Professional Documents
Culture Documents
Mercantile Law Syllabus 2015
Mercantile Law Syllabus 2015
Mercantile Law Syllabus 2015
I. Letters of Credit
3. Paying bank
- bank on which the drafts are to be drawn, which may be the issuing bank
or another bank not in the city of the beneficiary
4. Negotiating bank
- bank in the city of the beneficiary which buys or discounts the drafts
contemplated by the LC, if such draft is to be drawn on the opening bank
not in the city of the beneficiary.
A. Basic Principles of Letter of Credit
1. Doctrine of Independence
The principle of independence assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main contract is
actually accomplished or not.
Under this principle, banks assume no liability or responsibility for the
form, sufficiency, accuracy, genuineness, falsification or legal effect of any
documents, or for the general and/or particular conditions stipulated in
the documents or superimposed thereon, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of
the goods, or any other person whomsoever (Transfield Philippines v.
Luzon Hydro, 2004; Bank of America, NT&SA v. Court of Appeals, 1993).
2. Fraud Exception Principle
The principle that limits the application of the independence principle only
to instances where it would serve the commercial function of the credit
and not when fraud attends the transaction.
The Fraud exception rule. It provides that the untruthfulness of a
certificate accompanying a demand for payment under a standby letter of
credit may qualify as fraud sufficient to support an injunction against
payment. (Transfield v. Luzon Hydro, G.R. No. 146717, Nov. 22, 2004)
3. Doctrine of Strict Compliance
The settled rule in commercial transactions involving letters of credit
requires that the documents tendered by the seller must strictly conform
to the terms of the letter of credit. Otherwise, the issuing bank or the
concerned correspondent bank is not obliged to perform its undertaking
under the contract.
The documents tendered by the seller/beneficiary must strictly conform to
the terms of the letter of credit. The tender of documents must include all
documents required by the letter. Thus, a correspondent bank which
departs from what has been stipulated under the LC acts on its own risk
and may not thereafter be able to recover from the buyer or the issuing
bank, as the case may be, the money thus paid to the beneficiary. (Feati
Bank and Trust Company v. CA, G.R. No. 940209, Apr. 30, 1991)
(1) For all lawful charges for storage and preservation of the goods;
(2) For all lawful claims for money advanced, interest, insurance,
transportation, labor, weighing, coopering and other charges and expenses in
relation to such goods;
(3) For all reasonable charges and expenses for notice, and advertisements of
sale; and
(4) For sale of the goods where default had been made in satisfying the
warehouseman's lien (Sec. 27)
General rule: A warehouseman shall have lien only for charges for storage of
goods subsequent to the date of the receipt.
Exception: When the receipt expressly enumerated other charges provided under Sec. 27
even though the amounts thereof are not stated in the receipt. (Sec. 30)
As a general rule, only persons whose signatures appear on an instrument are liable
thereon. But one who signs in a trade or assumed name is liable as if he signed his own
name (Sec. 18 [2]). It is necessary, however, that the party who signed intended to be
bound by his signature.
2. Signature of Agent
The requisites are complied with, the legal effects of an agents signature in a negotiable
instrument are:
a) His signature will bind his principal
b) He will be exempt from personal liability
3. Indorsement by Minor or Corporation
Not void. The incapacity of the infant is not a defense which can be availed of by
prior parties. However, it does not destroy the right of such an infant indorser to
disaffirm under the rules of infancy.
Passes property therein
Voidable. Therefore, parties prior to the minor or corporation cannot escape liability
by setting up as defense the incapacity of the indorsers.
A minor, however, may be held bound by his signature in an instrument where he is
guilty of actual fraud committed by specifically stating that he is of age. (PNB v. CA,
G.R. No. L34404, June 25, 1980)
4. Forgery - is the counterfeit making or fraudulent alteration of any writing.
Q: When is there forgery?
A: Signature is affixed by one who does not claim to act as an agent and who has no
authority to bind the person whose signature he has forged.
Q: What is the effect when there is forgery?
GR: It does NOT render the instrument void. The signature is wholly inoperative, and no
right to retain the instrument, or to give a discharge thereof, or to enforce payment
thereof against any party to it, is acquired through or under such signature. (Cutof
rule)
XPN: If the party against whom it is sought to enforce such right is precluded from
setting up forgery or want of authority.(Sec. 23)
Where the forged signature is not necessary to the holders title, in which case, the
forgery may be disregarded. (Sec. 48)
D. Consideration
It is an inducement to a contract that is the cause, price or impelling influence, which
induces a party to enter into a contract.
Q: What is the effect of want of consideration?
A: It becomes a matter of defense as against any person not a holder in due course (Sec.
28);
Q: What is the effect of partial failure of consideration?
A: Partial failure of consideration is a defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise (Sec. 28)
E. Accommodation Party
Q: Who is an accommodation party?
A: 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.
(Sec. 29)
Q: What are the requisites to be an accommodation party?
A:
a) Accommodation party must sign as maker, drawer, acceptor or indorser
b) No value is received by the accommodation party for the accommodated party; and
c) The purpose is to lend the name.
Q: What are the requisites to be an accommodation party?
A:
a) Accommodation party must sign as maker, drawer, acceptor or indorser
b) No value is received by the accommodation party for the accommodated party; and
c) The purpose is to lend the name.
Note: It does not mean, however, that one cannot be an accommodation party merely
because he has received some consideration for the use of his name. The phrase without
receiving value therefor only means that no value has been received for the instrument
and not for lending his name.
F. Negotiation
Q: When is an instrument negotiated?
A: An instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof. (Sec. 30)
Note: A holder is the payee or indorser of a bill or note, who is in possession of it, or the
bearer thereof. (Sec. 191)
the transferee, if he is a
hidc may acquire better
rights than his transferor.
the holder can hold the
drawer liable and the
indorsers liable if the
party primarily liable
does not pay.
non negotiable;
instrument may be
assigned absent of any
prohibition against
assignment written on its
face.
the transferee can have
no better rights than his
transferor; he merely
steps into the shoes of
the assignor.
the transferee has no
right of recourse for
payment against
immediate parties
NEGOTIATION ASSIGNMENT
3. Modes of Negotiation
G. What are the methods of negotiation?
A:
1. If payable to bearer it is negotiated by delivery
2. If payable to order it is negotiated by the indorsement of the holder completed by
delivery. (Sec. 30)
H. What is the effect, if any, if a bearer instrument is negotiated by indorsement
and delivery?
A: A bearer instrument, even when indorsed specially, may nevertheless be further
negotiated by delivery, but the person indorsing specially shall be liable as endorser to
only such holders as make title through his endorsement (once a bearer instrument,
always a bearer instrument). (Sec. 40)
Note: This rule does not apply to an instrument originally payable to order but is
converted into bearer instrument because the only or last indorsement is an indorsement
in blank.
1. Kinds of Indorsements
A. Special (Sec. 34)Specifies the person to whom or to whose order the
instrument is to be payable. Also known as specific indorsement or indorsement
in full.
B. Blank (Sec. 34) Specifies no indorsee.
C. Instrument is payable to bearer and may be negotiated by delivery;
May be converted to special indorsement by writing over the signature of the indorser in
blank any contract consistent with the character of indorsement(Sec. 35).
AbsoluteThe indorser binds himself to pay:
a)upon no other condition than failure of prior parties to do so
b)upon due notice to him of such failure
Conditional Right of the indorsee is made to depend on the happening of a contingent
event. Party required to pay may disregard the conditions (Sec. 39)
Restrictive When the instrument:
a)Prohibits further negotiation of the instrument (it destroys the negotiability of the
instrument);
b)Constitutes the indorsee the agent of the indorser; (Sec. 36)
c) Vests the title in the indorsee in trust for or to the use of some persons. But mere
absence of words implying power to negotiate does not make an instrument
restrictive.
Qualified(Sec. 34) constitutes the indorser a mere assignor of the title to the
instrument. It is made by adding to the indorsers signature words like, without
recourse (serves as an ordinary equitable assignment) (Sec. 38)
Jointindorsement made payable to 2 or more persons who are not partners. (Sec. 41)
Note: All of them must indorse unless the one indorsing has authority to indorse
for the others
Irregular(Sec. 64) A person who, not otherwise a party to an instrument, places
thereon his signature in blank before delivery.
Facultative Indorser waives presentment and notice of dishonor, enlarging his liability
and his indorsement.
Successive indorsement to two persons in succession.
Note: Any of them can indorse to effect negotiation of the instrument.
I. Rights of the Holder
Q: Who is a holder?
A: The payee or indorsee of a bill or note who is in possession of it or the bearer thereof.
(Sec. 191)
Q: What are the classes of holders?
A:
Holders in general (Simple Holders). (Sec. 51)
Holders for value. (Sec. 26)
Holders in due course. (Secs. 52, 57)
3. Acceptor
What are the liabilities of an acceptor?
a) Engages to pay according to the tenor of his acceptance
b) Admits the existence of the drawer, the genuineness of his signature and his capacity
and authority to draw the instrument
c) Admits the existence of the payee and his then capacity to indorse. (Sec. 62)
Note: Drawee does not become liable until he accepts the instrument in which case he
becomes an acceptor.
When is an acceptor is precluded from settingup these defenses?
a. That the drawer is nonexistent or fictitious
b. That the drawers signature is a forgery
c. That there is no consideration between him and the drawer
4. Indorser
Who is deemed an indorser?
A: A person placing his signature upon an instrument otherwise than as maker or
acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his
intention to be bound in some other capacity. (Sec. 63)
Note: A person who places his indorsement on an instrument negotiable by delivery
incurs all liabilities of an indorser. (Sec. 67)
5. Warranties
What are the warranties provided by the person negotiating an instrument?
A:
a.
b.
c.
d.
(Sec. 103)
Parties reside in diferent places
By mail Deposited in the post office in time to go by mail (actual departure in the
course of mail from the post office in which the notice was deposited) the day
following the day of dishonor.
If no mail At a convenient hour (of the sender) on that day, by the next mail
thereafter
Other than by post office (e.g. personal messenger) Within the time that notice
would have been received in due course of mail, if it has been deposited in the
post office within the time specified in
(Sec. 104)
Time of notice to antecedent parties Same time for giving notice that the holder has
after the dishonor (Sec. 107)
Note: Actual receipt of the party within the time specified by law is sufficient
though not sent in the places specified above. (Sec. 108)
K. Discharge of Negotiable Instrument
1. Discharge of Negotiable Instrument
L. What is discharge?
A: It is the release of all parties, whether primary or secondary, from the obligations
arising thereunder. It renders the instrument without force and effect, and consequently, it
can no longer be negotiated.
Q: What are the methods for discharge of instrument?
A:
a. Payment by principal debtor:
By or on behalf of principal debtor
At or after its maturity
To the holder thereof
In good faith and without notice that the holders title is defective
b. Payment by accommodated party
c. Intentional cancellation of instrument by the holder (by expressly stating it in the
instrument or when the instrument is torn up, burned or destroyed)
d. Any act which discharges a simple contract for the payment of money under Art.
1231 of the NCC specifically remission, novation, and merger.
Note: Loss of the negotiable instrument will not extinguish liability; compensation
is not available so long as an obligation is evidenced by a negotiable instrument.
(Commercial Law Review, Villanueva, 2009ed)
e. Reacquisition by principal debtor in his own right. Reacquisition must be:
GR: The party so discharging the instrument is remitted to his former rights as regards
all prior parties, and he may strike out his own and all subsequent indorsements, and
again negotiate the instrument.
XPN:
Where it is payable to the order of a third person, and has been paid by the drawee; &
It was made or accepted for accommodation, and has been paid by the party
accommodated.
4. Renunciation by Holder
What is renunciation?
A: The act of surrendering a claim or right with or without recompense (a personal
defense).
Q: How is renunciation by holder made?
A:
Must be written
If oral, the instrument must be surrendered to the person primarily liable. (Sec. 122)
What are the effects of renunciation?
A:
Made in favor of principal debtor made at or after the maturity (made absolutely and
unconditionally) of the instrument discharges the instrument
(Sec. 122)
Made in favor of a secondary party may be made by the holder before, at or after
maturity discharges only the secondary parties and all subsequent to him (Sec.
122)
Renunciation does not affect the rights of a holder in due course without notice. (Sec.
120)
What is the rule regarding cancellation of an instrument?
A: It is presumed intentional. It is inoperative if unintentional, or under a mistake
or without the authority of the holder. But where an instrument or any signature
appears to have been cancelled, burden of proof lies on the party who alleges
that the cancellation was made unintentionally, or under a mistake or without
authority. (Sec. 123)
M.
Material Alteration
1. Concept
What is a material alteration?
A: Any change in the instrument which affects or changes the liability of the
parties in any way.
What constitutes a material alteration?
Any alteration which changes the:
Date
Sum payable, either principal or interest;
Time or place of payment
Number or relations of the parties
Medium or currency in which payment is to be made; or
Adds a place of payment when no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect.
(Sec. 125)
Note: The change in the date of indorsement is not material where the date is
not necessary to fix the maturity of the instrument.
2. Effect of Material Alteration
What is the effect of material alteration which is not apparent?
A:
Avoids the instrument except against:
0 A party who has made the alteration;
1 A party who authorized or assented to the alteration; or
2 The indorsers who indorsed subsequent to the alteration (because of their
warranties)
If negotiated to a HIDC, he may enforce the payment thereof according to its original
tenor against the party prior to the alteration. He may also enforce payment thereof
against the party responsible for the alteration for the altered amount.
If negotiated to a NHIDC, he cannot enforce payment against the party prior to the
alteration. He may however enforce payment according to the altered tenor from
the person who caused the alteration and from the indorsers. (Sec. 124)
Is there material alteration when the serial number of a check had been altered?
No. An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an instrument that purports to modify in any
respect the obligation of a party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the obligation of a party.
The alteration of the serial number of a check did not change the relations
between the parties nor the effect of the instrument. Hence, the alteration on the
serial number of a check is not a material alteration. (International Corporate
Bank vs. CA, G.R. No. 141968, Feb. 12, 2001
N. Acceptance
1. Definition
What is acceptance of a bill?
A: A signification by the drawee of his assent to the order of the drawer (Sec. 132).
Q: What is the effect of acceptance?
A: Upon acceptance, the bill, in effect becomes a note. The drawee who thereby
becomes an acceptor assumes the liability of the maker (which is primary
liability) and the drawer, that of the first indorser.
2. Manner
O. What are the requisites for acceptance?
A:
1. In writing, except constructive acceptance and to a foreign bill payable in another
state (unless the other state requires for written acceptance)
2. Signed by the drawee (without it, he is not liable)
3. Must express a promise to pay money (not goods)
4. Delivered to the holder (before delivery or notification, acceptor may revoke or
cancel his acceptance).
P. What are the kinds of acceptance?
A:
General Assents without qualification to the order of the drawer (Sec. 139).
Note: A holder may refuse to accept a qualified acceptance and if he does not
obtain an unqualified acceptance, he may treat the bill as dishonored by non
acceptance.
Qualified An acceptance which in express terms varies the effect of the bill as
drawn (Sec. 139).
Conditional makes payment by the acceptor dependent on the fulfillment of a
condition therein stated.
Partial an acceptance to pay part only of the amount for which the bill is drawn.
Local an acceptance to pay only at a particular place.
Qualified as to time
The acceptance of some one or more of the drawees but not of all. (Sec. 141)
Constructive/implied
Drawee to whom the bill is delivered for acceptance destroys it; or
Drawee refuses, within 24 hours after such delivery, or within such time as is
given him, to return the bill accepted or nonaccepted
GR: When the holder takes a qualified acceptance the drawer and indorsers are
discharged from liability on the bill.
XP
N:
When they have expressly
1. or impliedly
authorized the holder to
take a
qualified acceptance, or
Subsequently assent
2. thereto
Implied assent (when
3. they did not
express their dissent to
the holder
within a reasonable time
when they
received a notice of
qualified
acceptance). (Sec. 142)
4. Dishonor by Non-Acceptance
When is a bill dishonored by nonacceptance?
A:
5. When it is duly presented for acceptance and such an acceptance is refused or
cannot be obtained; or
6. When presentment for acceptance is excused, and the bill is not accepted.
(Sec. 149)
What is the duty of the holder where bill is not accepted?
A: The person presenting it must treat the bill as dishonored by nonacceptance or he
loses the right of recourse against the drawer and indorsers. (Sec. 150)
Q: What are the rules when a bill is dishonored by nonacceptance?
A:
Right of recourse against all secondary party accrues to the holder
No presentment for payment is necessary since dishonor of the instrument by non
payment is to be expected
If the instrument is accepted after it has been dishonored by nonacceptance
presentment for payment is necessary upon maturity; and
In case of nonpayment, holder must give the corresponding notice of dishonor;
otherwise, secondary parties are discharged.
R. Promissory Notes
What is a promissory note?
A: An unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer. (Sec. 184 NIL)
What are the special types of promissory notes?
A:
Certificate of deposit a written acknowledgment by a bank of the receipt of money on
deposit on which the bank promises to pay to the depositor or to him or his order or
to some other person or to him or his order, or to a specified person or bearer, on
demand or on a fixed date, often with interest.
Bonds A promise, under seal, to pay money.
Registered bond one payable only to the person whose name appears on the face
of the certificate.
Coupon bond one to which are attached coupons which entitle the holder to
interest when due.
Bank Note PN of issuing bank payable to bearer on demand and intended to circulate
as money.
Due Bill An instrument where one person acknowledges his indebtedness to another
Mortgage Note an instrument secured by either a real or personal property.
Titleretaining Note an instrument used to secure the purchase price of goods
Collateral Note it is used when the maker pledges securities to the payee to secure
the payment of the amount of the note
Judgment Note this is a note to which
power of attorney is added enabling the payee to take judgment against the maker
without the formality of a trial if the note is not paid on its due date.
S. Checks
1. Definition
What is a check?
A: It is a bill of exchange drawn on a bank and payable on demand (Sec. 185). It
must be presented for payment within a reasonable time after its issue or the
drawer shall be discharged from liability thereon to the extent of the loss caused
by the delay. (Sec. 186)
2. Kinds
What are the different kinds of checks?
A:
Cashiers or managers check Drawn by the banks cashier or manager, as the case
may be, upon the bank itself and deemed accepted by the act of issuance.
Travelers check Upon which the holders signature must appear twice, one to be
affixed by him at the time it is issued and the second counter signature, to be
affixed by him in the presence of the payee before it is paid, otherwise, it is
incomplete.
Certified check Bears upon its face an agreement by the drawee bank that the check
will be paid on presentation.
Memorandum check Memo is written across its face, signifying that drawer will pay
holder absolutely without need of presentment.
What is a crossed check? What are the effects of crossing a check? Explain.
A crossed check is a check with two (2) parallel lines, written diagonally on the upper right
corner thereof. It is a warning to the drawee bank that payment must be made to the right
party; otherwise the bank has no authority to use the drawer's funds deposited with the
bank. To be assured that it will avoid any mistake in paying to the wrong party, banks
adopted the policy that crossed checks must be deposited in the payee's account. When
withdrawal is made, the banks can be sure that they are paying to the right party. The
crossing becomes a warning also to whoever deals with the said instrument to inquire as
to the purpose of its issuance. Otherwise, if something wrong happens to the payment
thereof, that person cannot claim to be a holder in due course. Hence, he is subject to the
personal defense on the part of the drawer that there is breach of trust committed by the
payee in not complying with the drawer's instruction.
(2005 Bar Question)
What is a stale check?
A check which has not been presented for payment within a reasonable time after its
issue. It is valueless and thus, should not be paid. A check becomes stale 6 months from
date of issue.
What is the effect of a stale check?
The drawer and all indorsers are discharged from liability thereon. (Sec. 188)
What is a memorandum check?
A memorandum check is an evidence of debt against the drawer and although
may not be intended to be presented, has the same effect as an ordinary check
and if passed on to a third person, will be valid in his hands like any other check.
(People v. Nitafan, G.R. No. 75954, Oct. 22, 1992
3. Presentment for Payment
a. Time
: Within what time must a check be presented?
A: Within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay (Sec. 186).
a. Effect of Delay
: What is the effect of delay to make presentment for payment?
A: The indorser shall be discharged from liability.
T.
(PNB vs. Seeto, G.R. No. L4388, August 13, 1952)
Note: See also Sec. 186 and above.
A check was dishonored due to material alteration. Creditor filed an action
against drawee bank for the amount. Is the creditor entitled?
A: No. If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the
payeeholder cannot, as provided under Sections 185 and 189 of the NIL, sue the bank.
The payee should instead sue the drawer who might in turn sue the bank. This is so
because no privity of contract exists between the draweebank and the payee (Villanueva
v. Nite, G.R. No. 148211, July 25, 2006).
Q: When will the delivery of a check produce the effect of payment even if the
same had not been encashed?
A: If the debtor was prejudiced by the creditor's unreasonable delay in presentment.
Acceptance of a check implies an undertaking of due diligence in presenting it for
payment. If no such presentment was made, the drawer cannot be held liable irrespective
of loss or injury sustained by the payee. Payment will be deemed effected and the
obligation for which the check was given as conditional payment will be discharged. (Pio
Barretto Realty Corp. v. CA, G.R. No. 132362, June 28, 2001).
