperative for 5 years
3. Failure to file by laws within 30 days from issue of certificate of incorporation
4. Continuance of business not feasible as found by management committee or rehabilitation
receiver
5. Fraud in procuring cert of reg
6. Serious misrepresentation
7. Failure to file required reports
EFFECTS OF DISSOLUTION
- Transfer of legal title of properties to the SH
- Corporation ceases as a body corporate to continue business
- SH are not prevented from creating new corpo
- Dissolved corporation cannot be revived. But they can reincorporate.
- Corporation continues a body corporate for three years for winding up or liquidation
- Upon expiration of three years winding up period, the corporation ceases to exist for all
purposes
LIQUIDATION AFTER 3 YEARS
- If full liquidation can only be effected after 3 year period and there is no trustee, the directors
may be permitted to complete the liquidation by continuing as trustees by LEGAL
IMPLICATION
- Cases that were filed while the corporation was still in existence and remain pending when 3
year liquidation period expired may be continued by trustees until final judgment even if it is
beyond the 3 year period
- No new case can be filed or initiated by the dissolved corporation after the 3 year period. The
dissolved corporation would have no CAPACITY TO SUE. It is applied even if there is a trustee.
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LIQUIDATION - Process by which all the assets of the corporation are converted into cash in
order to facilitate the payment of obligations
MODES:
1. BOD
2. Trustee to whom the properties are conveyed by the corporation
3. Management committee or rehabilitation receiver appointed by court.
FOREIGN CORPORATION
- Has the power to sue and re sued.
- The foreign corporation TRANSACTING BUSINESS in PH without license to do business shall not
be permitted to intervene in any cation or proceeding in any court or admin agency
(intervene)
- DOCTRINE OF QUASI-ESTOPPEL BY ACCEPTANCE OF BENEFITS - FC Transacting business in PH
whether or not with license may be SUED AGAINST/BEFORE PH COURTS on any valid cause oaf
action recognized under PH laws. (Be sued)
TWIN CHARACTERIZATION TESTS: Continuity and Substance (CS)
CONTINUITY TEST - Doing business implies a continuity of commercial dealings and arrangements
and contemplates to some extent the performance of acts or works normally incident to its
organization
SUBSTANCE TEST - Foreign corporation is doing business in country if it is continuing the body or
substance of the enterprise of business which it was organized
- If a single or isolated transaction is incidental and casual transaction, IT CANNOT QUALIFY AS
DOING BUSINESS.
CONTRACT TEST OF DOING BUSINESS IN PH - The essential condition to be considered as doing
business is the actual performance of specific commercial acts within the territory of PH.
- Activities within PH that do not create earnings or profit do not constitute doing business.
- FC that merely imports goods from PH exporter without opening an office - NOT DOING
BUSINESS
- FC that exports products without doing any specific commercial act - NOT DOING BUSINESS
- Appointment of a distributor in PH is not sufficient to constitute doing business unless it is under
full control of the FC
DOING BUSINESS IN FOREIGN INVESTMENT ACT
1. Soliciting orders, service contracts, opening offices
2. Appointing representatives, distributors domiciled in PH or who stay for a period 180 days or
more
3. Participating in the management, Supervision, or control of any domestic business, firm, entity
or corporation in the PH
4. Act that imply continuity of commercial dealings or arrangements
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NOT DOING BUSINESS:
1. Mere investment as shareholder
2. Having a nominee director or officer to represent interest
3. Appointing a representative or distributor which transact business in its own name or for its
own account
REQUISITES FOR OBTAINING LICENSE TO DO BUSINESS:
1. Designated resident agent
2. Agreement that if it ceases to transact business or if there is no more resident agent,
summons shall be served with SEC
3. Oath of reciprocity
EFFECT OF ESTOPPEL:
- A party is estopped to challenge the personality of the corporation after having
acknowledged the same by entering into a contract with it.
- SC: No remedy could be afforded to parties one party is a corporation without a license.
- Subsequent compliance of securing a license will cure the lack of capacity to sue at the time
of the execution of the contract.
CLOSE COPORATIONS:
REQUISITES:
1. AOI must state that the number of the SH shall not exceed 20
2. AOI must contain restriction on the transfer of issued stock which must appear in AOI, By laws
and Certificate of stock
3. Stocks cannot be listed in stock exchange nor be publicly offered.
- Restriction on the transfer must not be more onerous than granting the existing SH or
corporation an option to purchase the shares
- Corporation is not a close corporation even if the shares belong to less than 20 if not all the
requisites are present.
CANNOT BE CLOSE CORPO:
1. Mining companies
2. Oil companies
3. Stock exchanges
4. Banks
5. Insurance
6. Public utilities
7. Educational institution
8. Other corporation declared to be vested with public interest
PRE-EMPTIVE RIGHT IN CLOSE CORPORATION
- Shall extend to all stocks to be issued including re issuance of treasury shares
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- Coverts even those that are excluded by the corps code in Article 39
DEADLOCKS - In case of irreconcilable dispute among the directors and share holders, SEC may
be asked to intervene and SEC may issue:
1. Cancelling or altering provisions, resolutions or acts
2. Requiring the purchase at their fair value of shares of any SH either by the corporation
regardless of the availability of the URE
3. Appointing provisional directors
4. Dissolving the corporation
5. Other reliefs
- In Close corp, SH can directly manage the corporation and perform the functions of the
-
directors without election.
When they manage - Liable as Director
No need to call a meeting to elect directors
SH are liable for tort
Despite the presence of the requisites, Corporation shall not be deemed a close corp if at
least 2/3 of the voting stocks belong to a corporation which is not a close corp
CLOSE CORP
ORDINARY CORP
Limitation on number of SH
No limitation
Restriction on the transfer of shares
No restriction
Specific qualification as stock holders are
provided
No qualification
Public offering is prohibited
Not prohibited
May be managed directly by SH
Managed by BOD
SH can withdraw by compelling the close corp
to purchase his shares
GR: SH cannot withdraw and compel the corp to
purchase his share
Rules on deadlock
No rules on deadlock
NON STOCK CORPORATION
- Member is entitled to one vote. Such right may be broadened, limited or denied by AOI
- GR: Members cannot transfer his membership.
- EXC: AOI may provide for its transferability
- Power to admit and terminate members pertains to the board in the absence of any contrary
in AOI
- Non stock corporation is authorized to terminate the membership in accordance with the AOI
- When loss of property right is involved, the manner of deprivation should also be in
accordance with NCC
- Non payment of DUES may be a ground for termination or suspension of membership
- AOI may provide that unpaid dues shall constitute a lien on the member’s share
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- Termination of membership should be by REASONABLE NOTICE and he must be given a fair
-
opportunity to be heard
Membership is personal and non transferable unless provided in AOI
CONVERSION
- A non stock cannot be converted into a stock crop through mere amendment of AOI. This
would violate the prohibition to distribute dividends in non stock
- A non stock can be VALIDLY CONVERTED only if members dissolve it first and then organize
another stock corporation
- A stock corporation CAN BE CONVERTED into a non stock corporation by mere amendment of
AOI
NON STOCK
STOCK
Members
Trustees
No capital divided into shares
Capital are divided into shares
Non profit
For profit
Can conduct business by only INCIDENTAL to
primary purpose
Purpose if primary business
Voting rights may be modified
One share - one vote
Membership is generally non tranferable
Shares are transferable
Membership can be terminated
Ownership of SH cannot be terminated until
liquidation
Death of member terminates membership
Shares can be acquired through succession
Dues can be required
No dues
There can be more than 15 members
Not more than 15 members/directors
Cumulative voting is not allowed unless
provided in AOI
Cumulative voting is allowed
- Unused contributions of members cannot be offset against receivables because it would
amount to distribution of the capital of the corporation
RELIGIOUS CORPORATION
CORPORATION SOLE - Special form of corporation usually associated with clergy and consists of
one person only and his successors who are incorporated by law to give some legal capacities
and advantages
RELIGIOUS SOCIETIES - Non stock corporation formed by religious society, group after getting the
2/3 approval of its members.
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- By laws of religious corporation may provide that the member may be expelled or removed
-
WITHOUT PRIOR NOTICE
Where any member of the religious corp is expelled from membership for espousing doctrines
and teachings contrary to that of his church, such is conclusive to the courts.