A. CONCEPT OF INSURANCE
Insurance is a type of contract. It is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. (Sec. 2[a], Insurance Code)
In general, an insurance contract is a promise by one person to pay another, money
or any other thing of value upon the happening of a fortuitous event beyond the
effective control of either party in which the promise has an interest apart from the
contract (Edwin W Patterson, Essentials of Insurance Law, p. 10, 1957 Ed., published
by McGraw-Hill Book Co., Inc.) In insurance, the insurer for a stipulated
consideration, undertakes to compensate the insured for a future loss, damage or
liability on a specified subject caused by a specified event or peril. (Sec. 3[g],
Insurance Code) A written insurance contract is called a policy. (Sec. 49, Insurance
Code)
B. ELEMENTS OF AN INSURANCE CONTRACT
1. Existence of Insurable Interest The insured possesses an interest of some kind
susceptible of pecuniary estimation, known as insurable interest.
2. Risk of loss The insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated perils.
3. Assumption of Risk The insurer assumes that risk of loss for a consideration.
a. Valued policy the parties are bound by the valuation, if the insured
had some interest at risk and there is no fraud on his part. (Sec. 158,
Insurance Code)
b. Open policy the following rules shall apply in estimating a loss:
i. The value of the ship is its value at the beginning of the risk,
including all articles or charges which add to its permanent value
or which are necessary to prepare it for the voyage insured;
ii. The value of the cargo is its actual cost to the insured, when laden
on board, or where that cost cannot be ascertained, its market
value at the time and place of lading, adding the charges incurred
in purchasing and placing it on board, but without reference to
any loss incurred in raising money for its purchase, or to any
drawback on its exportation, or to the fluctuation of the market at
the port of destination, or to expenses incurred on the way or on
arrival;
iii. The value of freightage is the gross freightage, exclusive of
primage, without reference to the cost of earning it; and
iv. The cost of insurance is in each case to be added to the value
thus estimated. (Sec. 163, Insurance Code)
d.) Two major divisions of marine insurance.
1. Ocean marine insurance covers primarily sea perils.
Scope:
a. Ships or hulls
b. Goods or cargoes
c. Earnings such as freight, passage, money, commissions, or profits
d. Liability incurred by the owner or any party interested in or responsible
for the insured property by reason of maritime perils
2. Inland marine insurance covers primarily the land or over the land
transportation perils of property shipped by railroads, motor trucks,
airplanes, and other means of transportation. It also covers risks of lake,
river, or other inland waterway transportation and other waterborne perils
outside of those risks that fall definitely within the ocean marine category.
Classes (scope):
a. Property in transit provides protection for property frequently exposed
to loss while it is in transportation from one location to another.
b. Bailee liability provides protection to persons who have temporary
custody of the goods or personal property of others, such as carriers,
laundrymen, warehousemen, and garage keepers.
c. Fixed transportation property covers bridges, tunnels, and other
instrumentalities of transportation and communication, although as a
matter of fact they are fixed property. They are so insured because they
are held to be an essential part of the transportation system.
d. Floater provides insurance to follow the insured property wherever it
may be located, subject always to the territorial limits of the contract.
Floater policies may be issued for such items as jewelry, furs, works of
art, contractors equipment, theoretical property, salesmen samples,
and others.
e.) Perils of the sea or perils of navigation, defined.
It includes only those casualties due to the unusual violence or extraordinary
action of wind and wave, or to other extraordinary causes connected with
navigation.
f.) Perils of the ship, defined.
It is a loss which, in the ordinary course of events, results from:
3.
4.
5.
o.)
1.
2. Departure from the most natural, direct, and advantageous route between
the places specified if the course of sailing is not fixed by mercantile usage.
(Sec. 124)
3. Unreasonable delay in pursuing the voyage. (Sec. 125)
4. The commencement of an entirely different voyage.
x.) Two kinds of deviation.
a. Proper This will not vitiate a policy of marine insurance because deviation is
considered justified or caused by actual necessity which is equal in
importance to such deviation. (Sec. 126)
b. Improper The insurer becomes immediately absolved from further liability
under the policy for losses occurring subsequent to the deviation because
deviation is considered to be without just cause. Every deviation not specified
in Sec.126 is improper. (Sec. 127)
y.) Two kinds of total loss.
1.
Actual total loss - exists when the subject matter of the insurance is wholly
destroyed or lost or when it is so damaged as no longer to exist in its original
character.
2.
Constructive total loss - one which the loss, although not actually total, is of
such a character that the insured is entitled, if he thinks fit, to treat it as total by
abandonment. It is also called, a technical loss.
z.) What actual total loss, constitutes.
1.
A total destruction of the thing insured
2.
The irretrievable loss of the thing by sinking, or by being broken up
3.
Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
4.
Any other event which effectively deprives the owner of the possession, at
the port of destination, of the thing insured. (Sec. 132)
aa.) Constructive total loss, defined.
1.
Actual loss of more than of the value of the object
2.
Damage reducing value by more than of the value of the vessel and of
cargo; and
3.
Expense of transshipment exceeds of the value of the cargo.
bb.) Rights of the insured in case of general average.
General Rule: The insurer is liable for any general average loss where it is
payable or has been paid by the insured in consequence of a peril insured
against.
The insured may either hold the insurer directly liable for the whole of the
insured value of the property sacrificed for the general benefit, subrogating him
to his own right of contribution or demand contribution from the other interested
parties as soon as the vessel arrives at her destination.
Exception: There can be no recovery for general average loss against the
insurer:
1.
After the separation of the interests liable to contribution, that is to say,
after the cargo liable for contribution has been removed from the vessel; or
2.
When the insured has neglected or waived his right to contribution.
Note: General average is a principle of law whereby, when it is decided by the
master of a vessel, acting for all the interest concerned to sacrifice a part of a
venture exposed to a common and imminent peril in order to save the rest, the
interests so saved are compelled to contribute ratably or proportionately to the
owner of the interest sacrificed, so that the cost of the sacrifice shall fall equally
upon all. (Hector S. De Leon, The Law on Insurance, 2003)
cc.) Free from Particular Average Clause (FPA Clause), defined.
A clause agreed upon in a policy of marine insurance in which it is stated that
the insurer shall not be liable for a particular average.
The insurer is liable only for general average and not for particular average
unless such particular average loss as the effect of depriving the insured of the
possession at the port of destination of the whole of the thing insured. (Sec. 138)
dd.) Limit as to liability of insurer.
The liability of the insurer for any general average loss is limited to the
proportion of contribution attaching to his policy value where this is less than the
contributing value of the thing insured. (Sec. 164)
ee.) Abandonment in marine insurance, defined.
It is the act of the insured by which, after a constructive total loss he declared
the relinquishment to the insurer of his interest in the thing insured. (Sec. 140)
ff.) Requisites for the validity of abandonment.
1.
There must be an actual relinquishment by the person insured of his
interest in the thing insured. (Sec. 140)
2.
There must be a constructive total loss. (Sec. 141)
3.
The abandonment must neither be partial nor conditional. (Sec. 142)
4.
It must be made within a reasonable time after receipt of reliable
information of the loss. (Sec. 143)
5.
It must be factual. (Sec. 144)
6.
It must be made by giving notice thereof to the insurer which may be done
orally or in writing. (Sec. 145); and
7.
The notice of abandonment must be explicit and must specify the particular
cause of abandonment. (Sec. 146)
gg.) When the insured, by a contract of marine insurance, may abandon the
thing insured.
1.
If more than threefourths thereof in value is actually lost, or would have to
be expended to recover it from the peril
2.
If it is injured to such an extent as to reduce its value more than three
fourths
3.
If the thing insured is a ship, and the contemplated voyage cannot be
lawfully performed without incurring either an expense to the insured of more
than threefourths the value of the thing abandoned or a risk which a prudent
man would not take under the circumstances; or
4.
If the thing insured is cargo or freightage, and the voyage cannot be
performed, nor another ship procured by the master, within a reasonable time
and with reasonable diligence to forward the cargo, without incurring the like
expense or risk mentioned in the preceding subparagraph. But freightage
cannot in any case be abandoned, unless the ship is also abandoned. (Sec. 141)
hh.) Effects of acceptance of abandonment.
1.
The insurer becomes at once liable for the whole amount of the insurance
and also becomes entitled to all rights which insured possessed in the thing
insured. (Sec. 148)
2.
It fixes the rights of the parties; whether express or implied, is conclusive
upon them (Sec. 153), and irrevocable. (Sec. 154)
3.
It stops the insurer to rely on any insufficiency in the form, time, or right, of
abandonment. Whether the insured has a right to abandon is immaterial where
the abandonment is accepted and there is no fraud.
4.
On accepted abandonment of a ship, the freightage earned subsequent to
the loss belongs to the insurer of the ship. But freightage earned previously
belongs to the insurer of said freightage who is subrogated to the rights of the
insured up to the time of the loss. (Sec. 155)
ii.) When coinsurance exist.
There is coinsurance if the value of the insureds interest exceeds the amount of
insurance; he is considered the coinsurer for an amount determined by the
difference between the insurance taken out and the value of the property.
A marine insurer is liable upon a partial loss only for such proportion of the
amount insured by him as the loss bears to the value of the whole interest of the
insured in the property insured (Sec. 159).
jj.) Requisites for coinsurance.
There is coinsurance when the following requisites concur:
a.
The amount of insurance is less than the insureds insurable interest;
b.
The loss is partial.
kk.) Formula to determine the amount recoverable.
(Partial) Loss
X Amount of Insurance = Amount of recovery
Value of thing Insured
ll.) When loss of profits conclusively presumed.
When profits are valued and insured by a contract of marine insurance, a loss of
them is conclusively presumed from a loss of the property out of which they
were expected to arise, and the valuation fixes their amount. (Sec. 162)
2. FIRE
a.) Fire insurance, defined.
It is a contract of indemnity by which the insurer, for a consideration, agrees to
indemnify the insured against loss of or damage by fire, lightning, windstorm,
tornado or earthquake and other allied risks, when such risks are covered by
extension to fire insurance policies or under separate policies. (Sec. 169)
b.) Concept of fire.
Spontaneous combustion is usually a rapid oxidation. Fire is oxidation which is so
rapid as to produce either a flame or glow. Fire is always caused by combustion,
but combustion does not always cause fire. The word spontaneous refers to the
origin of the combustion.it means the internal; development without the action of
an external agent. Combustion or spontaneous combustion may be so rapid as to
produce fire, but until it does so, combustion cannot be said to be fire. (Western
Woolen Mills, Co. v. Northern Assur. Co., 139 Fed. 637)
c.) Ocean marine and fire policies, dinguished.
OCEAN
FIRE INSURANCE
MARINE
A policy of
Where the hazard is fire
insurance
alone and the subject is an
on a vessel
unfinished vessel, never
engaged in
afloat for a voyage, the
navigation
contract to insure is a fire
is
a
risk, especially in the
contract of
absence of an express
marine
agreement that it shall
insurance
have the incidents of
although it
marine policy, or where it
insures
insures materials in a
against fire
shipyard
for
use
in
risks only.
constructing vessels.
d.) When alteration in the thing insured entitles the insurer to rescind.
In order that the insurer may rescind a contract of fire insurance for any
alteration made in the use or condition of the thing insured, the following
requisites must be present:
1. The use or condition of the thing is specially limited or stipulated in the
policy;
2. Such use or condition as limited by the policy is altered;
3. The alteration is made without the consent of the insurer;
4. The alteration is made by means within the control of the insured; and
5. The alteration increases the risk.
4. Right of third party injured to sue the insurer of party at fault depends on
whether the contract of insurance is intended to benefit third persons also or only
the insured.
e.) When an injured person has the right to sue insurer of the party at fault.
a. Indemnity against third party liability injured third party can directly sue
the insurer.
b. Indemnity against actual loss or payment third party has no cause of
action against the insurer. The third persons recourse is limited to the
insured alone. The contract is solely for the insurer to reimburse the insured
for liability actually satisfied by him.
f.) Liability insurance, defined.
It has been said to be a contract of indemnity for the benefit of the insured and
those in privity with him, or those to whom the law upon the grounds of public
policy extends the indemnity against liability.
g.) Basis and extent of insurers liability.
1. Contract of insurance
2. Sum limited in the contract
h.) Differences between the liability of the insurer and that of the insured in case
of indemnity against third person liability.
INSURER
INSURED
a. The liability a.
Liability
is
is direct but direct and can
the
insurer be held liable
cannot
be with
all
the
held solidarily parties at fault.
liable with the
insured
and
other parties
at fault.
b. Liability is b.
Liability
is
based
on based on tort.
contract
c. The third c. The liability
party liability extends to the
is only up to amount of actual
the extent of and
other
the insurance damages. (Heirs
policy
and of George Y. Poe
that required v.
Malayan
by law
Insurance
Company,
Inc.
G.R. No. 156302,
Apr. 7, 2009)
i.) No action clause, defined.
It is a requirement in a policy of liability insurance which provides that suit and
final judgment be first obtained against the insured, that only thereafter can the
person injured recover on the policy. (Guingona v. Del Monte, G.R. No. L21806,
Aug. 17, 1967)
Note: A no action clause must yield to the provisions of the Rules of Court
regarding multiplicity of suits. (Shafter v. RTC, G.R. No. 78848, Nov. 14, 1988)
4. SURETYSHIP
a.) Suretyship, defined.
It is an agreement whereby the surety guarantees the performance by another of
an undertaking or an obligation in favor of a third party. (Sec. 177)
fund.
d.) Rules in the payment of premiums in suretyship.
1. The premium becomes a debt as soon as the contract of suretyship or bond
is perfected and delivered to the obligor;
2. The contract of suretyship or bonding shall not be valid and binding unless
and until the premium therefore has been paid;
3. Where the obligee has accepted the bond, it shall be valid and enforceable
notwithstanding that the premium has not been paid; (Philippine Pryce
Assurance Corp. v. CA, G.R. No. 107062, Feb. 21, 1994)
4. If the contract of suretyship or bond is not accepted by, or filed with the
obligee, the surety shall collect only a reasonable amount;
5. If the nonacceptance of the bond be due to the fault or negligence of the
surety, no service fee, stamps, or taxes imposed shall be collected by the
surety; and
6. In the case of continuing bond (for a term longer than one year or with no
fixed expiration date), the obligor shall pay the subsequent annual premium
as it falls due until the contract is cancelled. (Sec. 179)
e.) Types of surety bonds.
1. Contract bonds These are connected with construction and supply contracts.
They are for the protection of the owner against a possible default by the
contractor or his possible failure to pay materialmen, laborers and sub
contractors.
The position of surety, therefore, is to answer for a failure of the principal to
perform in accordance with the terms and specifications of the contract.
There may be two bonds:
a. Performance bond One covering the faithful performance of the contract;
and
b. Payment bond One covering the payment of laborers and material men.
2. Fidelity bonds They pay an employer for loss growing out of a dishonest act of
his employee.
For the purposes of underwriting, they are classified as:
a. Industrial bond One required by private employers to cover loss through
dishonesty of employees; and
b. Public official bond One required of public officers for the faithful
performances of their duties and as a condition of entertaining upon the
duties of their offices.
3. Judicial bonds They are those which are required in connection with judicial
proceedings.
5. LIFE
a.) Life insurance, defined.
It is that which is payable upon the death of a person or on his surviving a
specified period, or otherwise contingently on the continuance of cessation of life
(Sec. 181). It is a mutual agreement by which a party agrees to pay a given sum
on the happening of a particular event contingent on the duration of human life,
in consideration of the payment of a smaller sum immediately, or in periodical
payments by the other party.
b.) Parties involved in the policy.
1. The owner of the policy;
2. The person whose life is the subject of the policy, also known as the cestui que
vie; and
3. The beneficiary to whom the proceeds are paid.
Note: One person might occupy all three positions by naming his estate as
beneficiary; or each of the three (3) positions may be held by a separate property.
c.) Kinds of life insurance policies.
1. Ordinary life, general life or old line policy Insured pays a premium every
year until he dies. Surrender value after 3 years.
2. Limited payment Insured pays premium for a limited period. It is payable
only at the death of the insured.
3. Endowment Insured pays a premium for a specified period. If he outlives
the period, the face value of the policy is paid to him; if not, his
beneficiaries receive benefit.
4. Term insurance Insured pays once only, and he is insured for a specified
period. If he dies within the period, his beneficiaries benefit. If he outlives
the period, no person benefits from the insurance. Also known as temporary
insurance.
5. Industrial life Life insurance entitling the insured to pay premiums weekly,
or where premiums are payable monthly or oftener
6. Variable contract Any policy or contract on either a group or individual
basis issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to reflect
investment results of any segregated portfolio of investment.
d.) Effect if the beneficiary will fully bring about the death of the insured.
General Rule: The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary is the principal, accomplice; accessory in willfully
bringing about the death of the insured, in which event, the nearest relative of
the insured shall receive the proceeds of said insurance, if not otherwise
disqualified.
Exception:
1. The beneficiary acted in selfdefense;
2. The insureds death was not intentionally caused (e.g., thru accident);
3. Insanity of the beneficiary at the time he killed the insured.
e.) When the insurer liable in case of suicide.
1. The suicide is committed after the policy has been in force for a period of 2
years from the date of its issue or of its last reinstatement;
2. The suicide is committed after a shorter period provided in the policy although
within the 2 year period; and
3. The suicide is committed in the state of insanity regardless of the date of
commission, unless suicide is an excepted risk. (Sec. 183)
Note: The policy cannot provide a period longer than 2 years. If the policy
provides for a longer period and the suicide is committed within said period but
after 2 years, the insurer is liable.
The insurer is not liable if it can show that the policy was obtained with the
intention to commit suicide even in the absence of any suicide exclusion in the
policy.
f.) Measure of indemnity under a policy of insurance upon life or health.
Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy. (Sec. 186)
6. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
a.) Motor vehicle liability insurance, defined.
It is a protection coverage that will answer for legal liability for losses and
damages for bodily injuries or property damage that may be sustained by another
arising from the use and operation of a motor vehicle by its owner.
b.) Purpose of motor vehicle liability insurance.
The purpose of motor vehicle liability insurance is to give immediate financial
assistance to victims of motor vehicle accidents and/or their dependents,
especially if they are poor regardless of financial capability of motor vehicle
owners of operators responsible for the accident sustained. (First Integrated
Bonding Insurance Co., Inc. v. Hernando, G.R. No. L51221, July 31, 1991)
c.) Passenger, defined.
Any fare paying person being transported and conveyed in and by a motor
vehicle for transportation of passengers for compensation, including persons
expressly authorized by law or by the vehicles operator or his agents to ride
without fare. (Sec. 386, [b])
d.) Thirdparty, defined.
Any person other than a passenger as defined in this section and shall also
exclude a member of the household, or a member of the family within the second
degree of consanguinity or affinity, of a motor vehicle owner or land
transportation operator, as likewise defined herein, or his employee in respect of
death, bodily injury, or damage to property arising out of and in the course of
employment. (Sec. 386, [c])
e.) Motor vehicle owner, defined.
It means the actual legal owner of a motor vehicle, whose name such vehicle is
duly registered with the Land Transportation Office. (Sec. 386, [d])
f.) Land transportation operator, defined.
It means the owner or owners of motor vehicles for transportation of a passenger
for compensation, including school buses. (Sec. 386, [e])
g.) No fault indemnity clause, defined.
The no fault indemnity clause is a clause where the insurer is required to pay a
third party injured or killed in an accident without the necessity of proving fault or
negligence on the part of the insured. There is a stipulated maximum amount to
be recovered.
h.) Rules under the no fault clause.
1. The total indemnity in respect of any one person shall not exceed P15,000 for
all motor vehicles (Insurance Memorandum Circular No. 42006)
2. Proof of loss:
a. Police report of accident
b. Death certificate and evidence sufficient to establish proper payee
c. Medical report and evidence of medical or hospital disbursement.
3. Claim may be made against one motor vehicle only
4. In case of an occupant of a vehicle, the claim shall lie against the insurer of the
vehicle in which the occupant is riding, mounting or dismounting from
5. In any other case, claim shall lie against the insurer of the directly offending
vehicle
6. In all cases, the right of the party paying the claim to recover against the
owner of the vehicle responsible for the accident shall be maintained
i.) Authorized driver clause, defined.
The authorized driver clause indemnifies the insured owner against loss or
damage to the car but limits the use of the insured vehicle to:
a. The insured himself; or
b. Any person who drives on his order or with his permission. (Villacorta v.
Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980)
j.) Main purpose of an authorized driver clause.
The main purpose is to require a person other than the insured, who drives the
car on the insureds order, such as, his regular driver, or with his permission, such
as a friend or member of the family or the employees of a car service or repair
c. Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent performance;
d. Of any person upon whose life any estate or interest vested in him depends.
(Sec. 10)
c.) Persons under Sec. 10, (c) who have an insurable interest on the life and
health of a person.
A creditor may name himself as beneficiary in a policy he takes on the life of his
debtor. The death of the debtor may either prevent payment if his estate is not
sufficient to pay his debts or delay such payment if an administrator has to be
appointed to settle his estate. Except Section 10, (a) of the Insurance Code, an
insurance contract partakes the nature of a contract of indemnity.
d.) Extent of the creditors recovery upon the death of the debtor.
General Rule: Limited to the amount of his interest (the amount owing to him).
Exception: If the debtor is the insured and the creditor is named beneficiary, the
creditor will be entitled to the whole proceeds of the policy upon the debtors
death, though his credit may be much less.
Note: The debtor was the one who applied for the insurance, to insure his own
life.
Exception to Exception:
1. If debtor applied for insurance and designated creditor in compliance with
creditors requirement that debtor will take insurance to insure creditors interest.
2. A person may take a policy on the life of his business partner because the
latters death may result in an interruption of business operations which can be in
turn cause financial loss.
3. A business firm can take out a policy on the life of its officers or employees
whose services proved valuable to the business. The proceeds are not taxable
income but constitute indemnity to the employer for the loss which the business
suffers because of the death of a valued officer or employee.
e.) When insurable interest must exist.
1. Life or health insurance
General Rule: Insurable interest in life or health must exist when the
insurance takes effect, bur need not exist thereafter or when the loss occurs.
(Sec. 19)
Exception:
a. When the insurance is taken by the creditor on the life of the debtor, the
creditor is required to have an insurable interest not only at the time of the
contract but also at the time of the debtors death because in this case, it is
considered as a contract of indemnity.
b. When the insurance is taken by the employer on the life of the employee.
2. Property Insurance When the insurance takes effect and when the loss
occurs, but need not exist in the meantime. (Sec. 19)
2. In Property
a.) What an insurable interest in property constitutes.
1. An existing interest The existing interest in the property may be legal or
equitable title.
Examples of insurable interest arising from legal title:
a. Trustee, as in the case of the seller of property not yet delivered;
b. Mortgagor of the property mortgaged;
c. Lessor of the property leased
Examples of insurable interest arising from equitable title:
a. Purchaser of property before delivery or before he has performed the
conditions of the sale
b. Mortgagee of property mortgaged;
c. Mortgagor, after foreclosure but before the expiration of the period within
which redemption is allowed
2. An inchoate interest founded on an existing interest
Example: A stockholder has an inchoate interest in the property of the
corporation of which he is a stockholder, which is founded on an existing
interest arising from his ownership of shares in the corporation
3. An expectancy coupled with an existing interest in that out of which the
expectancy arises.
Note: Expectancy to be insurable must be coupled with an existing interest or
founded on an actual right to the thing or upon any valid contract for it. (Sec.
16)
b.) Measure of insurable interest in property.
The extent to which the insured might be damnified by loss or injury thereof.
(Sec. 17). Insurable interest in property does not necessarily imply a property
interest in, or lien upon, or possession of, the subject matter of the insurance,
and neither title nor a beneficial interest is requisite to the existence thereof. It is
sufficient that the insured is so situated with reference to the property that
would be liable to loss should it be injured or destroyed by the peril against
which it is insured. Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction. (Gaisano
Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8,
2006)
c.) Extent of insurable interest of a common carrier or depository in a thing held
by him.
To the extent of his liability but not to exceed the value thereof (Sec. 15). This is
so because the loss of the thing by the carrier or depository may cause liability
against him to the extent of its value.
d.) Time when insurable interest in property must exist
An interest in property insured must exist when the insurance takes effect, and
when the loss occurs, but need not exist in the meantime. (Sec. 19)
3. Double insurance and Over insurance
a.) Double insurance and over insurance, distinguished.
DOUBLE
OVER
INSURANCE
INSURANCE
There may be When
the
no
over amount of the
insurance
as insurance
is
when the sum beyond
the
total
of
the value of the
amounts of the insureds
policies issued insurable
does
not interest.
exceed
the
insurable
interest of the
insured.
Two or more There may be
insurers.
only
one
insurer, with
whom
the
insured takes
insurance
beyond
the
value of his
insurable
interest.
Not prohibited
by law, unless
there
is
a
stipulation
to
the contrary.
Prohibited by
law because it
is a wagering
contract and
no longer a
contract
of
indemnity.
c. In partnership both the firm and partners has insurable interest over its
assets.
d. In assignment both the assignor and assignee has insurable interest
over the property assigned.
e. In lease, the lessor, lessee and sublessees have insurable interest over
the property in lease.
f. In mortgage, both the mortgagor and mortgagee have insurable
interest over the property mortgaged.
b.) Is the insurable interest of mortgagor and mortgagee in case of a
mortgaged property the same?
Each has an insurable interest in the property mortgaged and this interest is
separate and distinct from the other. Therefore, insurance taken by one in his
name only and in his favor alone does not inure to the benefit of the other.
The same is not open to objection that there is double insurance. (Sec. 8)
c.) Extent of insurable interest of mortgagor and mortgagee.
a. Mortgagor To the extent of its value as owner of the property. The loss
or destruction of the property insured will not extinguish the mortgage
debt. The exception is in marine insurance.
b. Mortgagee To the extent of the debt. Such interest continues until the
mortgage debt is extinguished. The property relied on as mortgaged is
only a security. In insuring the property, he is not insuring the property
itself but his interest or lien thereon.
F. PERFECTION OF THE CONTRACT OF INSURANCE
Q: What is a policy of insurance?
A: It is the written instrument in which the contract of insurance is set forth (Sec. 49). It is the written document
embodying the terms and stipulations of the contract of insurance between the insured and insurer. It is not
necessary for the perfection of the contract.
Q: What is the form of an insurance contract?
A: May be verbal or in writing, or partly in writing and partly verbal. However, the law provides that no policy of
insurance shall be issued or delivered unless in the form previously approved by the Insurance Commission.
Q: When is the insurance contract perfected?
A: When the assent or consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. Mere offer
or proposal is not contemplated. (De Lim v. Sun Life Assurance Co., G.R. No. L15774, Nov.
29, 1920)
F.1. OFFER AND ACCEPTANCE/CONSENSUAL
Q. How offer is made in property and liability insurance?
A. It is the insured who makes an offer to the insurer, who accepts the offer, rejects it, or makes a counter offer.
The offer is usually accepted by an insurance agent on behalf of the insurer.
Q. How offer is made in Life and Health Insurance?
A. it depends upon whether the insured pays the premium at the time he applies for insurance.
1. If he does not pay the premium, his application is considered an invitation to the insurer to make an
offer, which he must then accept before the contract goes into effect.
2. If he pays the premium with his application, his application will be considered an offer.
Q. When is there an acceptance?
A. Where the application for insurance constitutes an offer by the insured, a policy is issued strictly in accordance
with the offer is an acceptance of the offer that perfects the contract.
1. When all the conditions precedent stated in the offer have been satisfied; and
2. When delivered
F.1.b. Delivery of Policy
Q: What are the requisites for a valid delivery?
A:
1. Intention of the insurer to give legal effect as a completed instrument;
2. Word or act by insurer putting the instrument beyond his legal, though not necessarily physical control;
3. Insured must acquiesce in this intention.
policy is considered constructively delivered if insured died before receiving the policy.
b. By agent If delivered to the agent of the insurer, whose duty is ministerial, or delivered to the agent of
the insured, the policy is considered constructively delivered.
Q: What is the importance of delivery?
A:
1.
2.
3.
4.
Q: What is premium?
A: It is an agreed price for assuming and carrying the risk that is, the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril.
Q: What is the difference between premium and assessment?
A: Premium is levied and paid to meet anticipated losses, while assessment are collected to meet actual losses.
Also, while premium is not a debt, assessment properly levied, unless otherwise expressly agreed, is a debt.
Q: When does payment of premium become a debt or obligation?
A:
1. In fire, casualty and marine insurance, the premium payable becomes a debt as soon as the risk attaches.
2. In life insurance, the premium becomes a debt only when, in the case of the first premium, the contract has
become binding, and in the case of subsequent premiums, when the insurer has continued the insurance after
maturity of the premium, in consideration of the insureds express or implied promise to pay.
A: Delivery of a promissory note or a check will not be sufficient to make the policy
binding until the said note or check has been converted into cash. This is consistent with
Article 1249 of the Civil Code.
Q: What if there was no premium paid, may the insurer recover the unpaid premium from the insured?
A: No, the continuance of the insurers obligation is conditioned upon the payment of the premium, so that no
recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. If the peril
insured against had occurred, the insurer would have had a valid defense against recovery under the policy.
Q: What is the cash and carry rule?
A:
GR: No policy or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid. Any agreement to the contrary is void. (2003 Bar Question)
XPN: A policy is valid and binding even when there is nonpayment of premium:
1. In case of life or industrial life policy whenever the grace period provision applies.
2. When there is acknowledgment in a policy of a receipt of premium, which the law declares to be conclusive
evidence of payment, even if there is stipulation therein that it shall not be binding until the premium is
actually paid. This is without prejudice however to right of insurer to collect corresponding premium. (Sec.
77)
3. When there is an agreement allowing the insured to pay the premium in installments and partial payment has
been made at the time of loss (Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, Nov. 6, 1992).
4. When there is an agreement to grant the insured credit extension for the payment of the premium. (Art. 1306,
NCC), and loss occurs before the expiration of the credit term. (UCPB General Insurance v. Masagana
Telemart, G.R. No. 137172, Apr. 4, 2001).
5. When estoppel bars the insurer to invoke nonrecovery on the policy.
6. When the public interest so requires, as determined by the Insurance Commissioner
E.g.: In compulsory motor vehicle insurance, if the policy was issued without payment of premium by the
vehicle owner, the insurer will still be held liable. To rule otherwise would prejudice the 3rd party victim.
Q: What is the effect of acknowledgment of receipt of premium in policy?
A: Conclusive evidence of its payment, in so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid (Sec. 78).
When the policy contains such written acknowledgment, it is presumed that the insurer has waived the condition
of prepayment. It hereby creates a legal fiction of payment. The presumption is however, extended only to the
question of the binding effect of the policy.
As far as the payment of the premium itself is concerned, the acknowledgment is only a prima facie evidence of
the fact of such payment. The insurer may still dispute its acknowledgment but only for the purpose of recovering
the premium due and unpaid. Whether payment was indeed made is a question of fact.
Q: Is the insurance company liable when a car, bought on installment basis, met an accident but the car is
not yet fully paid?
A: Yes, when insured and insurer have agreed to the payment of premium by installments
and partial payment has been made at the time of loss, then the insurer becomes liable.
When the car loss happened on the 5th month, the six months agreed period of payment
had not yet elapsed. The owner may recover from Peninsula Insurance Company, but the
latter has the right to deduct the amount of unpaid premium from the insurance proceeds.
(2006 Bar Question)
1. Grace period After the payment of the first premium, the insured is entitled to a grace period of 30 days within which
to pay the succeeding premiums. (Sec. 227,(a)).
2. Cash surrender value The amount the insurer agrees to pay to the holder of the policy if he surrenders it
and releases his claim upon it. (Cyclopedia Law Dictionary, 3rd ed., 1077)
3. Extended insurance It is where the insured is given a right, upon default, after payment of at least three full
annual premiums (see Sec. 227 [f]) to have the policy continued in force from the date of default for a time
either stated or equal to the amount as the net value of the policy taken as a single premium, will purchase.
(De Leon, The Insurance Code of the Philippines Annotated, 2006)
4. Paid up Insurance The insured is given a right, upon default, after the payment of at least three annual
premiums to have the policy continued in force from the date of default for the whole period of the insurance
without further payment of premiums.(ibid.) It results to a reduction of the original amount of insurance, but
for the same period originally stipulated.(6 Couch 2d., 355; 37 C.J.S. 364)
5. Automatic Loan Clause A stipulation in the policy providing that upon default in payment of premium, the
same shall be paid from the loan value of the policy until that value is consumed. In such a case, the policy is
continued in force as fully and effectively as though the premiums had been paid by the insured from funds
derived from other sources.(6 Couch 2d., 383)
6. Reinstatement Provision that the holder of the policy shall be entitled to reinstatement of the contract at
anytime within 3 years from the date of default in the payment of premium, unless the cash surrender value
has been paid, or the extension period expired, upon production of evidence of insurability satisfactory to the
company and the payment of all overdue premiums and any indebtedness to the company upon said policy.
(Sec. 227, (j)).
F.6. REINSTATEMENT OF A LAPSED POLICY OF LIFE INSURANCE
Q. What is purpose of the Reinstatement Provision?
A. The purpose of the provision is to clarify the requirements for restoring a policy to
premiumpaying status after it has been permitted to lapsed.
Q. Within what period shall the holder of the policy be entitled to reinstatement of the
contract?
A. The law requires that the policy owner be permitted to reinstate the policy, subject to
the violations specified, any time within three (3) years from the date of default of
premium payment. A longer period, being more favorable to the insured, may be used.
Q. Is reinstatement of a lapsed policy an absolute right of the insured?
A. Reinstatement is not an absolute right of the insured, but discretionary on the part of
the insurer, which has the right to deny reinstatement if it were not satisfied as to the
insurability of the insured, and if the latter did not pay all overdue premiums and other
indebtedness to the insurer. (McGuire vs. Manufacturers Life Ins. Co., 87 Phil. 370).
Q. What does Evidence of Insurability includes?
A. Evidence of Insurability is broader phrase than Evidence of Good Health and includes such other factors as
the insureds occupation, habits, financial condition, and other risk selection factors.
Q. A life insurance policy lapsed. The insured applied for reinstatement of the policy and paid only a part
of the overdue premiums. Subsequently, the insured died. Was the insurer liable?
A. The insurer is was not liable as the policy was not reinstated. The failure to pay the
balance of the overdue premiums prevented reinstatement and recovery of the face value
of the policy. (Andres vs. Crown Life Ins. Co., 55 O.G. 3483).
F.5. REFUND OF PREMIUMS
Q: When is the insured entitled to recover premiums already paid or a portion thereof?
A:
1. Whole:
a. When no part of the thing insured has been exposed to any of the perils insured against (Sec. 79)
b. When the contract is voidable because of the fraud or misrepresentations of the insurer of his agent (Sec.81).
c. When the insurance is voidable because of the existence of facts of which the insured was ignorant without his fault
(Sec.81).
d. When the insurer never incurred any liability under the policy because of the default of the insured other than actual fraud
(Sec. 81).
e. When rescission is granted due to insurers breach of contract (Sec. 74).
2. Pro rata:
a. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof; (Sec. 79
[b]); except:
i. Policy not made for a definite period of time;
ii. Short period rate is agreed upon;
iii. Life insurance policy.
b. When there is overinsurance. The premiums to be returned shall be proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk. (Sec. 82)
i. In case of overinsurance by double insurance, the insurer is not liable for the total amount of the insurance
taken, his liability being limited to the property insured. Hence, the insurer is not entitled to that portion of
the premium corresponding to the excess of the insurance over the insurable interest of the insured.
ii. In case of overinsurance by several insurers, the insured is entitled to a ratable return of the premium,
proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable
value of the thing insured (Sec. 82).
E.g. Where there is a total over insurance of P500,000.00 in an aggregate P2,000,000.00 policy
(P1,500,000.00 is only the insurable value), 25% (proportion of P500k to P2M) of the premiums
paid to the several insurers should be returned.
Q: When insured not entitled to return of premiums paid?
A:
1. The risk has already attached and the risk is entire and indivisible;
2. In life policies;
3. If contract is void ab initio because of fraud by the insured;
4. If contract is illegal and the parties are in pari delicto.
G. RESCISSION OF INSURANCE CONTRACTS
Q. What are the instances wherein a contract of insurance may be rescinded?
A.
1. Concealment
2. Misrepresentation/ omission
3. Breach of warranties
G.1. Concealment
Q: What is concealment?
A: Concealment is a neglect to communicate that which a party knows and ought to communicate. (Sec. 26)
Q: What are the requisites in concealment?
A:
1. A party knows a fact which he neglects to communicate or disclose to the other party
2. Such party concealing is duty bound to disclose such fact to the other
GR: The parties are not bound to communicate information of the following matters:
Those which the other knows
Those which, in the exercise of ordinary care, the other ought to know and of which, the former has no reason to suppose
him ignorant
Those of which the other waives communication
Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material
Those which relate to a risk excepted from the policy and which are not otherwise material;
The nature or amount of the interest of one insured (except if he is not the owner of the property insured, Sec. 34).
Q: What are the matters that must be disclosed even in the absence of inquiry?
A:
1. Those material to the contract
2. Those which the other has no means of ascertaining
3. Those as to which the party with the duty to communicate makes no warranty
A:
1. If there is concealment under Section 27, the remedy of the insurer is rescission since concealment vitiates the contract of
insurance.
2. The party claiming the existence of concealment must prove that there was knowledge of the fact concealed on the part
of the party charged with concealment.
3. Good faith is not a defense in concealment. Concealment, whether intentional or unintentional entitles the injured party
to rescind the contract of insurance. (Sec. 27)
4. The matter concealed need not be the cause of loss.
5. To be guilty of concealment, a party must have knowledge of the fact concealed at the time of the effectivity of the
policy.
Q: When should concealment take place in order that the policy may be
avoided?
A: At the time the contract is entered into and not afterwards. The duty of disclosure ends
with the completion of the contract. Waiver of medical examination in a nonmedical
insurance contract renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not. Failure to communicate information acquired
after the effectivity of the policy will not be a ground to rescind the contract.
Q: What are the instances whereby concealment made by an agent procuring the insurance binds the
principal?
A.
1. Where it was the duty of the agent to acquire and communicate information of the facts in question;
2. Where it was possible for the agent, in the exercise of reasonable diligence to have made of the insurance contract.
Note: Failure on the part of the insured to disclose such facts known to his agent, or wholly due to the fault of the agent, will
avoid the policy, despite the good faith of the insured.
G.2. MISREPRESENTATIONS/OMISSIONS
Q: What is representation?
A: An oral or written statement of a fact or condition affecting the risk made by the insured to the insurance
company, tending to induce the insurer to assume the risk.
Q: What are the kinds of representation?
A:
1. Oral or written; (Sec. 36)
2. Affirmative; (Sec. 39) or
3. Promissory. (Sec. 42)
1.
2.
3.
Q: What is the effect of collusion between the insurers agent and the insured?
A: It vitiates the policy even though the agent is acting within the apparent scope of his authority. The agent
ceases to represent his principal. He, thus, represents himself; so the insurer is not estopped from avoiding the
policy.
Q: What are the characteristics of representation?
A:
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
Refer to the same subject matter and both take place before the contract is entered.
Concealment or representation prior to loss or death gives rise to the same remedy; that is rescission or cancellation.
The test of materiality is the same. (Secs. 31, 46)
The rules of concealment and representation are the same with life and nonlife insurance.
Whether intentional or not, the injured party is entitled to rescind a contract of insurance on ground of concealment or
false representation.
6. Since the contract of insurance is said to be one of utmost good faith on the part of both parties to the agreement, the
rules on concealment and representation apply likewise to the insurer.
6.
Proof of death was not given. (Sec. 242)
7. That the conditions of the policy relating to military or naval service. (Secs. 227 [b], 228 [b])
8. That the action was not bought within the time specified. (Sec. 62)
Q: What is the remedy of the injured party in case of misrepresentation?
A: If there is misrepresentation, the injured party is entitled to rescind from the time when the representation
becomes false.
Q: When should the right to rescind the contract be exercised?
A: The right to rescind must be exercised previous to the commencement of an action on the contract. (the action
referred to is that to collect a claim on the contract)
Q. What is Omission?
A. The failure to communicate information of matters proving or tending to prove the falsity of warranty.
Q. What is the effect of Omission?
A. The contract of insurance may be rescinded.
Q. In case of Omission, who is entitled to rescind the contract?
A. The insurer is entitled to rescind the contract
G.3. BREACH OF WARRANTIES
Q: What are warranties?
A: Statements or promises by the insured set forth in the policy itself or incorporated in it by proper reference, the
untruth or nonfulfillment of which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or nonfulfillment render the policy voidable by the insurer.
Q: What is the purpose of warranties?
A: To eliminate potentially increasing moral or physical hazards which may either be due to the acts of the
insured or to the change of the condition of the property.
Q: What is the basis of warranties?
A: The insurer took into consideration the condition of the property at the time of effectivity of the policy.
Q: What are the kinds of warranties?
A:
1. Express an agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured
stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or
shall be done.
2. Implied It is deemed included in the contract although not expressly mentioned.
Peculiar only to marine insurance, and therefore is deemed included in the contract, although not expressly mentioned:
a. That the ship will not deviate from the agreed voyage unless deviation is proper
b. That the ship will not engage in illegal venture
c. Warranty of neutrality, that the ship will carry the requisite documents of nationality or neutrality where
such nationality or neutrality is warranted
d. Presence of insurable interest
e. That the ship is seaworthy at the time of the commencement of the insurance contract.
Q: What are the effects of breach of warranty?
A:
1. Material
GR: Violation of material warranty or of material provision of a policy will entitle the other party to rescind the
contract.
XPN:
a. Loss occurs before the time of performance of the warranty;
XPN: When the policy expressly provides or declares that a violation thereof will avoid it.
For instance, an Other Insurance Clause which is a condition in the policy requiring the insured to
inform the insurer of any other insurance coverage of the property. A violation of the clause by the insured
will not constitute a breach unless there is an additional provision stating that the violation thereof will
avoid the policy. (Sec. 75)
Q: What is the effect of a breach of warranty without fraud?
A: The policy is avoided only from the time of breach (Sec. 76) and the insured is entitled:
1. To the return of the premium paid at a pro rata from the time of breach if it occurs after the inception of the
contract; or
2. To all premiums if it is broken during the inception of the contract.
H. CLAIMS SETTLEMENT AND SUBROGATION
H.1. Notice and Proof of Loss
Q: What is loss in insurance?