- Corporation sole has no nationality
- For nationalization laws, it is determined by the members constituting the sect in the PH
- Roman catholic church may validly acquire lands in PH
- Corporation sole in order to acquire land in PH: Members must constitute at least 60% Filipinos
- Corporation sole may be converted to corporation aggregate through the amendment of
AOI through concurrence of 2/3 of members
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SECURITIES REGULATIONS CODE
POWERS OF SEC
1. Jurisdiction over all corporations, partnerships or associations who are the grantees of primary
franchises and or a license or permit issued by government
2. Formulate policies and recommendations
3. Approve, reject, revoke or require amendments to registration of statements.
4. Impose sanctions for the violations of law and rules
5. Punish for contempt
6. Issue subpoena duces cecum and summons
7. Suspend, revoke after pro[er notice or hearing the franchise
RTC HAS JURISDICTION OVER
1. Fraudulent devises and schemes employed by directors detrimental to the public interest
2. Intra-corporate dispute and with the state
3. Election, appointment of directors or trustees
VIOLATIONS OF SRC - All complaints for any violation should be filed with SEC. When the
complaint is criminal in nature, SEC may indorse the complaint to DOJ for PI and prosecution.
SECURITIES - Shares, participation or interests in a corporation or in commercial enterprise or profit
making venture evidenced by certificate, contract, instrument.
ISSUER - Maker of the security.
BROKER - Person engaged in the business of buying and selling securities for account of others.
DEALER - Any person who buys and sells securities for his own account.
PRE NEED PLANS - Contracts, agreements, deeds or plans for the benefit of the placeholder
which provide for the performance of future service, payment of monetary considerations or
delivery of other benefits at the time of actual need or agreed maturity date. Regulated by IC
PROMOTER - Takes initiative in founding and organizing the business or enterprise of the issuer
UNDERWRITER - Person who guarantees on a firm commitment and or declared best effort basis
the distribution and sale of securities.
DEALING IN SECURITIES - Making or offering to make with any person or inducing or attempting
to induce any person to enter into or to offer to enter into any agreement.
INVESTMENT CONTRACT - Contract, transaction or scheme whereby a person invests his money in
a COMMON ENTERPRISE and is let to expect profits PRIMARILY from the efforts of others.
- ENGAGED IN DISTRIBUTION OF SECURITIES
HOWEY TEST - SOLELY from the efforts of others. Modified already
DERIVATIVES - Financial instruments whose value changes in response to changes in a specified
interest rate, price which is settled in a future date.
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- OPTIONS - Give the buyer the right to but not the obligation to buy or sell an underlying
security at a predetermined price called exercise or strike price.
- WARRANTS - Rights to subscribe or purchase new shares in a company on or before
predetermined date called the expiry date.
COMMODITY FUTURES CONTRACT - A contract providing for the making or taking delivery at a
prescribed time in the future of a specific quantity and quality
HOW DOES SRC PROTECT THE PUBLIC?
- Law requires full disclosure of information to public regarding securities that are being offered
SRC requires the filing with and approval by SEC of a registration statement.
PROHIBITED IF NO REGISTRATION
1. Sale of securities
2. Offer to sell or distribute securities within PH
3. Disseminate of information relating to offering of securities
PUBLIC OFFERING - Any offering of securities to the public or to anyone whether solicited or
unsolicited.
- PRESUMPTION that it is public offering:
1. Publication in any newspaper or reading material distributed in PH
2. Presentation in any public place
3. Advertisement
4. Distribution of flyers
EXEMPT SECURITIES - No need for registration
1. Issued by government or any of its political subdivision
2. Issued by government of any country which PH maintains diplomatic relations
3. Issued by a receiver or by trustee in bankruptcy duly approved by body
4. Sale under the supervision of Insurance commission, HLURB or BIR
5. Any Security issued by bank except its own shares of stock
EXEMPT TRANSACTIONS
1. Judicial sale or sale by an executor, administrator, guardian or receiver or trustee
2. By or for the account of a pledge holder or mortgagee
3. Isolated transaction in which any security is sold, offered for sale by owner or his
representative
4. Distribution by a corporation actively engaged in business authorized by its AOI to its SH or
other security holders
5. Issuance of bonds or notes secured by mortgage upon real estate or tangible personal
property
6. Sale of securities by an issuer fewer than 20 in the PH during the 12 month period.
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ISSUANCE OF EVIDENCE OF INDEBTEDNESS to primary institutional lenders is exempt if:
1. All evidence of indebtedness shall be negotiated or assigned to any PIL or DBP
2. In case of non banks, such negotiation or assignment shall be through banks or non banks
LIMITED PUBLIC OFFERING - Cases when SEC may exempt transactions.
- Cases where the covered securities could be available only to the parties or person named in
the application for exemption.