A: The injury, damage or liability sustained by the insured in consequence of the happening of one or more of the
perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. It may
be total, partial, or constructive in Marine Insurance.
Q: What is notice of loss?
A: It is the more or less formal notice given the insurer by the insured or claimant under a policy of the
occurrence of the loss insured against.
Q: What are the conditions before the insured may recover on the policy after the loss?
A:
1. The insured or some person entitled to the benefit of the insurance, without unnecessary delay, must give notice to the
insurer; (Sec. 88)
2. When required by the policy, insured must present a preliminary proof loss which is the best evidence he has in his
power at the time. (Sec. 89)
Q: What are the purposes of notice of loss?
A:
1. To give insurer information by which he may determine the extent of his liability;
2. To afford the insurer a means of detecting any fraud that may have been practiced upon him; and
3. To operate as a check upon extravagant claims.
Q: What are the instances when the defects in the notice or proof of loss are considered waived?
A: When the insurer:
1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof of loss
would be useless;
2. Recognizes his liability to pay the claim;
3. Denies all liability under the policy
4. Joins in the proceedings for determining the amount of the loss by arbitration, making no objections on
account of notice and preliminary proof; or
5. Makes Objection on any ground other than the formal defect in the preliminary proof.
Q: When is delay in the presentation of notice or proof of loss deemed waived?
A: If caused by:
1. Any act of the insurer; and
2. By failure to take objection promptly and specifically upon that ground. (Sec. 91)
1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue.
2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its
policies.
3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies.
4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of calims submitted in which liability has
become reasonably clear; or
5. Compelling policyholders to institute suits to recover amounts due under its policies by offering without
justifiable reason substantially less than the amounts ultimately recovered in suits brought by them. (Sec. 241,
Par.1)
Q. What is the sanction for the insurance companies which engaged to unfair settlement practices?
A. Sec. 241 enumerates the grounds which shall be considered as sufficient as sufficient cause of the suspension
or revocation of an insurance companys certificate of authority.
Q. What is the obligation of the insurer with regard to the insureds decision to compromise third party
claim?
A. Where a policy gives the insurer a control of the decision to settle claim or to litigate it, the insurer
nevertheless is required to observe a certain measure of consideration for the interest of the insured. The rule has
come to be generally accepted that while the express terms of the policy do not impose of the insurer the duty to
claim settle the claim at all costs, there is an implied duty on his part to give due consideration to the interest of
the insured in its exercise of the option to reject a compromise settlement and proceed with litigation. In insurance
contracts, the law requires strict observance of the standards of good faith and fair dealing on the part of the
insurer.
Q: What is the effect of refusal or failure to pay the claim within the time prescribed?
A: Secs. 242, 243 and 244 provide that the insurer shall be liable to pay interest twice the ceiling prescribed by
the Monetary Board which means twice 12% per annum (legal rate of interest prescribed in CB No. 416) or 24%
per annum interest on the proceeds of the insurance from the date following the time prescribed in Secs. 242 or
243 until the claim is fully satisfied (Prudential Guarantee and Assurance, Inc. v. TransAsia Shipping Lines, Inc.
G. R. No. 151890, June 20, 2006)
H.2.b. Prescription of Action
Q: What are the rules on the prescriptive period?
A:
1. The parties to a contract of insurance may validly agree that an action on the policy should be brought
within a limited period of time, provided such period is not less than 1 year from the time the cause of
action accrues. If the period agreed upon is less than 1 year from the time the cause of action accrues, such
agreement is void. (Sec. 63)
a. The stipulated prescriptive period shall begin to run from the date of the insurers rejection of the claim filed by
the insured or beneficiary and not from the time of loss.
b. In case the claim was denied by the insurer but the insured filed a petition for reconsideration, the prescriptive
period should be counted from the date the claim was denied at the first instance and not from the denial of the
reconsideration (Sun Life Office, Ltd. vs. CA, GR. No. 89741, Mar 13, 1991)
2. If there is no stipulation or the stipulation is void, the insured may bring the action within 10 years in case
the contract is written.
3. In a comprehensive motor vehicle liability insurance (CMVLI), the written notice of claim must be filed
within 6 months from the date of the accident; otherwise, the claim is deemed waived even if the same is
brought within 1 year from its rejection. (Vda. De Gabriel vs. CA, GR No. 103883, Nov 14, 1996)
4. The suit for damages, either with the proper court or with the Insurance Commissioner, should be filed within
1 year from the date of the denial of the claim by the insurer, otherwise, claimants right of action shall
prescribe. (Sec. 384)
Q: What is the prescriptive period in commencing an action?
A: Within one year from time cause of action accrues.
Q. From what time shall the period of prescription be computed in case the insured asked for
reconsideration of the denial of claim?
A. In case the claim was denied by the insurer but the insured file a petition for reconsideration, the prescriptive
period should be counted from the date the claim was denied at the first instance and not from the denial of the
reconsideration. To rule otherwise would give the insured a scheme or devise to waste time until any evidence
which may be considered against him is destroyed. (Sun life Office, Ltd. vs. CA, 195 SCRA 193; Asked, V [a},
1996 Bar Exams.).
Q. What is the prescriptive period of prescription in motor vehicle insurance?
A. It is one year from denial of the claim and not from the date of the accident.
Q. What is the Principle of Subrogation?
A. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. ( Art.
2207, NCC)
Q: Should there be a contract before the insurer be subrogated?
A: The principle of subrogation inures to the insurer without any formal assignment or any express stipulation to
that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to
the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, G.R. No. L36413, Sept.
26, 1988)
Q: What are the rules on indemnity?
A:
1.
2.
Applies only to property insurance except when the creditor insures the life of his debtor
Insurance contracts are not wagering contracts or gambling contracts.
Q: What if the amount paid by the insurance company does not fully cover the injury or loss?
A: The aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Art.
2207, NCC)
Q: What are the instances where the right of subrogation does not apply? A:
1. Where the insured by his own act releases the wrongdoer or third party liable for loss or damage from liability
2. The insurer loses his rights against the wrongdoer since the insurer can only be subrogated to only such rights as the
insured may have
3. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the
insured claim for loss
4. Where the insurer pays the insured for a loss or risk not covered by the policy
5. Life insurance
For recovery of loss in excess of insurance coverage.
V. Transportation Laws
A. Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water or
air, for compensation, offering their services to the public.
1. Diligence required of common carriers
Extraordinary diligence or that extreme measure of care or caution which persons
of unusual prudence and circumspection use for securing and preserving their
own property or rights. The law requires common carriers to render service with
the greatest care and utmost foresight.
2. Liabilities of common carriers
With respect to the transfer of goods: liability begins with the actual delivery of
the goods for transportation, and not merely with the formal execution of a
receipt or bill of lading; the issuance of a bill of lading is not necessary to
complete delivery and acceptance.
With respect to the transport of passengers: begins from the moment the person
who purchases the ticket from the carrier presents himself at the proper place
and in a proper manner to be transported. The relation of carrier and passenger
continues until the passenger has been landed at the port of destination and has
left the vessel owners dock or premises. Once created, the relationship will not
ordinarily terminate until the passenger has, after reaching his destination, safely
alighted from the carriers conveyance or had a reasonable opportunity to leave
the carriers premises.
b. Absence of delay
The absence of delay is important in case of natural disaster because if a
common carrier incurs in delay in transporting the foods, such disaster shall
not free such carriers from responsibility.
c.
2. Contributory negligence
GR: if the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of
the common carrier, the latter shall be liable for damages, which however, shall
be equitably reduced.
XPN: in a collision case and allision cases, the parties are liable for their own
damages.
3. Duration of liability
a. Delivery of goods to common carrier
Delivery must be made, actual or constructive, to the consignee or to the
person who has a right to receive them.
b. Actual or constructive delivery
It is the delivery of a representation of property or means of possession
that is construed by a court as sufficient to show the transferors intent or
to put the property under the transferees control
c.
5. That the common carrier shall exercise a degree of diligence less than that
of a good father of a family or a man of ordinary prudence in the vigilance
over the movables transported
6. That the common carrier is not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
7. That the common carriers liability for acts committed by thieves or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished
8. That the common carrier shall not be responsible for the acts or omissions
of his or its employees.
2. Duration of liability
The duty exists from the moment the person offers to be transported places
himself in the care and control of the common carrier who accepts him as such
passenger. The duty continues until the passenger has, after reaching his
destination, safely alighted from the carriers conveyance or has had a reasonable
opportunity to leave the carriers premises and to look after his baggage and
prepare for his departure.
a.
b. Arrival at destination
Once created, the relationship will not ordinarily terminate until the
passenger has, after reaching his destination, safely alighted from the
carriers conveyance or had a reasonable opportunity to leave the carriers
premises. All persons who remain on the premises a reasonable time after
leaving the conveyance are to be deemed passengers, and what is a
reasonable time or a reasonable delay within this rule is to be determined
from all the circumstances, and included a reasonable time to see after his
baggage and prepare for his departure.
3. Liability of acts of others
a. Employees
Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the formers employees although such
employees may have acted beyond the scope of their authority or in violation
of the orders of the common carriers. The liability of the common carriers
does not cease upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their employees.
b. Other passengers and strangers
A common carrier is responsible for injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers,
if the carriers employees through the exercise of the diligence of a good
father of a family would have prevented or stopped the act or omission.
4. Extent of liability for damages
The following are the kinds of damages that may be recovered in case of
death of a passenger:
1.
2.
3.
4.
5.
6.
D. Bill of Lading
1. Three-Fold character
It is a receipt for the goods shipped and a contract to transport and deliver the
same as therein stipulated.
1. As a receipt, it recites the date and place of shipment, described the goods
as to quantity, weight, dimensions, identification marks and condition,
quality and value.
2. As a contract, it names the contracting parties, which include the
consignee, fixes the route, destination, and freight rate or charges and
stipulated the rights and obligations assumed by the parties.
3. As a document of title it regulated the relations between a carrier and a
holder of the same.
2. Delivery of goods
a. Period of delivery
If a period has been fixed for the delivery of the goods, it must be made
within such time, and, for failure to do so, the carrier shall pay the indemnity
stipulated in the bill of lading, neither the shipper nor the consignee being
entitled to anything else.
b. Delivery without surrender of bill of lading
c. Refusal of consignee to take delivery
1. When a part of the goods transported are delivered and the consignee
is able to prove that he cannot make use of the part without the others
2. If the cargo consists of liquids and they have leaked out, nothing
remaining in the containers but 1/4 of their contents, on account of
inherent defect of cargo.
3. If the goods are damaged and such damage renders the foods useless
for the particular purpose for which they are to be used.
4. If there is delay on account of the fault of the carrier
3. Period for filing claims
1. Immediately after delivery - if the damage is apparent or
2. Within 24 hours from delivery - if the damage is not apparent
4. Period for filing actions
Fir coastwise or carriage within the Philippines, within 6 years if no bill of lading
has been issued or within 10 years if a bill of lading has been issued. For
international carriage from foreign port to the Philippines within 1 year from
delivery of goods or the date when the goods have been delivered.
E. Maritime Commerce
1. Charter Parties
a. Bareboat/ Demise Charter
The ship owner gives possession of the entire vessel to the charterer. In turn, the
charterer supplies, equips, and mans the vessel. The charterer is the owner pro
hac vice.
b. Time Charter
Vessel is chartered for a particular time or duration. While the ship owner still
retains possession and control of the vessel, the charterer has the right to use all
vessels facilities. The charterer may likewise designate vessels destination.
c. Voyage /Trip Charter
A voyage charter is a contract wherein the ship was leased for a single voyage
for the conveyance of goods, in consideration of the payment of freight. The
shipowner retains the possession, command and navigation of the ship, the
charterer merely having use of the space in the vessel in return for his payment
of freight. An owner who retains possession of the ship remains liable as carrier
and must answer for loss or nondelivery of the goods received for
transportation. (Cebu Salvage Corp. vs. Philippine Home Assurance Corp., G.R.
No. 150403, Jan. 25, 2007)
2. Liability of ship Owners and Shipping Agents
a. Liability of Acts of Captain
Shipowner /shipping agents are liable for the following acts of captain :
1. Damages suffered by the vessel and its cargo by reason of want of skill or
negligence on his part;
2. Thefts committed by the crew, reserving his right of action against the guilty
parties;
3. Losses, fines, and confiscations imposed an account of violation of customs,
police, health, and navigation laws and regulations;
4. Losses and damages caused by mutinies on board the vessel or by reason of
faults committed by the crew in the service and defense of the same, if he
does not prove that he made timely use of all his authority to prevent or
avoid them;
5. Those caused by the misuse of the powers;
6. For those arising by reason of his going out of his course or taking a course
which he should not have taken without sufficient cause, in the opinion of the
officers of the vessel, at a meeting with the shippers or supercargoes who
may be on board. No exceptions whatsoever shall exempt him from this
obligation;
7. For those arising by reason of his voluntarily entering a port other than that
of his destination, outside of the cases or without the formalities referred to in
Article 612; and
8. For those arising by reason of nonobservance of the provisions contained in
the regulations on situation of lights and maneuvers for the purpose of
preventing collisions (Art. 618).
b. Exceptions to Limited Liability
1. Repairs and provisioning of the vessel before the loss of the vessel; (Art. 586)
2. Insurance proceeds. If the vessel is insured, the proceeds will go to the
persons entitled to claim from the shipowner; (Vasquez v. CA, G.R. No. L
42926, Sept. 13, 1985)
3. Workmens Compensation cases (now Employees Compensation under the
Labor Code); (Oching v. San Diego, G.R. No. 775, Dec. 17, 1946)
4. When the shipowner is guilty of fault or negligence;
Note: But if the captain is the one who is guilty, doctrine may still be invoked,
hence, abandonment is still an option.
5. Private carrier; or
6. Voyage is not maritime in character.
a. Public one formed or organized for the government or a portion of the State
b. one formed for some provate purpose, benefit or end
A: DE FACTO CORPORATION
a) There is existence in law;
b) The dealings among the parties on a corporate basis is not required;
c) When requisites are lacking, it can be corporation by estoppels;
Whereas:
B. CORPORATION BY ESTOPPEL
a) There is no existence in law;
b) The dealings among the parties on a corporate basis is required;
c) It will be considered a corporation in any shape or form
CORPORATE POWERS
The kinds of powers of corporation?
1. Express powers Granted by law, Corporation Code, and its Articles of
Incorporation or Charter, and administrative regulations
2. Inherent/incidental powers Not expressly stated but are deemed to be within
the capacity of corporate entities.
3. Implied/necessary powers Exists as a necessary consequence of the exercise of
the express powers of the corporation or the pursuit of its purposes as provided for
in the Charter
General powers of a corporation:
1. To sue and be sued
2. Of succession
3. To adopt and use of Corporate seal
4. To amend its Articles of Incorporation
5. To adopt its Bylaws
6. For Stock corporations: issue and sell stocks to subscribers and treasury stocks; for nonstock corporations: admit members
7. To Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and personal property,
securities and bonds;
8. To Enter into merger or consolidation
9. To Make reasonable Donations for public welfare, hospital, charitable, cultural, scientific, civic or similar purposes,
provided that no donation is given to any
a. Political party,
b. Candidate and
c. Partisan political activity.
10. To establish Pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees basis of
which is the labor code
11. To exercise Other powers essential or necessary to carry out its purposes.
When does the power to sue and be sued commence?
A: Upon issuance by SEC of Certificate of Incorporation.
What are the limitations of the corporation in dealing with property?
1. In dealing with any kind of property, it must be in the furtherance of the purpose for which the
corporation was organized.
2. Constitutional limitations cannot acquire public lands except by lease.
With regard to private land, 60% of the corporation must be owned by the Filipinos, same with the acquisition of a
condo unit.
Note: No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed
the allowed foreign equity, what the law disqualifies is the corporation from owning land.
diminution of the capital stock must be addressed to each stockholder at his place
of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally
4. A certificate in duplicate must be signed by a majority vote of the directors of the
corporation and countersigned by the chairman and the secretary of the
stockholders meeting, setting forth:
A. That the foregoing requirements have been complied with;
B. The amount of increase or diminution of the capital stock;
C. If an increase of the capital stock, the amount of capital stock or
number of shares of no par stock actually subscribed, the names,
nationalities and residences of the persons subscribing, the amount
D. of capital stock or number of no par stock subscribed by each, and
the amount paid by each on his subscription in cash or property, or the
amount of capital stock or number of shares of no par stock allotted to
each stockholder if such increase is for the purpose of making effective
stock dividend authorized;
E. The amount of stock represented at the meeting; and
F.
The vote authorizing the increase or diminution of the capital stock
Note: The increase or decrease in the capital stock or the incurring, creating or
increasing bonded indebtedness shall require prior approval of the SEC.
*Additional requirement with respect to the increase of capital stock:
The application to be filed with the SEC shall be accompanied by the sworn
statement of the treasurer of the corporation, showing that at least 25% of the amount
subscribed has been paid either in cash or property or that there has been transferred to
the corporation property the valuation of which is equal to 25% of the subscription.
*The basis of the required 25% subscription:
It shall be based on the additional amount by which the capital stock increased and not on
the total capital stock as increased.
Note: There will be no treasurers affidavit in case of decrease in capital stock.
Corporation need not exhaust its original capital before increasing capital stock.
*Additional requirement with respect to the decrease of capital stock:
The same must not prejudice the right of the creditors.
*The ways of increasing or decreasing the capital stock?
By increasing or decreasing the:
1.
Number of shares and retaining the par value;
2.
Par value of existing shares without increasing or decreasing the
number of shares;
3.
Number of shares and increasing or decreasing the par value.
POWER TO DENY PRE-EMPTIVE-RIGHTS
Preemptive right:
It is the preferential right of shareholders to subscribe to all issues or disposition of
shares of any class in proportion to their present shareholdings. (Sec. 39)
Purpose of preemptive right:
To enable the shareholder to retain his proportionate control in the corporation and
to retain his equity in the surplus.
Questions:
1) Is there preemptive right on the reissuance of treasury shares?
Yes. When a corporation reacquires its own shares which thereby become treasury
shares, all shareholders are entitled to preemptive right when the corporation reissues or
sells these treasury shares. The reissuance of treasury shares is not among the exception
provided by Sec. 39 when preemptive right does not exist.
2) May preemptive right be waived by the stockholder?
Yes when the stockholder fails to exercise his preemptive right after being notified
and given an opportunity to avail of such right.
3) Is the preemptive right of a stockholder transferable?
Yes, unless there is an express restriction in the AOI.
4) When can the corporation deny preemptive right?
The corporation can deny preemptive right if the articles of incorporation or
amendment thereto denies such right.
Distinguish preemptive right from right of first refusal.
A:
PREEMPTIVE
RIGHT
May be exercised
even when there is
no express provision
of law
Pertains
to
unsubscribed portion
of the authorized
capital stock. A right
that may be claimed
against
the
corporation.
It
includes
treasury
shares.
RIGHT
OF
FIRST REFUSAL
Arises only by
virtue
of
contractual
stipulations but
is also granted
under
the
provisions
on
close corporation
Exercisable
against another
stockholder
of
the corporation
of his shares of
stock
After such authorization or approval by the stockholders the board may, nevertheless, in
its discretion, abandon such SLEMPO. (Sec. 40)
*Any dissenting stockholder shall have the option to exercise his appraisal right.
Questions:
What is meant by substantially all of corporate assets?
If the corporation would be:
a) rendered incapable of continuing the business, or
b) accomplishing the purpose for which it was incorporated.
When may the corporation forgo the ratification by Stockholders/ members?
1. If sale is necessary in the usual and regular course of business;
2. If the proceeds of the sale or other disposition of such property and assets are to be
appropriated for the conduct of the remaining business;
3. If the transaction does not cover all or substantially all of the assets.
What is the effect of sale of all or substantially all of assets of one corporation
to another corporation?
General Rule:
The selling corporation of all or substantially all of the assets of the purchasing
corporation shall not be liable for the debts of the transferor corporation.
Exception:
Express or implied assumption of liabilities;
Merger or consolidation;
If the purchase was in fraud of creditors;
If the purchaser becomes a continuation of the seller;
4.
5.
6.
7.
1) Cash
Cash dividends due on delinquent stock shall first be applied to the unpaid balance
on the subscription plus cost and expenses.
2) Stock
Stock dividends are withheld from the delinquent stockholder until his unpaid
subscription is fully paid.
3) Property
Stockholders are entitled to dividends PRORATA based on the total number of
shares and not on the amount paid on shares.
Questions:
When may corporation declare dividends?
General Rule: Even if there are existing profits, BOD has discretion to determine whether dividends are to be declared.
Exception: Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid in capital
stock.
Exception to Exception:
a. Definite corporate expansion projects approved by the board of directors;
b. Corporation is prohibited under any loan agreement with any financial institution or creditor from declaring
dividends without its/his consent and such consent has not yet been secured;
c. The retention is necessary under special circumstances obtaining in the corporation, such as when there is a need for
special reserve for probable contingencies.
What if there is a wrongful or illegal declaration of dividends?
The Board of Directors is liable. The stockholders should return the dividends to the corporation (solutio indebiti).
What are the sources of dividends?
General Rule:
Dividends can only be declared out of actual and bona fide unrestricted retained earnings.
Exception: Dividends can be declared out of capital in the following instances:
a. Dividends from investments wasting assets corporation;
b. Liquidating dividends
What are the sources of retained earnings? Is it available for dividends?
SOURCES
OF
RETAINED EARNINGS
Paidin surplus It is the
difference between the par
value and the issued value
or selling price of the
shares
Revaluation
surplus
AVAILABILITY FOR
DIVIDENDS
It cannot be declared
as cash dividend but
can be declared only
as stock dividends
Cannot be declared
as dividends because
there is no actual
gain (gain in paper
only).
It cannot be declared
as cash dividend but
can be declared only
as stock dividends
Available
as
Property
Treasury Shares
Operational
Income
Income
dividends
Cannot be declared
as stock or cash
dividends but it may
be
declared
as
property dividend
Available
as
dividends
STOCK DIVIDENDS
Part of general
fund
Results in cash
outlay
Not subject to
levy
by
corporate
creditors
Part of capital
Declared
only
by the board of
directors at its
discretion
(majority of the
quorum
only,
not majority of
all the board)
Does
not
increase
the
corporate
capital
Its
declaration
creates a debt
from
the
corporation
to
each
of
its
stockholders
If received by
individual:
subject to tax;
If received by
corporation: not
subject to tax
Cannot
be
revoked
after
announcement
No cash outlay
Once issued, can be
levied by corporate
creditors
because
theyre
part
of
corporate capital
Declared
by
the
board
with
the
concurrence of the
stockholders
representing at least
2/3
of
the
outstanding
capital
stock
at
a
regular/special
meeting
Corporate capital is
increased
No debt is created by
its declaration
Can
be
revoked
despite
announcement
but
before issuance
Applied to the Can be withheld until
unpaid balance payment of unpaid
of
delinquent balance of delinquent
shares
shares
Stockholders representing the same interest in both of the managing and the managed corporation own or
control more than 1/3 of the total outstanding capital stock entitled to vote of the managing corporation;
Majority of the members of the BOD of the managing corporation also constitute a majority of the BOD of the
managed corporation.
What is the allowed period for every management contract entered into by the corporation?
General Rule:
Management contract shall be entered into for a period not longer than 5 years for any one term.
Exception:
In cases of service contracts or operating agreements which relate to the exploitation, development, exploration or
utilization of natural resources, it may be entered for such periods as may be provided by the pertinent laws or regulations.
Generally, when the corporation has knowledge that its officers or agents exceed their
power, it must promptly disaffirm the contract or act, and allow the other party or third
person to act in the belief that it was authorized or has been ratified. Otherwise, if it
acquiesces, with knowledge of the facts, or if it fails to disaffirm, ratification will be
implied. (Premiere Development Bank vs. CA, G.R. No. 159352, Apr. 14, 2004)
Consequences of an ultra vires act:
Ultra vires acts entered into by the board of directors binds the corporation and the courts
will not interfere unless terms are oppressive and unconscionable.
These are the effects for the specific acts:
1. Executed contract courts will not set aside or interfere with such contracts
2. Executory contracts no enforcement even at the suit of either party (void and
unenforceable)
3. Partly executed and partly executory principle of no unjust enrichment at
expense of another shall apply
4. Executory contracts apparently authorized but ultra vires the principle of
estoppel shall apply.
(Gamboa vs. Victoriano, G.R. No. L43324. May 5, 1979)
Distinctions between ultra vires acts and illegal acts:
ULTRA VIRES ACT
Not
necessarily
unlawful, but outside
the powers of the
corporation
Can be ratified
Can bind the parties if
wholly
or
partly
executed
ILLEGAL ACTS
Unlawful;
against
law, morals, public
policy, and public
order
Cannot be ratified
Cannot
bind
the
parties
Where the articles of incorporation do not provide for any distinction of the
shares of stock, all shares issued by the corporation are presumed to be equal and
enjoy the same rights and privileges and are also subject to the same liabilities.
(Sec. 6)
TRUST FUND DOCTRINE:
Trust fund doctrine:
The subscribed capital stock of the corporation is a trust fund for the payment of debts of
the corporation which the creditors have the right to look up to satisfy their credits, and
which the corporation may not dissipate. The creditors may sue the stockholders directly
for the latters unpaid subscription.
Exceptions to the trust fund doctrine:
The Code allows distribution of corporate capital only in these instances:
1. Amendment of the Article of Incorporation to reduce authorized capital stock;
2. Purchase of redeemable shares by the corporation regardless of existence of
unrestricted retained earnings;
3. Dissolution and eventual liquidation of the corporation.
How are corporate powers exercised?
1. By the shareholders The shareholders participate in controlling the affairs of the
corporation by exercising their right to vote. They can elect the directors who will
actually govern the important matters that are still reserved to them by the
Corporation Code. (Aquino, 2006)
2. By the Board of Directors The Board of Directors is primarily responsible for the
governance of the corporation. Their primary duty is to set the policies for the
accomplishment of the corporate objectives. (Art. 3, Revised Code of Corporate
Governance). They elect the officers who carry out the policies
3. By the Officers They are elected by the Board of Directors tasked to carry out the
policies laid down by the Board, the articles of incorporation and the by-laws;
J. DISSOLUTION AND LIQUIDATION:
Dissolution of Corporation:
It is the extinguishment of the franchise of a corporation and the termination of its
corporate existence.
Modes of dissolution of corporation:
a) Voluntary; and
b) Involuntary dissolution.
Voluntary modes of dissolution of a corporation:
1. Where no creditors are affected
Procedure:
a) Majority vote of the board of directors or trustees; and
b) Resolution duly adopted by the affirmative vote of the stockholders owning at least
2/3 of the outstanding capital stock or at least 2/3 of the members at a meeting
duly called for that purpose.
Pending suits for or against the corporation which were initiated prior to the expiration of the 3 year period shall
continue. (Gelano v. CA, G.R. No. L39050, Feb. 24, 1981)
2.
New actions may still be filed against the trustee of the corporation even after the expiration of the 3 year period
but before the affairs of said corporation have been finally liquidated or settled by the trustee. (Republic v. Marsman,
G.R. No. L18956 Apr. 27, 1972)
3.
A corporation which has a pending action which cannot be finished within the 3year
period is authorized to convey all its property, including pending choses of action, of a
trustee to enable it to prosecute and defend suits by or against the corporation beyond
the 3year period. Where no trustee is appointed, its counsel who prosecuted and
represented the interest of the corporation may be considered as trustee of said
corporation, at least with respect to the matter in litigation (Gelano v. CA, G.R. No. L
39050, Feb. 24, 1981). The directors may also be permitted to continue as trustees to
complete the liquidation. (Clemente v. CA, G.R. No. 82407, Mar. 27, 199
4. The creditors of the corporation who were not paid may follow the property of the
corporation that may have passed to its stockholders unless barred by prescription or
laches or disposition of said property in favor
*What is the rationale behind the 3year period?
The continuance of a corporations legal existence for three years for the purpose of
enabling it to close up its business is necessary to enable the corporation to collect the
demands due it as well as to allow its creditors to assert the demands against it.
*May the corporation, through its president condone penalties and charges after
it had been placed under receivership?
No. The appointment of a receiver operates to suspend the authority of a
corporation and of its directors and officers over its property and effects, such
authority being reposed in the receiver (Yam v. CA, G.R. No. 104726 Feb 11, 1999).
*When may the Commission appoint a receiver to undertake the winding up and
liquidation of a corporation?
Where the application for dissolution of a corporation is upon application, affecting
rights of creditors, or involuntarily initiated by verified complaint, the Commission
may appoint a receiver to undertake the winding up rather than entrust the
responsibility to directors and corporate officers.
*What is the effect if the corporation appoints a trustee and convey all its
property to him for the benefit of stockholders, members, creditors and other
persons in interest?
After such conveyance to the trustee, all interest which the corporation had in the
property terminates and the legal interests vests in the trustee, subject to the
beneficial interest of stockholders, members, creditors or other persons in interest.
A:
1. If it is provided in the bylaws
2. If authorized by the board
C. Nationality of Corporations
1. Place of Incorporation Test
This means that corporate
nationality shall be in accordance with
the laws of the country where it was
created or organized.
Example: If X-Corp is organized in
accordance with Philippine laws, then
it is a Filipino corporation; if in
accordance with Chinese laws, it is a
Chinese corporation.
2. Control Test
The citizenship of the corporation is
determined by the citizenship of its
controlling
stockholders.
If
the
controlling
stockholders
of
a
corporation are American corporation;
it is an American corporation.
A corporation shall be considered a
Filipino corporation if the Filipino
ownership of its capital stock is at
least 60% and where the 60-40
Filipino-alien is not in doubt.
3. Grandfather Rule
Applied in determining the
nationality of a corporation. It traces
the nationality of the stockholders of
investors so as to ascertain the
nationality of the corporation where
the investment is made.
D. Corporate Juridical Personality
1. Doctrine of Separate Juridical
Personality
- A Corporation has a personality
Separate and Distinct from its Stockholders
or Members
a. Liability for Torts and Crimes
- TORTS: A tort is a wrongful act
that injures or interferes with another's
person or property. A tort case is a civil
court proceeding. The accused is the
"defendant" and the victim is a "plaintiff."
Separate
and
Distinct
personality
of
the
corporation
and
its
stockholders are pierced and
treated as one in case the
corporation is used as cloak
for illegal acts.
7.Limitation
A bond covenant that restricts in
some way a firm's ability to merge or
consolidate with another firm.
8.Effects
Unless the commission [secretary of
state] disapproves pursuant to Subsection A
of Section 53-18-2 NMSA 1978, a merger,
consolidation or exchange shall become
effective upon delivery of the articles of
merger, consolidation or exchange to the
commission [secretary of state] or on
such later date, not more than thirty days
subsequent to the delivery thereof to the
commission[secretary of state], as shall be
provided for in the plan. When a merger
or consolidation has become effective:
A. the several corporations parties
to the plan of merger or consolidation shall
be a single
corporation, which, in the
case of a merger, shall be that corporation
designated in the plan of merger as the
surviving corporation and, in the case of a
consolidation, shall be
the
new
corporation provided for in the plan of
consolidation;
B. the separate existence of
all
corporations parties to the plan of merger or
consolidation, except the surviving or
new corporation, shall cease;
C. the surviving or new corporation
shall have all the rights, privileges,
immunities and
powers and shall be
subject to all the duties and liabilities of a
b. Liability of Corporation
for Promoters Contracts
Liability of Corporation for
Promoters Contracts
While
a
corporation could
not have been a
party
to
a
promoter's
contract since it
did yet exist at the
time the contract
was entered into
and thus could not
possibly have had
an
agent
who
could legally bind
it, the corporation
may
make
the
contracts its own
and become bound
thereon if, after
incorporation, it:
(1)
Adopts or
ratifies the contract; or
(2)
Accepts its
benefits with knowledge
of the terms thereof.
It must be
noted,
however,
that the contract
must be adopted in
its entirety; the
corporation cannot
adopt only the part
that is beneficial to
it and discard that
which
is
burdensome.
Moreover,
the
contract must be
one which is within
the powers of the
corporation
to
enter,
and
one
which the usual
agents
of
the
company
have
express or implied
authority to enter.
McARTHUR
V.
TIMES
PRINTING
CO.
(48
Minn. 319,
51
N.W.
216; 1892)
It is not a requisite that a
corporation's adoption or
acceptance
of
a
promoter's contract be
expressed, but it may be
inferred from acts or
acquiescence on the part
of the corporation, or its
authorized agents, as
any
similar
original
contract might be shown.
The right of agents to
adopt
an
agreement
originally
made
by
promoters depends upon
the purposes of the
corporation
and
the
nature of the agreement.
The agreement must be
one
which
the
corporation itself could
make and one which the
usual agents of the
company have express or
implied authority to enter
into.
CLIFTON v. TOMB (21
F. 2d 893; 1921)
Whatever may be the
proper legal theory by
which a corporation may
be bound by the contract
(ratification,
adoption,
novation, a continuing
ofer to be accepted or
rejected
by
the
corporation),
it
is
necessary in all cases
that
the
corporation
should
have
full
knowledge of the facts,
or at least should be put
upon such notice as
would
lead,
upon
reasonable inquiry, to the
knowledge of the facts.
CAGAYAN
FISHING
DEV. CO. v. SANDIKO (65
Phil. 223; 1937)
A promoter could not
have acted as agent for a
corporation that had no
legal
existence.
A
corporation,
until
organized, has no life
therefore no faculties.
The corporation had no
juridical personality to
enter into a contract.
Also see Caram v. CA
Corporate
Rights
under
Promoters Contracts
Should the other contracting
party fail to perform its part of
the bargain, the corporation
which has adopted or ratified
the contract may either sue for:
(1)
Specific
performance; or
(2)
Damages
resulting from
breach
of
contract.
The fact of bringing an action
on the contract has been held
to constitute sufficient adoption
or ratification to give the
corporation a cause of action.
BUILDERS DUNTILE CO. v.
DUNN (229 Ky. 569, 17 S.W. 2d
715; 1929)
When the corporation
was
formed,
the
incorporators took upon
themselves the whole
thing, and ratified all that
had been done on its
behalf.
Though there
was
no
formal
assignment
of
the
contract
to
the
corporation, the acts of
the incorporators were
an
adoption
of
the
contract. Therefore the
corporation has the right
to sue for damages for
the breach of contract.
3. Corporate Name - Limitations on Use
of Corporate Name
Corporate Name (Secs. 18, 14(1) and 42; Red
Line Trans. v. Rural Transit , 60 Phil.
549[1934]).
Sec. 18 Corporate Name No corporate
name may be allowed by the SEC if the
proposed name is identical or deceptively
confusing or similar to that of any existing
and
6. Articles of Incorporation
a. Nature and Function of Articles
The article of incorporation is
1.) A CONTRACT an agreement
that gives rise to obligations:
a.)Between
the
corporation and the state
(because it is under the
AI by which the state
grants
the
primary
franchise.)
state
manifests
its
consent
through the SEC while the
corporation manifests its
OF
P.I.
v.
MANILA
RAILROAD CO.
Facts: The GPI filed a
petition for mandamus in
the SC to compel the
Manila Railroad and Jose
Paez, its manager to
provide and equip the
telegraph poles of the
company in Tarlac and
LaUnion with crosspieces
for 6 telegraph wires
belonging
to
the
government
which,
it
alleged, are necessary for
public service between
certain
municipalities.
Petitioner relies on Sec.
84 of Act No.1459 which
provides that the railroad
company shall establish a
telegraph line for the use
of the railroad and that
such posts may be used
for government wires and
shall be sufficient for
crosspieces to carry the
number of wires which
the
government
may
consider necessary for
public service. Petitioner
contends that since 6
crosspieces
are
now
necessary
for
public
service, the company
should provide sufficient
crosspieces. Respondent
answers by saying that
the Charter of Manila
Railroad (Act No. 1510)
repealed Sec. 84 of Act
1459 and contended that
the
Government
is
entitled to only 4 wires.
Held: Petition denied.
Inasmuch as Act No. 1510
is the charter of the
Manila
Railroad
Co.
constitutes a contract
between the corporation
and the government, it
would seem that the
corporation is governed
by its contract and not by
corporation is to be
located, which must be
within the Philippines;
4.The term for which the
corporation is to exist;
5.The
names,
nationalities
and
residences
of
the
incorporators;
6.The
number
of
directors and trustees
which shall not be less
than five nor more than
fifteen;
7.The
names,
nationalities
and
residences of persons
who
shall
act
as
directors
or
trustees
until the first regular
directors or trustees are
duly
elected
and
qualified in accordance
with this Code;
8.If it be a stock
corporation, the amount
of its authorized capital
stock in lawful money
of the Philippines, the
number of shares to
which it is divided, and
in case the share are
parvalue shares, the par
value
of
each,
the
names, nationalities and
residences of the original
subscribers,
and
the
amount subscribed and
paid by each on his
subscription, and if some
or all of the shares are
without par value, such
fact must be stated;
9.If it be a non-stock
corporation, the amount
of its capital, the names,
nationalities
and
residences
of
the
contributors
and
the
amount contributed by
each; and
10.Such other matters
as are not inconsistent
with law and which the
incorporators may deem
necessary
and
convenient. The
SEC
shall not accept the
articles of incorporation
of any stock corporation
unless accompanied by
a sworn statement of the
Treasurer elected by the
subscribers showing that
at
least
twenty-five
percent (25%) of the
authorized capital stock
of the corporation has
been subscribed and at
least twenty-five percent
(25%)
of
the
total
subscription has been
fully paid to him in
actual cash and/or in
property
the
fair
valuation of which is
equal to at least twentyfive percent (25%) of
said subscription, such
paid-up capital being not
less than P5,000.
Sec. 15 Forms of Articles of
Incorporation Unless otherwise
prescribed by special law, articles of
incorporation
of
all
domestic
corporations
shall
comply
substantially with the following form:
deceptively
or
confusingly similar
to that of any
existing
corporation or to
any other name
already protected
by law; or (c)
patently
deceptive,
confusing
or
contrary
to
existing
law.
(Philips Export B.V.
vs. CA)
In
determining
the
existence
of
confusing
similarity in corporate names,
the test is whether the
similarity is such as to mislead
a person using ordinary care
and discrimination. Proof of
actual confusion need not be
shown.
It
suffices
that
confusion is probably or likely
to occur. (Philips Export B.V. vs.
CA)
A
corporation
has
an
exclusive right to the use of its
name, which may be protected
by injunction upon a principle
similar to that upon which
persons are protected in the
use
of
trademarks
and
tradenames. (Philips Export
B.V. vs. CA)
A mere change in the name
of a corporation, either by the
legislature
or
by
the
corporators or stockholders
under
legislative
authority,
does not, generally speaking,
affect the identity of the
corporation, nor in any way
affect the rights, privileges or
obligations previously acquired
or incurred by it.
PURPOSE CLAUSE
A corporation has only such
powers
as
are
expressly
granted to it by law and by its
articles
of
incorporation
including those which are
incidental to such conferred
powers,
those
reasonably
necessary to accomplish its
purpose and those which may
be incidental to its existence.
Reasons for requiring a
statement of purposes or
objects:
1. In order that
the
stockholder
who contemplates
on an investment
in
a
business
enterprise
shall
know within what
lines of business
his money is to be
put at risk.
2. So that the
board of directors
and management
may know within
what
lines
of
business they are
authorized to act.
3. So that anyone
who deals with
the company may
ascertain whether
a
contract
or
transaction
into
which
he
contemplates
entering is one
within the general
authority of the
management.
If the corporate purpose or
objective includes any purpose
under
the
supervision
of
another government agency,
prior clearance and/or approval
of the concerned government
agencies or instrumentalities
will be required.
General limitations on the
purpose clause:
1. The purpose
must be lawful.
2. The purpose
must be specific
or
stated
concisely although
in
broad
or
general terms.
3. If there is more
than one purpose,
the primary as
well
as
the
secondary
ones
must be specified.
4. The purpose
must be capable
of being lawfully
combined.
THE PRINCIPAL OFFICE
The
residence
of
the
corporation is the place of its
principal office as may be
indicated in its articles of
incorporation
and
may,
therefore, be sued only at that
place. (CRS vs. Antillon)
TERM OF EXISTENCE
Sec. 11. Corporate term. A corporation shall exist for a
period not exceeding fifty (50)
years
from
the
date
of
incorporation unless sooner
dissolved or unless said period
is extended. The corporate
term as originally stated in the
articles of incorporation may
be extended for periods not
exceeding fifty (50) years in
any single instance by an
amendment of the articles of
incorporation, in accordance
with this Code; Provided, That
no extension can be made
earlier than five (5) years prior
to the original or subsequent
expiry date(s) unless there are
justifiable reasons for an earlier
extension
as
may
be
determined by the Securities
and Exchange Commission.
INCORPORATORS
Sec. 10. Number and
qualifications of incorporators.
- Any number of natural
persons not less than five (5)
but not more than fifteen (15),
4.
Previously
incurred
indebtedness by
the corporation;
5.
Amounts
transferred
from
unrestricted
retained earnings
to stated capital;
and
6.
Outstanding
shares
in
exchange
for
stocks
in
the
event
of
reclassification or
conversion.
Stocks shall not be issued
in exchange of promissory
notes or future services.
Shares of stock and their
classification
Shares of stock designate
the interest or right which the
stockholder
has
in
the
management of the corporation,
and in the surplus profits and, in
case of distribution, in all assets
remaining after the payment of
its debts.
Stock
certificate
is
a
document
or
instrument
evidencing the interest of a
stockholder in the corporation.
The shares of stock of stock
corporations may be divided
into classes or series of shares,
or both, any of which classes or
series of shares may have such
rights, privileges or restrictions
as may be stated in the articles
of incorporation.
Purpose of classification:
1. To specify and
define the rights
and privileges of
the stockholders.
2. For regulation
and control of the
issuance of sale of
corporate
securities for the
protection
of
purchasers
and
stockholders.
3.
As
a
management
control device.
4. To comply with
statutory
requirements.
5. To better insure
return
on
investment.
6. For flexibility in
price.
Except
as
otherwise
provided in the articles of
incorporation and stated in the
certificate of stock, each share
shall be equal in all respects to
every other share.
Common
shares
and
preferred
impose a positive
duty on directors
to
declare
dividends
every
year when profits
are earned.
3.
Earned
cumulative
or
dividend credit
gives the holder
thereof the right to
arrears
in
dividends if there
were profits earned
during the previous
years
but
dividends were not
declared.