GROUNDS FOR REVOCATION OR REJECTION OF REGISTRATION
1. Judicially declared insolvent
2. Violated any of the provisions of this code.
3. Engaged or is about to engage in fraudulent transactions
4. Made any false or misleading representation of material facts in any prospectus concerning
the issuer or its securities
5. Failed to comply with the requirements.
MANIPULATIVE DEVICES OR PRACTICES OF SECURITY PRICES
- It can be committed by any person including the dealer or broker
1. WASH SALES - Effecting any transaction in such security which involves no change in
beneficial ownership.
2. MATCHED ORDERS - Entering an order or orders for the purchase or sale of such security with
the knowledge that a simultaneous order of substantially the same size, time or price will be
entered by or for the same or different but colluding parties.
3. MARKET RIGGLING OR JIGGLING - Performing similar act where there is no change in
beneficial ownership
4. PAINTING THE TAPE - One of the activities that is in the nature of engaging in a series of
transaction in securities that are reported publicly to give impression of activity or price
movement.
5. MARKING THE CLOSE - Buying and selling securities a increasingly higher prices and then
selling it in the market at higher prices or vice versa
6. SQUEEZING THE FLOAT - Taking advantage of a shortage of securities in the market by
controlling the demand side and exploiting the market congestion to create artificial prices.
7. Disseminating false or misleading information through media.
PUT, CALL, STRADDLE
PUT - Transferrable option or offer to deliver given number of shares of stock at stated price at
any given time during the stated period
CALL - Transferrable option to buy
STRADDLE - Combination of put and call
- SRC PROHIBITS directly or indirectly
SHORT SALE - Any sale of a security which seller does not own.
NO ABSOLUTE PROHIBITION. BUT THESE ACTS ARE PROHIBITED:
1. Directors, officers or principal shareholders of corporation cannot make a short sale in such
corporation
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2. When SEC imposes such prohibition
INSIDER - An issuer, Director or officer of or a person controlling the issuer, person whose
relationship or former relationship to the issuer gives him access to material information about
the issuer that is not generally available to public
- It shall be unlawful for an insider to sell or buy security of the issuer while in the possession of
material information with respect to the issuer or the security that is not generally available to
the public
PRESUMPTION - A purchase or sale made by insider or such insider’s spouse or relative by affinity
or consanguinity within 2nd degree, legitimate or common law shall be PRESUMED to have been
in possession of material information not generally available to public.
- It shall be unlawful for any person OTHER THAN THE TENDER OFFEROR who is in possession of
material information relating to such tender offer to buy or sell.
SHORT SWING PROFITS - Any profit realized by any beneficial owner, director or officer from any
purchase and sale within any period of less than 6 months unless such security was acquired in
GF shall inure to and be recoverable by the issuer irrespective of intention of holding the security
purchased or of not repurchasing the security sold for a period exceeding 6 months.
TENDER OFFER - Publicly announced intention by a person acting alone or in concert to acquire
equity securities of a public company
WHEN MANDATORY:
1. Intends to acquire 15% OF EQUITY SECURITIES within 12 months
2. Any person or group of persons who intends to acquire 35% or more of the OUTSTANDING
VOTING SHARES that are sufficient to gain control of the board
3. If any acquisition of even less than 35% would result in ownership of over 51% of the total
outstanding equity securities of public company
NOT REQUIRED
1. If after the acquisition through the exchange trading system they fail to acquire their target
of 35% of the outstanding voting shares.
2. Any purchase of shares from the unissued capital stock provided that the acquisition will not
result to 50% or more ownership
3. Purchase from increase in authorized capital stock
4. Purchase in connection of privatization
5. Merger or consolidation
- These rules apply even if one will acquire the shares in the corporation that owns the shares of
a public company.
MARGIN TRADING - Customer purchases stocks by advancing only a portion of purchase price
with the broker extending credit or making loan for the balance due.
- Broker shall not extend credit in an amount that EXCEEDS 50% of the CMV
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COMMERCIAL LAW
SUNDIANG REVIEWER
MANDATORY CLOSE OUT RULE - When there is an insufficiency of margin, a call for additional
margin shall be issued promptly by the broker dealer to customer.
- Parties may be considered in pari delicto if they violate the limitations on margin trading.
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Sorry for all the typographical errors. Good luck and God bless you! Kindly pass
this or pay it foward! In God's perfect timing I know you will be the person you
aspire to be.
- Edward Arriba
(C) EDWARD VANGE ARRIBA
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