Unless the right to vote is
clearly withheld, a preferred
stockholder has the right to
vote.
Preference upon liquidation
must
be
clearly
indicated
otherwise they shall be placed
on equal footing with other
shares.
Par and no par value shares
Par value shares those
whose value are fixed in the
articles of incorporation.
Par value shares cannot be
issued
nor
sold
by
the
corporation at less than par.
No par value shares those
whose issued price are not
stated in the certificate of stock
but which may be fixed in the
articles of incorporation, or by
the board of directors when so
authorized by the said articles
or by the by-laws, or in the
absence
thereof,
by
the
stockholders themselves.
Limitations of no par value
shares:
1. Such shares,
once issued, are
deemed fully paid
and
thus,
non
assessable;
2.
The
consideration
for
its issuance should
not be less than
P5.00;
3.
The
entire
consideration
for
its
issuance
constitutes capital,
hence,
not
available
for
dividend
declaration;
4. They cannot be
issued as preferred
stock; and
5. They cannot be
issued by banks,
trust
companies,
insurance
companies, public
utilities
and
building and loan
associations.
Advantages to the issuance
of no par value shares:
1.
Flexibility
in
price;
2. Evasion of the
danger of liability
upon
watered
stock; and
3. Disappearance
of personal liability
on the part of the
holder thereof for
unpaid
subscription.
Voting and non-voting shares
Voting shares gives the
holder thereof the right to vote
and
participate
in
the
management of the corporation
through the exercise of such
right, either at the election of
the board of directors, or in any
manner
requiring
the
stockholders approval.
Non-voting shares do not
grant the holder thereof the
right to vote except under the
penultimate paragraph of Sec.
6.
Only
preferred
and
redeemable shares may be
denied the right to vote.
There must always be a
class or series of shares which
have complete voting rights.
Non-voting
shares
shall
nevertheless be entitled to vote on the
following matters:
1. Amendment of
the
articles
of
incorporation;
2. Adoption and
amendment of bylaws;
3.
Sale,
lease,
exchange,
mortgage, pledge
or other disposition
of
all
or
substantially all of
the
corporate
property;
4.
Incurring,
creating
or
increasing bonded
indebtedness;
5.
Increase
or
decrease of capital
stock;
6.
Merger
or
consolidation
of
the
corporation
with
another
corporation
or
other corporations;
7. Investment of
corporate funds in
another
corporation
or
business
in
accordance
with
this Code; and
8. Dissolution of
the corporation.
Except as provided in the
penultimate paragraph of Sec.
6, the vote necessary to
approve a particular corporate
act as provided in this Code
shall be deemed to refer only to
stocks with voting rights.
Founders shares
Sec. 7. Founders shares. Founders' shares classified as
such
in
the
articles
of
incorporation may be given
certain rights and privileges not
enjoyed by the owners of other
stocks, provided that where the
c. Amendment
Amendments to the Articles
of Incorporation
Sec.
16
Amendment
of
Articles of Incorporation
Unless otherwise prescribed by
this Code or by special law and
for legitimate purposes, any
provision or matter stated in the
articles of incorporation may be
amended by a majority vote of
the board of directors or
trustees and the vote or written
assent of the stockholders
representing at least 2/3 of the
outstanding
capital
stock,
without
prejudice
to
the
appraisal right of dissenting
stockholders in accordance with
the provisions of this Code, or
the vote or written assent of at
least 2/3 of the members if it be
a non-stock corporation.
The original and amended
articles together shall contain
all provisions required by law to
set out in the articles of
incorporation. Such articles, as
amended shall be indicated by
underscoring the change or
changes made, and a copy
thereof duly certified under oath
by the corporate secretary and
a majority of the directors or
trustees stating the fact that
said
amendment
or
amendments have been duly
approved by the required vote
of the stockholders or members
shall be submitted to the
Certificate
of
authority
required of the following:
a) Insurance CompaniesInsurance Commission
b) Banks, Building and
Loan
Associations,
Finance
CompaniesMonetary Board
c)
Educational
Institutions- Secretary of
Education
d) Public Utilities- Board
of
Power,
Board
of
Transportation, National
telecommunication
Commission, etc..
EXAMINATION OF ARTICLES
APPROVAL OR REJECTION
BY
SEC;
ISSUANCE
OF
INCORPORATION
CERTIFICATE
OF
Thereupon
the
incorporators,
stockholders/members
and
their
successors shall constitute a body
politic and corporate under the name
stated in the articles of incorporation
for the period of time mentioned
therein, unless said period is extended
or the corporation is sooner dissolved
in accordance with law. (Ibid)
8. Adoption of By-Laws
a. Nature and Functions of ByLaws
By-laws are rules and ordinances
made by a corporation for its own
government; to regulate the conduct
and define the duties of the
stockholders or members towards the
corporation and among themselves.
They are rules and regulations or
private
laws
enacted
by
the
corporation to regulate, govern and
control its own actions, affairs and
concerns and its stockholders or
member and directors and officers
with relation thereto and among
themselves in their relation to it.
Q. Distinguish by-laws from AoI
A. The AoI is not an internal document
that binds the parties to a corporate
rests
on
the
unfairness of an officer or director
taking advantage of an opportunity
for his own personal profit where
the interest of the corporation calls
for protection. Here BoD members
have
access
to
marketing
strategies, pricing structure, budget
for expansion, R&D sources of
funding, availability of personnel,
mergers & tie-ups, etc. The
questioned amendment of the bylaws was done to prevent the
creation or an oppositor for an
officer or director of SMC, also an
officer of a competing corp. from
taking advantage of the information
which he as director to promote his
individual corporate interests to the
detriment of SMC, it would be hard
to
avoid
any
possibility
of
Gokongweis taking advantage of
his position as SMC director.
7.The SC grants the petition
regarding Gokongweis petition to
examine the book and records of
SMC
8.However, it sustained the validity
of the amendment to the by-laws
without prejudice to the question of
actual disqualification of Gokongwei
to run if elected to sit as SMC
director being decided, after proper
hearing by the SMC BoD, whose
decisions shall be appealable to the
SEC & to the SC, unless disqualified,
the prohibition in the said by-laws
will not apply to Gokongwei.
Pea v.
(1991)
CA,
193
SCRA
717
stockholders or members
and directors and officers
with relation thereto and
among themselves in their
relation to it, by-laws are
indispensable
to
corporations. These may
not
be
essential
to
corporate
birth
but
certainly,
these
are
required by law for an
orderly governance and
management
of corporations.
Loyola
Grand Villas Homeowners
v. CA,276 SCRA 681 (1997)
b. Requisites of Valid ByLaws
Requirements and procedure for
adoption of by-laws:
1. The by laws must not be
inconsistent with the Code;
2.
If
adopted
prior
to
incorporation:
a. Approved and signed
by all the incorporators;
b. Submitted together
with
the
articles
of
incorporation to the SEC;
3. If adopted subsequent to
incorporation:
a. Adopted within one (1)
month after receipt of
official notice of the
issuance of its certificate
of incorporation by the
SEC;
b. Affirmative vote of the
stockholders representing
at least a majority of the
outstanding capital stock,
or of at least a majority of
the members in case of
non-stock corporations,
c.
Signed
by
the
stockholders or members
voting for them
d. Kept in the principal
office of the corporation,
subject to the inspection
of the stockholders or
members during office
hours.
share
and
because
of
pledgors failure to pay the
principal debt upon maturity,
appellant-petitioner
could
proceed with the foreclosure
sale of the pledged share.
The auction sale conducted
by appellee-respondent Club
was
declared
null
and
void. The CA rendered its
decision nullifying and setting
aside the orders of the SEC
and its hearing officers on the
ground of lack of jurisdiction
over the subject. The CA
declared that the controversy
between CBC and VGCCI is
not intra-corporate.
constructive knowledge of
the same. In the case at bar,
petitioner
had
actual
knowledge of the by-laws of
private
respondent
when
petitioner
foreclosed
the
pledge made by Calapatia
and
when
petitioner
purchased
the
share
foreclosed.
Thus,
the
petitioner purchased the said
share subject to the right of
the PR to sell the said shares
for reasons of delinquency
and the right of PR to have a
first lien on said shares as
these rights are provided for
in the by-laws very clearly.
proceedings, as such, it
cannot bind China Bank.
However, one may argue in
the same way in Land Titles,
where banks are required to
go beyond the face of the
title as they are institutions
endowed with public interest;
in this case China Bank
should have inquired into
such by-laws before entering
into
the
transactions
mentioned.
Neither can we concede that
such contract would be
invalid just because the
signatory thereon was not the
Chairman of the Board which
allegedly
violated
the
corporations by-laws. Since
by-laws operate merely as
internal rules among the
stockholders, they cannot
affect or prejudice third
persons who deal with the
corporation, unless they have
knowledge of the same.
PMI Colleges v. NLRC,
277SCRA 462 (1997)
FACTS: PMI is an educational
institution offering courses on
basic seaman training and
other marine-related courses
hired private respondent as
contractual instructor with an
agreement that the latter
shall be paid at an hourly rte
of P30 t P50. PR then
organized classes in marine
engineering.
PR
another
instructors
were
compensated for services
rendered during the first
three periods of the abovementioned
contract.
However,
for
reasons
unknown to PR, he stopped
receiving payment for the
succeeding
rendition
of
services. Repeated demands
having likewise failed, PR was
soon constrained to file a
F. Corporate Powers
1. General Powers, Theory of
General Capacity
2. Specific Powers, Theory of
Specific Capacity
a. Power to Extend or
Shorten Corporate Term
b. Power to Increase or
Decrease Capital Stock or
Incur, Create, Increase
Bonded Indebtedness
c. Power to Deny PreEmptive Rights
d. Power to Sell or Dispose
of Corporate Assets
e. Power to Acquire Own
Shares
f. Power to Invest Corporate
Funds
in
Another
Corporation or Business
g.
Power
to
Declare
Dividends
h. Power to Enter Into
Management Contract
i. Ultra Vires Acts
i. Applicability of Ultra
ViresDoctrine
ii. Consequences of
Ultra Vires Acts
3. How Exercised
a. By the Shareholders
b. By the Board of Directors
c. By the Officers
4. Trust Fund Doctrine
Qualifications:
1.) he must be a natural person;
2.) he must be capacitated to enter
into contracts;
3.) he must have at least one (1) share
of stock which shall stand as his
own name in the books of the
corporation.
The director need not have both
the legal and beneficial interests of
the shares registered in his name.
The legal title to the one (1) share
is sufficient to qualify him as a
director, provided he is the
registered owner of such share in
the stock and transfer book of the
corporation.
4.) Majority of the directors must be
residents of the Philippines;
5.) A director must not be convicted of
any
offense
punishable
by
imprisonment of more than six (6)
years, or a violation of the
corporation code within five (5)
years prior to his election.
PRINCIPAL FUNCTIONS OF THE BOARD
OF DIRECTORS
The principal functions of board of
directors:
1.) It is governing body of the
corporation. The board, unless
restricted by its charter or by-laws,
shall
have
full
control
and
management of the corporate
business
property.
The
shareholders
may,
however,
override the decision of the board
by unanimous vote. (not only
majority)
2.) It is the custodian of all corporate
properties; and,
3.) It formulates all corporate policies
and controls management.
1.
Doctrine
of
Centralized
Management
Management of corporation business
is vested in the board of directors
which is the governing and controlling
body of the corporation. Stockholders
are not required to participate directly
in the management of the corporation.
c. Management Contracts
Management
contracts
are agreements whereby as
corporation, subject to some
legal requirements, delegates
the power of its management to
another person or to another
corporation for a certain period
as stipulated in the agreement,
but not exceeding five (5) years
for any one term.
12. Executive Committee
It is a committee created
by the BOD as authorized in the
by-laws and is composed of
three (3) directors. Its principal
function is to assist the Board in
the
governance
of
the
corporation, the execution of its
management policies, and in
the performance of such other
matters as may be delegated it
in the by-laws or by a majority
vote of the Board.
However, the Executive
Committee cannot perform any
of the following:
1.) approval of any
action for which
shareholders
approval is also
required;
2.) the filling of
vacancies
in
the board;
3.) the amendment
or repeal of bylaws
or
the
adoption of new
by-laws;
4.) the amendment
or repeal of any
resolution
of
the board which
by its express
terms is not so
amendable or
repealable;
5.) a distribution of
cash dividends
tot
the
shareholders.
13. Meetings
a. Individual Suit
b. Representative Suit
c. Derivative Suit
5. Obligation of a Stockholder
6. Meetings
a. Regular or Special
i. When and Where
ii. Notice
b. Who Calls the Meetings
c. Quorum
d. Minutes of the Meetings
I. Capital Structure
1. Subscription Agreements
H. Stockholders and Members
1. Rights of a Stockholder and
Members
a. Doctrine of Equality of
Shares
2. Participation in Management
a. Proxy
b. Voting Trust
c. Cases When Stockholders
Action is Required
i. By a Majority Vote
ii. By a Two-Thirds
Vote
iii.
By
Cumulative
Voting
3. Proprietary Rights
a. Right to Dividends
b. Right of Appraisal
c. Right to Inspect
d. Pre-Emptive Right
e. Right to Vote
f. Right to Dividends
g. Right of First Refusal
4. Remedial Rights
Q: What is a subscription
contract?
A: It is a contract for the
acquisition of unissued stock in
an existing corporation or a
corporation still to be formed. It
is
considered
as
such
notwithstanding the fact that
the parties refer to it as
purchase
or
some
other
contract. (Sec. 60)
Q: What are the kinds of
subscription contracts?
A:
1. GR: Preincorporation subscription
entered into before the incorporation
and irrevocable for a period of six (6)
months from the date of subscription
unless all other subscribers consent or if
the corporation failed to materialize. It
cannot also be revoked after filing the
Articles of Incorporation with the SEC
(Sec. 61)
2.
initially
be
determined by the
incorporators
or
the
board
of
directors, subject
to approval by the
SEC.
o Note: Property
should
not
be
encumbered.
Otherwise, it would
impair
the
consideration
c) Labor performed for or
services actually rendered to
the
corporation
(must
be
capable of being valuated);
d)
Previously
incurred
indebtedness
of
the
corporation;
e) Amounts transferred from
unrestricted retained earnings
to stated capital (declaration of
stock dividends); andOL LAW
f)
Outstanding
shares
exchanged for stocks in the
event of reclassification or
conversion.
Transfer
for
consideration
of
treasury shares is a sale by the
corporation (not subscription). A
transfer of fully paid shares by a
stockholder to a third person is a
sale. But it seems that assignment
by a subscriber of his unpaid
subscription would require that the
requisites for valid release from
subscription must be complied with
Shareholders are not creditors of
the corporation with respect to
their shareholdings thereto and the
principle of compensation or set-off
has no application
Not necessarily required to be in
writing
Once subscription contract is
perfected, SH becomes the debtor
of the corporation. He is liable to
pay any unpaid portion of the
subscription. He can also be made
personally liable to the creditors of
the corporation to the extent of his
unpaid subscription
General Rule: SH is not liable to
pay
interest
on
his
unpaid
subscription.
Exception: if required
by the by-laws (66)
3. Shares of Stock
a. Nature of Stock
b. Subscription Agreements
It is a contract for the
acquisition of unissued
stock in an existing
corporation
or
a
corporation still to be
formed. It is considered
as such notwithstanding
the fact that the parties
refer to it as purchase or
some
other
contract.
(Sec. 60)
c. Consideration for Shares
of Stock
Consideration
for
the
issuance of stock may be
any or a combination of
any two or more of the ff:
1. Actual cash paid to the
corporation;
2. Property, tangible or
intangible,
actually
received
by
the
corporation
and
necessary or convenient
for its use and lawful
purposes
at
a
fair
valuation equal to the par
or issued value of the
stock issued;
3. Labor performed or
services
actually
rendered
to
the
corporation;
4. Previously incurred
indebtedness
by
the
corporation;
5. Amounts transferred
from
unrestricted
retained
earnings
to
stated capital; and
6. Outstanding shares in
exchange for stocks in
the
event
of
reclassification
or
conversion.
Stocks shall not be
issued in exchange
of
promissory
notes
or future
services.
d. Watered Stock
i. Definition
Q: What is a
watered stock?
A: A stock issued
in exchange for
cash,
property,
share,
stock
dividends,
or
services
lesser
than its par value.
Watered
Stocks
include
stocks:
1. Issued
without
considera
tion
(bonus
share)
2. Issued
for
a
considera
tion other
than
cash, the
fair
valuation
of which
is
less
than its
par
or
issued
value
(discount
share)
3. Issued as
stock
dividend
when
there are
no
sufficient
retained
earnings
to justify
it
4. Issued as
fully paid
when the
corporati
on
has
received
a lesser
sum
of
money
than its
par
or
issued
value
Note: Water in
the
stock
represents
the
difference between
the fair market
value at the time
of the issuance of
the stock and the
par or issued value
of said stock. Both
par and no par
stocks can thus be
watered stocks.
Watered
stocks
refer
only
to
original issue of
stocks but not to a
subsequent
transfer of such
stocks
by
the
corporation.
ii. Liability of Directors
for Watered Stocks
Q: What is the
extent
of
the
liability
of
directors
who
consented to the
issuance
of
a
watered stock?
A: Directors who
consent
to
the
issuance
of
a
watered stock are
personally
liable.
Although
the
general rule is that
directors, trustees
or officers are not
solidarily
liable
with
the
corporation,
consenting to the
issuance
of
a
watered stock is
one
of
the
exceptions.
Note: Pursuant to
Sec. 65 of the
Corporation Code,
a director or officer
who consents to
the issuance of a
watered stock or
having knowledge
thereof does not
forthwith express
his
written
objection with the
corporate
secretary is liable
jointly
and
severally with the
stockholder
concerned for the
water in the stock
in favor of the
corporation and its
creditors.
iii. Trust Fund Doctrine
for
Liability
for
Watered Stocks
Q: What is the
trust
fund
doctrine?
A: The subscribed
capital stock of the
corporation is a
trust fund for the
payment of debts
of the corporation
which the creditors
have the right to
look up to satisfy
their credits, and
which
the
corporation
may
not dissipate.
Q: Where does
the
solidary
liability
of
directors
consenting
to
the issuance of
watered
stock
emanates?
A: The solidary
liability
of
the
directors emanates
from the fiduciary
character of the
position of director
or
corporate
officer.
e. Situs of the Shares of
Stock
Q: Where is the
situs of shares of
stock?
A: The situs of
shares of stock is
the country where
the corporation is
domiciled.
Note:
For
purposes
of
execution,
attachment,
garnishment
or
auction sale, it is
not the domicile or
the residence of
the owner of the
shares
but
the
domicile
or
residence of the
corporation, which
is the place of its
principal business,
which determines
the situs of the
shares of stock.
f. Classes of Shares of Stock
impose a positive
duty on directors
to
declare
dividends
every
year when profits
are earned.
3.
Earned
cumulative
or
dividend credit
gives the holder
thereof the right to
arrears
in
dividends if there
were profits earned
during the previous
years
but
dividends were not
declared.
Unless the right to
vote is clearly withheld, a
preferred stockholder has
the right to vote.
Preference
upon
liquidation
must
be
clearly
indicated
otherwise they shall be
placed on equal footing
with other shares.
Par and no par value shares
Par value shares
those whose value are
fixed in the articles of
incorporation.
Par
value
shares
cannot be issued nor sold
by the corporation at less
than par.
No par value shares
those whose issued price
are not stated in the
certificate of stock but
which may be fixed in the
articles of incorporation,
or by the board of
directors
when
so
authorized by the said
articles or by the by-laws,
or in the absence thereof,
by
the
stockholders
themselves.
Limitations of no par
value shares:
1. Such shares,
once issued, are
deemed fully paid
and
thus,
non
assessable;
2.
The
consideration
for
its issuance should
not be less than
P5.00;
3.
The
entire
consideration
for
its
issuance
constitutes capital,
hence,
not
available
for
dividend
declaration;
4. They cannot be
issued as preferred
stock; and
5. They cannot be
issued by banks,
trust
companies,
insurance
companies, public
utilities
and
building and loan
associations.
Advantages to the
issuance of no par value
shares:
1.
Flexibility
in
price;
2. Evasion of the
danger of liability
upon
watered
stock; and
3. Disappearance
of personal liability
on the part of the
holder thereof for
unpaid
subscription.
Voting and non-voting shares
Voting shares gives
the holder thereof the
right
to
vote
and
participate
in
the
management
of
the
corporation through the
exercise of such right,
either at the election of
the board of directors, or
in any manner requiring
the
stockholders
approval.
Non-voting shares
do not grant the holder
thereof the right to vote
except
under
the
penultimate paragraph of
Sec. 6.
Only preferred and
redeemable shares may
be denied the right to
vote.
There must always be
a class or series of shares
which
have
complete
voting rights.
Non-voting
shares
shall
nevertheless
be
entitled to vote on the
following matters:
1. Amendment of
the
articles
of
incorporation;
2. Adoption and
amendment of bylaws;
3.
Sale,
lease,
exchange,
mortgage, pledge
or other disposition
of
all
or
substantially all of
the
corporate
property;
4.
Incurring,
creating
or
increasing bonded
indebtedness;
5.
Increase
or
decrease of capital
stock;
6.
Merger
or
consolidation
of
the
corporation
with
another
corporation
or
other corporations;
7. Investment of
corporate funds in
another
corporation
or
business
in
accordance
with
this Code; and
8. Dissolution of
the corporation.
Except as provided in
the
penultimate
paragraph of Sec. 6, the
vote
necessary
to
approve
a
particular
corporate act as provided
in this Code shall be
deemed to refer only to
stocks with voting rights.
Founders shares
Sec. 7. Founders shares. Founders' shares classified as
such
in
the
articles
of
incorporation may be given
certain rights and privileges not
enjoyed by the owners of other
stocks, provided that where the
exclusive right to vote and be
voted for in the election of
directors is granted, it must be
for a limited period not to
4.
Payment
Subscription
of
Balance
of
2.
b. Subjects the
shares
to
interest
expenses and
costs;
c.
Disenfranchi
ses
the
shares from
any right that
inheres to the
to
a
stockholder,
except
the
right
to
dividends
(but which
shall
be
applied
to
any amount
due on said
shares, or, in
the case of
stock
dividends, to
be withheld
by
the
corporation
until
full
payment of
the
delinquent
shares. (Sec.
43)
Upon the director
owning
delinquent
shares
a.
If
the
delinquent
stockholder
is a director,
the director
shall
continue to
be a director
but he cannot
run for re
election
(Sundiang
and Aquino,
Reviewer in
Commercial
Law, 2006)
b. A delinquent
stockholder
seeking to be
elected
as
director may
not be a
candidate
for, not be
duly elected
to, the board.
A: The procedure is as
follows:
1. The board of directors
shall pass a board
resolution
ordering
the sale of delinquent
stock.
2. A notice of sale and
copy of the board
resolution
ordering
the sale shall be sent
to every delinquent
stockholder
either
personally or by
registered mail or;
published once a
week
for
2
consecutive weeks in
a
newspaper
of
general circulation in
the province or city
where the principal
office
of
the
corporation,
as
specified in its articles
of incorporation, is
located.
3. The minimum bid
shall be the full
amount of the balance
on the subscription
plus the accrued
interest,
cost
of
advertisement
and
expenses of sale for
the smallest number
of shares.
4. The sale will be
awarded
to
the
highest bidder who
will be given a
certificate of sale and
the same will be
registered
in
the
books
of
the
corporation.
5. Should there be no
bidder,
the
corporation may bid
for the same if it
has unrestricted
earnings
to
cover
the
amount.
5. Certificate of Stock
a. Nature of the Certificate
A certificate of stock is
the best evidence of the
rights and status of a SH
for
Q: Is a stock certificate
negotiable?
A: No. It is regarded as
quasinegotiable in the
sense that it may be
transferred
by
endorsement
coupled
with delivery.
Q: Why is a stock
certificate
not
negotiable?
A: Because the holder
thereof takes it without
prejudice to such rights
or
defenses
as
the
registered
owners
or
transferors creditor may
have under the law,
except insofar as such
rights or defenses are
A:
The certificate of stock must be duly
endorsed by the transferor or his legal
representative.
There must be delivery of the stock
certificate.
To be valid against third parties, the
transfer must be recorded in the books
of the corporation. (G.R. No. 124535,
September 28, 2001)
d. Issuance
i. Full Payment
A corporation may
now, in the absence of
provisions in their by
laws to the contrary,
apply payments made
by
subscribers
stockholders,
either
as:
Full payment for
the corresponding
number of shares
of stock, the par
value of each of
which is covered
by such payment;
or
ii. Payment Pro-Rata
Payment prorata
to each and all the
entire number of
shares subscribed
for. (Baltazar v.
Lingayen
Gulf
Electric Power Co.,
Inc, G.R. No. L
1623638, June 30,
1965)
Q:
What
Doctrine
is
the
of
Individuality
of
Subscription?
A: A subscription is one
entire
and
indivisible
whole contract. It cannot
be divided into portions.
(Sec. 64)
e.
Lost
Certificates
or
Destroyed
Requirements
and
procedure for issuance of
new certificates of stock
in lieu of those lost,
stolen or destroyed:
1. The registered owner
of a certificate of stock in
a corporation or his legal
representative shall file
with the corporation an
affidavit
in
triplicate
setting forth:
a.
The
circumstances as
to
how
the
certificate was lost,
stolen
or
destroyed;
b. The number of
shares represented
by such certificate;
c.
The
serial
number
of
the
certificate; and
d. The name of the
corporation which issued
the same.
2. He shall also submit
such other information
and evidence which he
may deem necessary.
3. Publication of a notice
in a newspaper of general
circulation published in
the place where the
corporation
has
its
principal office, once a
week for 3 consecutive
weeks at the expense of
the registered owner of
such certificate of stock.
4. If no contest has been
presented within 1 year
from the date of the last
2.
A:
1. All stocks in the name of the
stockholders
alphabetically
arranged
Amount paid and unpaid on all stocks and the date of
payment of any installment
3. Alienation,
sale
or
transfer of stocks
4. Other entries as the
bylaws may prescribe
b. Who
Entries
May
Make
Valid
A:
There must be a delivery of the stock
certificate.
The certificate of stock must be duly
endorsed by the transferor or his legal
representative.
To be valid against third parties, the
transfer must be recorded in the books
of the corporation (Rural Bank of Lipa
vs. CA, G.R. No. 124535, September
28, 2001).
K. Other Corporations
1. Close Corporations
Requirements
to
be
a
Close
Corporation:
a.) all of the corporations
stocks issued of all classes
shall be held or owned by
not more than twenty (20)
persons;
b.) all stocks issued shall be
subject to one or more
restrictions
on
transfer
permitted by this title;
c.) the corporation shall not list
in any stock exchange or
make any public offering of
any of its stocks of any class.
A corporation is not a close
corporation when at least twothirds (2/3) of its voting stock or
voting rights are owned or
controlled
by
another
corporation.
Any
corporation
may
be
incorporated
as
a
close
corporation except the following
which
vested
with
public
interest:
i.)
mining
or
oil
companies;
ii.)
stock exchanges;
iii.)
banks
and
insurance
companies;
iv.)
public
utilities,
educational,
and
other corporations
vested with public
interest.
a. Characteristics of a Close
Corporation
Management of corporate
business
is
by
the
stockholders and not by the
board of directors, in which
case:
i.)
stockholders
do
not need to meet
to elect directors;
ii.)
stockholders shall
be deemed to be
the directors;
iii.)
stockholders shall
be
subject
to
liabilities
pertaining
to
directors.
b. Validity of Restrictions on
Transfer of Shares
All charter restrictions on
the transfer of shares
must appear in:
1.) the
articles
of
incorporation;
2.) the by-laws;
3.) the
certificate
of
stock;
Otherwise,
such
restrictions will not be
binding
on
any
purchaser
in
good
faith.
The
most
common restriction is
similar to the right of
pre-emption
of
stockholders in an
open
stock
corporation.
c. Issuance or Transfer of Stock
in Breach of Qualifying
Conditions
Stock of a close corporation
is not transferrable when
issued for transferred to:
1.) a
person
not
entitled to be a
holder under the
articles
of
incorporation;
2.) to a person not
qualified as per the
certificate of stock;
3.) to
persons
exceeding
the
required
twenty
(20);
4.) in violation of the
restrictions
specified in the
certificate;
5.) to a person who
has notice that
a. he is not
eligible;
b. that
the
issue to him
would
exceed the
required
twenty
stockholders
permitted to
hold stock;
or,
c. the transfer
to him is in
violation of
the
restriction or
transfer
of
stock.
d. When Board Meeting is
Unnecessary or Improperly Held
When Unnecessary:
(1.) Before or after
such action is
taken
written
consent
thereto
is
signed by all
the directors;
(2.) All
the
stockholders
have actual or
implied
knowledge of
the action and
make
no
prompt
objection
thereto
in
writing;
(3.) The
directors
are
accustomed to
take
informal
action with the
express
or
implied
acquiescence
of
all
the
stockholders;
(4.) All
the
directors have
express
or
implied
knowledge of
the action in
question
and
none of them
makes prompt
objection
thereto
in
writing.
When Improperly Held
If a directors meeting
is held without proper call
or notice, an action taken
therein within corporate
powers is deemed ratified
by a director who failed
to attend, unless he
promptly files his written
objection
with
the
secretary
of
the
corporation after having
knowledge thereof.
e. Pre-Emptive Right
The
pre-emptive
right of stockholders in
close corporation shall
extend to all stock to be
issued,
including
reissuance of treasury
shares,
whether
for
money,
property
or
personal services, or in
payment of corporate
debts, unless the articles
of incorporation provide
otherwise.
f. Amendment of Articles of
Incorporation
Any
amendment
to
the
articles of Incorporation to:
1.) Delete
or
remove
any
provision in the
articles
of
incorporation;
or
2.) Reduce
a
quorum
or
voting
requirement in
the
Articles
requires
the
affirmative
vote of at least
two-thirds (2/3)
of
the
outstanding
capital
stock,
whether with or
without voting
rights, or of
such
greater
proportion
of
shares
as
provided in the
Articles
of
Incorporation.
g. Deadlocks
Deadlock
means
stagnation
in
the
management
of
the
corporations
business
and affairs due to the
split and divided action of
directors or stockholders
such that the required
vote for the approval of
any corporate act cannot
be obtained.
2. Non-Stock Corporations
a. Definition
A
non-stock
corporation is one where
no part of its income is
distributable as dividends
to its members, trustees,
or officers, subject to the
provisions of the Code on
dissolution.
b. Purposes
Non-stock
corporations
may
be
formed or organized for
charitable,
religious,
educational, professional,
cultural,
fraternal,
literary, scientific, social,
civic, service, or similar
purposes,
like
trade,
charitable,
religious,
benevolent,
educational, or
similar
purposes;
4.) Assets
other
than
those
mentioned
in
the preceding
paragraphs, if
any, shall be
distributed
in
accordance
with
the
provisions
of
the articles of
incorporation or
the by-laws;
5.) In any other
case,
assets
may
be
distributed such
people,
societies,
organizations or
corporations,
whether or not
organized
for
profit.
3. Religious Corporations
Religious
corporations
may be incorporated by one or
more persons, such corporation
may
be
classified
into
corporation sole and religious
societies.
4. Foreign Corporations
Foreign Corporation is
one which is organized or
chartered under the laws of an
outside state or country.
a. Bases of Authority over
Foreign Corporations
i. Consent
Obtaining
of
license,
which
is
tantamount to consent, is
required to subject the
foreign corporation doing
business
in
the
Philippines
to
the
jurisdiction of the courts.
ii. Doctrine of Doing
Business
(related
to
definition under the
Foreign
Investments Act, R.A. No.
7042)
Under
R.A.
5455,
doing business in the
Philippines
means
soliciting
of
orders,
purchases,
service
contracts, opening offices
management,
has
supervision or control of
any domestic subsidiary,
or performing any other
act which implies a
continuity of commercial
dealings
or
arrangements.
b. Necessity of a License to Do
Business
i. Requisites for Issuance
of a License
Foreign Corporations
are required to get a license by
the Bureau of Investments if:
(a) It owns more
than 40% of the
voting stocks of
a
domestic
corporation; or,
(b) It owns more
than 30% of the
authorized
capital stock of
a
domestic
corporation.
ii. Resident Agent
A resident agent
maybe
either
an
individual residing in the
Philippines or a domestic
corporation
lawfully
transacting business I the
Philippines;
provided,
that in the case of an
individual, he must be of
good moral character and
of
sound
financial
standing.
c. Personality to Sue
No foreign corporation
transacting business in the
Philippines without a license, or
its successor or assigns, shall be
permitted
to
maintain
or
intervene in any action, suit or
proceeding in any court or
administrative agency of the
Philippines. Such corporation
maybe sued, or proceeded
against, before the Philippine
courts
or
administrative
tribunals on any valid cause of
action recognized under the
Philippine laws.
d.
Suability
of
Foreign
Corporations/ e. Instances When
Unlicensed
Foreign Corporations May
Be
Allowed
to
Sue
Isolated Transactions
The basis of suability is
that any foreign corporation
lawfully doing business in the
Philippines shall be bound by all
laws, rules and regulations
applicable
to
domestic
corporations of the same class,
save and except such as only
provided
for
the
creation,
formation,
organization
or
dissolution of corporations or
such as fix the relations,
liabilities,
responsibilities
or
duties
of
stockholders,
members,
or
officers,
of
corporations to each other or to
other corporation.
f. Grounds for Revocation of
License
Among other others, they are,
as follows:
1.) Failure to file its
annual report or
pay any fees as
required by this
code;
2.) Failure
to
appoint
and
maintain
a
resident agent
in
the
Philippines
as
required by this
title;
3.) Failure,
after
change of its
resident agent
or
of
his
address,
to
submit
to
submit to the
SEC
a
statement
of
such change as
required by this
title;
4.) Failure
to
submit to the
SEC
an
authenticated
copy
of any
amendment to
its articles of
incorporation or
by-laws or of
any articles of
merger
or
consolidation
within the time
prescribed
by
this title;
A misrepresentation of any material matter
in any application, report, affidavit or other
document submitted such corporation
pursuant to this title.
VII. Securities
Regulation
Code
(R.A. No. 8799)
4.
5.
6.
7.
8.
ownership of a
security
b. Matched Sale
There
is
a
change
of
ownership
in
the
securities
by entering an
order for the
purchase/sale
of security with
the knowledge
that
a
simultaneous
order
of
substantially
the same size,
time, and price,
for the sale or
purchase of any
such
security,
has or will be
entered by or
for the same or
different
parties.
c. Similar
transactions
where there is
no change of
beneficial
ownership.
2. Engaging
in
transactions
which
induce
price
to
increase or decrease:
a. Marking
the
close buying
and
selling
securities at the
close
of the
market to alter
the
closing
price
of
the
security.
b. Painting
the
tape engaging
in a series of
transactions in
securities that
are
reported
publicly to give
the impression
of activity or
price
movement in a
security.
c. Squeezing the
float refers to
taking
advantage of a
shortage
of
securities in the
market
by
controlling the
demand
side
and exploiting
market
congestion
during
such
shortages in a
way to create
artificial prices.
d. Hype and dump
engaging in
buying activity
at increasingly
higher
prices
and then selling
securities in the
market at the
higher prices.
e. Boiler
room
operations the
use
of
high
pressure
sale
tactics
to
promote
purchase
and
sale
of
securities
f. Daisy chain it
refers
to
a
series
of
purchase
and
sales
of
the
same issue at
successively
higher prices by
the same group
of people with
2. Short Sales
It is the selling of shares
which the seller does not
actually own or possess and
therefore he cannot, himself,
supply the delivery.
3. Fraudulent Transactions
1. Obtaining money or
property by means of
any untrue statement
of a material fact
2. Engaging in any act,
transaction, practice
or course of business,
which operates as a
fraud or deceit upon
any person.
4. Insider Trading
A purchase or sale made by
an insider or his relative
within the second degree
shall be presumed to be
effected while in possession
of
material
nonpublic
information if transacted
after such information came
into existence but prior to
the public dissemination of
such information, and lapse
of reasonable time for the
market to absorb such
information.
An insider is a person in
possession
of
corporate
information not generally
available to the public.
E. Protection of Investors
1. Tender Offer Rule
Publicly declared intention to
buy securities of public
companies given to all
stockholders by:
1. Filing with the SEC a
declaration to that
effect, and paying the
filing fee.
2. Furnishing the issuer a
statement containing
the
information
required of the issuers
as SEC may prescribe,
including subsequent
or
additional
materials.
3. Publishing all requests
or
invitations
for
tender, or materials
making a tender offer
or
requesting
or
rehabilitated or permitted to
resume business, the MB shall
notify in writing the board of
directors of the institution of its
findings and direct the receiver to
proceed with the liquidation of the
institution.
Procedure
(1) The receiver shall file ex parte
with the proper RTC, and without
requirement of prior notice or any
other action, a petition for
assistance in the liquidation of the
institution pursuant to the
liquidation plan adopted by the
PDIC (if quasi-bank, liquidation
plan adopted by the MB)
(2) Upon acquiring jurisdiction, the
court shall, upon motion by the
receiver after due notice,
(a) Adjudicate disputed claims
against the institution,
(b) Assist the enforcement of
individual liabilities of the
stockholders, directors, and
officers, and
(c) Decide on other issues as may
be material to implement the
liquidation plan
(3) The receiver shall convert the
assets of the institutions to money,
dispose of the same to creditors
and other parties, for the purpose
of paying the debts of such
institution in accordance with the
rules on concurrence and
preference of credit under the Civil
Code.
The assets of the institution under
receivership and liquidation shall
be deemed in custodia legis and
shall be exempt from any order of
garnishment, levy, attachment, or
execution.
Dispositions
In case of a liquidation of a bank or
quasi-bank, after payment of the
cost of proceedings, including
reasonable expenses and fees of
the receiver to be allowed by the
court, the receiver shall pay the
debts of such institution, under
order of the court, in accordance
with the rules on concurrence and
preference of credit in the Civil
Code. (Sec. 31, NCBA)
Property
Rights
in
The
application shall relate to one
invention only or to a group of
an
invention
involves inventive step if, having
regard to prior art, it is not obvious
to a person skilled in the art at the
time of the filing date or priority
date of the application claiming the
invention. (Sec. 26, IPC)
4. Industrial
applicability
an
invention that can be produced and
used in any industry (Sec. 27, IPC)
1. Discoveries,
scientific
theories
and
mathematical methods;
2. Schemes, rules and methods of performing
mental acts, playing games or doing
business, and programs for computers;
3. Methods for treatment of the human or
animal body by surgery or therapy and
diagnostic methods practiced on the human
or animal body. This provision shall not
apply to products and composition for use
in any of these methods;
4. Plant varieties or animal breeds or
essentially biological process for the
production of plants or animals. This
provision shall not apply to microorganisms
and
non-biological
and
microbiological processes.
Provisions under this subsection shall not
preclude Congress to consider the enactment
of a law providing sui generis protection of
plant varieties and animal breeds and a
system of community intellectual rights
protection.
5. Aesthetic creations; and
6. Anything which is contrary to public order or
morality.
3. Ownership of a Patent
a. Right to a Patent
The right granted to an inventor by
the State, or by the regional office
acting for several States, which allows
the inventor to exclude anyone else
from commercially exploiting his
invention for a limited period.
The right to a patent belongs to the
inventor, his heirs, or assigns. When
two (2) or more persons have jointly
made an invention, the right to a
patent shall belong to them jointly.
(Sec. 28, IPC)
b. First-to-File Rule
If two (2) or more persons have made
the
invention
separately
and
independently of each other, the right
to the patent shall belong to the
person who filed an application for
such invention, or where two or more
applications are filed for the same
invention, to the applicant who has
the earliest filing date or, the earliest
priority date. (Sec. 29, IPC)
Remedies:
1. Civil action - Any patentee, or anyone
possessing any right, title or interest
in and to the patented invention,
whose rights have been infringed,
may bring a civil action before a court
of competent jurisdiction, to recover
from the infringer such damages
sustained thereby, plus attorney's fees
and other expenses of litigation, and
to secure an injunction for the
protection of his rights.
If the damages are inadequate
or
cannot
be
readily
ascertained with reasonable
certainty, the court may award
by way of damages a sum
equivalent
to
reasonable
royalty.
The court may, according to
the circumstances of the case,
award damages in a sum
above the amount found as
actual damages sustained:
under
any
of
the
following
circumstances:
1. National emergency or other
circumstances of extreme urgency;
2. Where the public interest, in
particular,
national
security,
nutrition,
health
or
the
development of other vital sectors
of the national economy as
determined by the appropriate
agency of the Government, so
requires; or
3. Where a judicial or administrative
body has determined that the
manner of exploitation by the
owner of the patent or his licensee
is anti-competitive; or
4. In case of public non-commercial
use of the patent by the patentee,
without satisfactory reason;
5. If the patented invention is not
being worked in the Philippines on
a commercial scale, although
capable of being worked, without
satisfactory reason: Provided, That
the importation of the patented
article shall constitute working or
using the patent.
10.Assignment and Transmission of Rights
Transmission of Rights - Patents or
applications
for
patents
and
invention to which they relate, shall
be protected in the same way as
the rights of other property under
the Civil Code. Inventions and any
right, title or interest in and to
patents and inventions covered
thereby, may be assigned or
transmitted:
1. by inheritance or bequest, or
2. may be the subject of a license
contract.
Assignment of Inventions - An
assignment may be:
1. of the entire right, title or
interest in and to the patent and
the invention covered thereby,
or
2. of an undivided share of the
entire patent and invention, in
Confusing
a. Dominancy Test
Focuses on the similarity of the
prevalent features of the competing
marks. If the competing trademark
contains the main or essential
dominant features of another, and
confusion
is
likely
to
result,
infringement takes place.
b. Holistic Test
Confusing
similarity
is
to
be
determined on the basis of visual,
aural, connotative comparisons and
overall impressions engendered by the
marks in controversy as they are
encountered in the marketplace.
7. Well-Known Marks
A mark which a competent authority
of the Philippines has designated to be
well-known internationally and in the
Philippines.
8. Rights Conferred by Registration
Rights, Regulation and Remedies. Rights: A person who has identified in the
mind of the public the goods he
manufactures or deals in, his business or
services from those of others, whether or not
a registered mark is employed, has a
property right in the goodwill of the said
goods, business or services so identified,
which will be protected in the same manner
as other property rights.
Unfair competition: Any person who shall
employ deception or any other means
contrary to good faith by which he shall pass
off the goods manufactured by him or in
which he deals, or his business, or services
for those of the one having established such
goodwill, or who shall commit any acts
calculated to produce said result, shall be
guilty of unfair competition, and shall be
subject to an action therefor.
In particular, and without in any way
limiting the scope of protection against
unfair competition, the following shall be
deemed guilty of unfair competition:
(a) Any person, who is selling his goods and
gives them the general appearance of
goods of another manufacturer or dealer,
either as to the goods themselves or in
the wrapping of the packages in which
they are contained, or the devices or
words thereon, or in any other feature of
their appearance, which would be likely
to influence purchasers to believe that
the goods offered are those of a
manufacturer or dealer, other than the
2. Copyrightable Works
Copyright, in the strict sense of the term, is
purely a statutory right. It is a new or
independent right granted by the statute,
and not simply a pre-existing right
regulated by the statute. Being a statutory
grant, the rights are only such as the statute
confers, and may be obtained and enjoyed
only with respect to the subjects and by the
persons, and on terms and conditions
specified in the statute.
Since . . . copyright in published works is
purely a statutory creation, a copyright may
be obtained only for a work falling within the
statutory
enumeration
or
description.
(Joaquin
Jr
vs
Drilon,
G.R.
No.
108946. January 28, 1999)
a. Original Works
What are original works?
SECTION 172. Literary and Artistic Works.
172.1. Literary and artistic works,
hereinafter referred to as "works", are
original intellectual creations in the
literary and artistic domain protected
from the moment of their creation and
shall include in particular:
1.
b. Derivative Works
What are derivative works?
Derivative works are creations that are based on
an existing work. Thus, the series of film Harry
Potter is a derivative work based on the novel
of the same title. (Essentials of Intellectual
Property Law, E. Salao, 2nd edition, 2012)
SECTION 173. Derivative Works.
3. Non-Copyrightable Works
What are non-copyrightable works?
. The following are unprotected subject
matter (Sec. 175):
a. any idea, procedure, system, method
or
operation,
concept,
principle,
discovery or mere data as such, even
if they are expressed, explained,
illustrated or embodied in a work;
b. to news of the day and other
miscellaneous
facts
having
the
prejudicial distortion)
Right to restrain use of his name.
(Source:http://www.ipophil.gov.ph/index.ph
p/services/copyright/ownership-and-rights)
5. Rules on Ownership of Copyright (Sec. 178)
Creator
To Whom It Belongs
Author of the work, his
Single Creator
heirs or assigns
If work consists of
UNIDENTIFIABLE
parts, co-authors jointly
as co-owners, unless
there is an agreement to
Joint Creator
the contrary.
If work consists of
IDENTIFIABLE parts,
author of each part own
the that he has created.
If the creation is PART
of his regular duties:
employer, unless there is
Employees Creation
agreement
to
the
contrary.
If it is NOT: employee
Commissioned Work Work itself: person
commissioning
Copyright:
creator,
unless there is a written
stipulation
to
the
contrary.
For exhibition purposes:
producer
For all other purposes:
Cinematographic
producer, author of the
Works
scenario, composer, film
director, author of the
work.
Publishers are deemed
representative of the
author, unless:
1. The
contrary
appears;
Anonymous
and
2. Pseudonyms
or
Pseudonymous
adopted
name
Works
leaves no doubt as
to the authors
identity; or author
discloses
his
identity.(Sec. 179)
Contributor is deemed to
have waived his right
Collective Works
unless he expressly
reserves it. (Sec. 195)
Writer.
However, the court may
authorize
their
publication
or
Letters
dissemination if the
public good or the
interest of justice so
requires. (Art. 223, New
Civil Code)
(Table from San Beda 2009 Commercial Law
Reviewer)
What is the duration of the protection granted
various categories of works?
Category
of
Work
Books,
writings,
articles, musical
compositions,
dramaticomusical works,
etc.
Duration
of
Protection
Liefe-time of
author PLUS
fifty
years
thereafter
Provision
of Law
Section
213.1,
et
seq
Works
applied art
of Twenty-five
Section
years from the 213.4
time of making
Photographic
Fifty year from Section
works
publication, if 213.5
published
or
from making, if
unpublished
Audio-visual
Fifty
years Section
works,
from date of 213.6
including
making
if
recordings on unpublished
optical
or and
from
magnetic media publication if
published.
(Table from a paper entitled INTELLECTUAL
PROPERTY RIGHTS: Protecting Economic
Interests by Fr. Ranhilio Callangan Aquino)
What other protection is afforded under Part IV of
the Intellectual Property Code?
Category
Performances
of
actos,
singers,
musicians,
dancers and
other
in
similar
positions.
Scope
of
Protection
1. Broadcasting
or telecasting
of
their
performance;
2. Fixation
of
their unfixed
performance;
3. Authorizing
the direct or
indirect
reproductions
of
their
performance in
any form;
4. Authorizing
the first public
distribution of
the
original
and copies of
the fixed forms
of
their
performance;
5. Authorizing
commercial
rental of the
original
and
copies of the
Provision
of Law
Section
203.1
et
seq.
Section
205
Section
206
fixed forms of
their
performance;
6. Authorizing
communicatio
n to the public
of
their
performance
by such means
as television.
Broadcasting
organizations
(Broadcast =
Telecast)
Important:
These rights cease
the moment the
performer
authorizes
broadcast/telecast
or fixation of her
performance
She is entitled
though
to
additional
remuneration per
broadcast
or
communication to
the public to at
least
5%
of
original
compensation.
Procedures of 1. Right
to
sound
reproduce
recording
2. Right
to
distribute:
either through
sale or rental
3. Right
to
authorized
commercial
rental
4. Right to single
equitable
remuneration
when
recording
directly used
for
broadcasting
or
communicatio
n
to
the
public.
1. Right
to
prevent
rebroadcasting
of broadcasts;
2. Recording of
their
broadcasts for
the purpose n
to
the
of
communicatio
n
to
the
public;
3. The use of
such recording
for
fresh
transmission
or recording.
Section
211
1961
Rome
Conventio
Note though:
n
There
is
no Article
prohibition of the 13.b
private recording
of any broadcast
or telecast, as long
as this is for
private education,
etc. use.
Section
208
Section
209
It is however a
legal
possibility
for
a
foreign
broadcasting
organization
to
which we have
access
in
the
Philippines
to
prohibit altogether
the fixation of
their broadcasts.
(Table from a paper entitled INTELLECTUAL
PROPERTY RIGHTS: Protecting Economic
Interests by Fr. Ranhilio Callangan Aquino)
6. Limitations on Copyright
What are the limitations on copyright? (GF-PARRI)
1) General limitations (Sec. 184);
2) Fair use (Sec. 185);
3) In case of a work of architecture, the right to
control the reconstruction or rehabilitation in
the same style as the original of the building
(Sec. 186);
made in educational
institutions of a work included in a
broadcast for the use of such
educational institutions, provided
that such recording must be
making
of
ephemeral
recordings by a broadcasting
organization by means of its own
facilities and for use in its own
broadcast.
purpose
of
any
judicial
proceedings or for the giving of
professional advice by a legal
practitioner.
(from UST Golden Notes 2011)
b. Copyright Infringement
What is copyright infringement?
Infringement of a copyright is a trespass on a
private domain owned and occupied by the owner
of the copyright, and, therefore, protected by law,
and infringement of copyright, or piracy, which is a
synonymous term in this connection, consists in the
doing by any person, without the consent of the
owner of the copyright, of anything the sole right to
do which is conferred by statute on the owner of the
copyright. (Columbia Pictures, Inc. v. CA)
What ris the difference between copyright
infringement and plagiarism?
Copyright
Plagiarism
Infringement
The unauthorized use The use of anothers
of
copyrighted information, language,
material in a manner or writing, when done
that violates one of without
proper
the copyright owners acknowledgment of the
exclusive rights, such original source.
as the right to
reproduce or perform
Plagiarism is specific as
it refers only to using
someone elses work
without
proper
acknowledgment.
Statutorily
protected
material
Examples
of works:
Acts
of
Infringement
1.
Books
and
other
writings;
Published
or
unpublished
articles;
Reproduci
ng
Adapting;
all forms
of
2.
Periodica
transforma
ls
and
tion
newspap
Selling or
ers;
transferrin
Music
or
g
movie files
ownership
on
the
of
the
Internet.
object
unless one
is already
Electronic or
the lawful
e-Books
owner
are
thereof
books.
Importatio
Web-site
publicati
n of the
ons are
work
covered
(Applies to all
as
are
material
webobjects
pages,
protected by
including
copyright)
sound
(Section 177)
and
Unauthoriz
movie
ed
recording
copying,
s
available
reproducti
on
the
on,
Internet
disseminati
(Electron
on,
ic
distributio
Commer
n,
use,
ce
Act,
removal,
R.A.
alteration,
8792,
substitutio
Section
n,
33,b)
modificati
on,
storage,
uploading,
downloadi
ng,
communic
ation,
making
available
to
the
public,
broadcasti
ng.
(Electroni
c
Commerc
e
Act,
R.A.
8792,
Section
33,b)
3.
Lectures
and oral
presenta
tions,
whether
or
reduced
to
writing
or not;
4.
Letters;
Lectures
Unauthoriz
delivered by
ed
a reviewer
compilatio
for the Bar
n
(by
Exams
recording
whether in
or
writing or
tranascripti
not;
on) of the
homilies
orally
delivered by
delivered
a
priest,
pieces
whether he
Section
has notes or
176.2
not.
Besides the I.P.
Code
provisions, see
Art. 723, Civil
Code
5.
6.
7.
8.
9.
10.
Dramatic
or
dramatic
omusical
composit
ions;
choreogr
aphy
Musical
composit
ions
Drawings
,
paintings
,
architect
ure,
sculpture
,
other
works of
art and
models
thereof
Operas,
Public
operettas,
performan
musicals;
ce or other
Note:
forms of
Popular
communic
dance steps
ation to the
ballroom
public.
dancing Section 177.6
not
included.
-dittoArchitectura
l plans
Painting of
Joya;
Clay
models of
sculptural
works
Works of Decorative
applied
prints
of
art;
shirts
or
blouses or
skirts;
Creatively
devised
Illustratio
formats of
ns,
blank forms
maps,
or
even
plans,
receipts;
sketches,
charts
Drawing
s
or
plastic
works of
a
scientific
or
technical
characte
r
Acetate
transparenci
es found in
medical
books
illustrating
body parts;
Plastic
models of
molecular
structures
11. Photogra Photographs
phic and whether on
similar
traditional
products film
or
Constructi
ng
the
building
that
reproduces
the whole
or
a
substantial
part of the
architectur
al work
Section 186
digital
format.
12. Audiovis
ual
works
and
cinemato
graphic
works
13. Pictorial
illustratio
ns
and
advertise Software,
ments;
including
14. Compute
r
program
s;
Piracy of
optical &
magnetic
media
R.A.9293,
Section 19
databases
(excluding
mere data)
15. Other
literary,
scholarly
,
scientific
and
artistic
works.
Section
172
Injunction
2.
3.
4.
5.
6.
apply suppletorily
these Rules.
Are orders
executor?
to
issued
proceedings
by
the
under
court
of
SEC.
5.
Verification
and
supporting
documents. Any pleading, motion,
opposition, defense or claim filed by any
interested party shall be supported by
verified statements that the affiant has read
the same and that the factual allegations
therein are true and correct of his personal
knowledge or based on authentic records,
and shall contain as annexes such
documents as may be deemed by the party
submitting the same as supportive of the
allegations in the affidavits.
What is the duty of the clerk of court?
SEC. 6. Duty of the clerk of court. It shall
be the duty of the branch clerk of court to
notify in writing the Director-General of the
intellectual Property Office (IPO) of any
action, suit or roceeding involving a
copyright, trademark, service mark, patent,
industrial design, utility model, undisclosed
information
and
technology
transfer
agreement. Such notice shall set forth: the
names and addresses of the litigants and the
copyright, trademark, service mark, patent
or design registrations involved and, where
applicable, the numbers of their certificates
of registration. The notice shall be submitted
within one (1) month after the filing thereof.
What rules of procedure must be
observed for violation of intellectual
property rights in civil actions and
criminal actions?
Civil Actions
Criminal
Actions
RULE 2. NATURE OF Rule 10 NATURE
PROCEEDINGS
OF PROCEEDINGS
SEC
1.
Scope.
SEC 1. Scope.
Rules 2 to 9 shall
apply to all civil
actions for violations
of
intellectual
property
rights
provided
for
in
Republic Act 8293 or
the
Intellectual
Property Code, as
amended,
including
civil
actions
for
infringement
of
Patent (Section 76),
Utility Model (Section
108) and Industrial
Design (Section 119),
Trademark
Infringement (Section
155 in relation to
Section 163), Unfair
Competition (Section
168 in relation to
Section 163), actions
concerning trademark
license
contracts
(Section
150
in
relation to Section
163),
actions
concerning imported
merchandise or goods
bearing
infringing
marks or trade names
(Section
166
in
relation to Section
163),
actions
for
cancellation of the
registration
of
a
collective
mark
(Section
167
in
relation to Section
163),
False
Designations
of
Origin;
False
Description
or
Representation
(Section
169
in
relation to Section
163),
Breach
of
Contract
(Section
194), civil actions for
infringement
of
copyright,
moral
rights,
performers'
rights,
producers'
rights,
and
broadcasting
rights
Rules 10 to 15
shall apply to all
criminal
actions
for violations of
intellectual
property
rights
provided for in
Republic Act 8293
or the Intellectual
Property Code, as
amended,
including
Repetition
of
Infringement
of
Patent
(Section
84), Utility Model
(Section 108) and
Industrial Design
(Section
119),
Trademark
Infringement
(Section 155 in
relation to Section
170),
Unfair
Competition
(Section 168 in
relation to Section
170),
False
Designations
of
Origin;
False
Description
or
Representation
(Section 169.1 in
relation to Section
170),
infringement
of
copyright, moral
rights,
performers'
rights, producers'
rights,
and
broadcasting
rights
(Section
177, 193, 203,
208 and 211 in
relation to Section
217), and other
violations
of
intellectual
property rights as
may be defined
by law.
SEC. 2. Special
Commercial
Courts
in
the
National
Capital
Judicial
Region
with authority to
issue
search
warrants
enforceable
nationwide.
Special
Commercial
Courts in Quezon
City,
Manila,
Makati, and Pasig
shall
have
authority to act
on
applications
for the issuance
of
search
warrants
involving
violations of the
Intellectual
Property
Code,
which
search
warrants shall be
enforceable
nationwide.
Within
their
respective
territorial
jurisdictions, the
Special
Commercial
Courts
in
the
judicial
regions
where
the
violation
of
intellectual
property
rights
occurred
shall
have concurrent
jurisdiction
to
issue
search
warrants.
Accordingly, the
Executive Judges
are
hereby
relieved of the
duty
to
issue
search warrants
involving
violations of the
Intellectual
Property Code in
criminal cases as
stated in Sec. 12,
Rule
COMMENCEMENT
ACTION
Chapter V of A.M.
No.
03-8-02-SC
(Guidelines
on
the Selection and
Appointment
of
Executive Judges
and Defining their
Powers,
Prerogatives and
Duties).
3 Rule
11
OF COMMENCEMENT
OF ACTION
SECTION 1. Pleadings.
The only pleadings
allowed to be filed are
the
complaints,
compulsory
counterclaims
and
cross-claims pleaded
in the answer, and
the answers thereto.
All pleadings shall he
verified.
SEC. 2. Who may file
an action under these
Rules.
Any
intellectual property
right
owner,
or
anyone
possessing
any right, title or
interest under claim
of ownership in any
intellectual property
right, whose right
may
have
been
violated, may file an
action under these
Rules.
Any person who is a
national or who is
domiciled or has a
real
and
effective
industrial
establishment in a
country which is a
party
to
any
convention, treaty or
agreement relating to
intellectual property
rights
or
the
repression of unfair
competition, to which
SECTION 1. How
commenced.
The
filing
of
criminal
cases
falling within the
scope of this Rule
shall
be
by
information after
a prior verified
complaint is filed
under Rule 12 on
Preliminary
Investigation.
When
the
information
is
filed, the verified
complaint and the
affidavits
of
witnesses
together
with
other evidence, in
such number of
copies as there
are accused plus
two (2) copies for
the court's files,
shall be attached
thereto.
In case of failure
to
attach
the
complaint,
affidavit
and
evidence,
the
court shall order
the investigating
prosecutor,
through
the
court's
designated
prosecutor,
to
The
complaint shall be
verified
and
shall
state the full names
of the parties to the
case. Facts showing
the capacity of a
party to sue or be
sued, or the authority
of a party to sue or
be
sued
in
a
representative
capacity, or the legal
existence
of
an
organized association
of persons that is
made a party, must
be averred. In case of
juridical
persons,
proof of capacity to
sue must be attached
to the complaint.
The complaint shall
contain
a
concise
statement
of
the
ultimate
facts
constituting
the
complainant's cause
or causes of action. It
shall
specify
the
relief(s) sought, but it
may add a general
The
information,
together
with
attachments,
shall be filed with
the court referred
to in Section 2 of
Rule 1, which has
jurisdiction over
the
territory
where any of the
elements of the
offense occurred.
SEC.
3.
When
warrant of arrest
may
issue.
prayer
for
such
further
or
other
relief(s) as may be
deemed
just
or
equitable.
The
affidavits
in
question-and-answer
format referred to in
Sec. 5 hereof and the
relevant
evidence
shall be made part of
the complaint.
The complaint shall
include a certification
that
the
party
commencing
the
action has not filed
any other action or
proceeding involving
the same issue or
issues
before
any
tribunal or agency nor
is such action or
proceeding
pending
in other quasi-judicial
bodies;
Provided,
however, that if any
such
action
is
pending, the status of
the same must be
stated, and should
knowledge thereof be
acquired after the
filing
of
the
complaint, the party
concerned
shall
undertake to notify
the court within five
(5) days from such
knowledge.
order
the
prosecutor
to
present additional
evidence
within
five (5) days from
notice and the
issue must be
resolved by the
court
within
fifteen (15) days
from
the
presentation
of
the
additional
evidence.
SEC.
4.
Disposition
of
goods
seized
pursuant
to
search warrant.
If
a
criminal
action has been
instituted,
only
the trial court
shall rule on a
motion to quash a
search warrant or
to
suppress
evidence
obtained thereby
or
to
release
seized goods.
It shall be the
duty
of
the
applicant
or
private
complainant
to
file a motion for
the
immediate
transfer of the
seized goods to
the trial court,
When
the
party- which
motion
litigant
is
a shall
be
corporation,
the immediately
verification/certificati
acted upon by the
on
of
non-forum issuing court.
shopping
required
should be executed If
no
criminal
by a natural person action has been
duly authorized by instituted,
the
the
corporation, motion to quash a
through
a
special search warrant or
power of attorney or to
suppress
a board resolution for evidence
destruction issued
under
Rule
20
hereof;
d) Reply;
e)
Petition
for
relief
from
judgment;
f)
Motion
for
extension of time
to file pleadings or
other
written
submissions,
except
for
the
answer
for
meritorious
reasons;
g)
Motion
for
postponement
intended for delay;
h)
Third-party
complaint;
i) Intervention;
j) Motion to hear
affirmative
defenses; and k)
Any pleading or
motion which is
similar to or of like
effect as any of
the foregoing.
SEC. 5. Affidavits.
The
affidavits
required
to
be
submitted with the
complaint shall be in
questionand-answer
format
numbered
consecutively,
and
shall state only facts
of
direct
personal
knowledge
of
the
affiants which are
admissible
in
evidence.
The
affidavits shall also
show the competence
of the affiants to
testify to the matters
stated therein.
A violation of this
requirement
may
subject the party or
the
counsel
who
submits the same to
quashed.
SEC. 5. Prohibited
motions. The
following motions
shall
not
be
allowed:
a) Motion to
quash
the
information,
except on the
ground of lack
of jurisdiction;
b) Motion for
extension
of
time
to
file
affidavits
or
any
other
papers; and
c) Motion for
postponement
intended
for
delay.
disciplinary
action,
and shall be a ground
for the court to order
that the inadmissible
affidavit or portion
thereof be expunged
from the records.
SEC. 6. Failure to file
complaint where a
writ of search and
seizure is issued.
Upon motion of the
party whose goods
have been seized,
with notice to the
applicant, the issuing
court may lift its writ
and order the return
of the seized goods if
no case is filed with
the appropriate court
and/or
appropriate
quasi-judicial agency,
including
the
Intellectual Property
Office
of
the
Philippines,
within
thirty-one
(31)
calendar days from
the date of issuance
of the writ.
If no motion for the
return of the seized
goods is filed within
sixty (60) days from
the issuance of the
writ
under
the
preceding paragraph,
the court shall order
the disposal of the
goods, as may be
warranted,
after
hearing with notice to
the parties.
Rule 4 ANSWER
Rule
12
PRELIMINARY
SEC 1. Summons. INVESTIGATION
The summons and
the
complaint, SEC 1. Complaint.
including
its The complaint
attachments, shall be shall be filed with
served not later than the Department
five (5) days from of Justice or the
receipt
of
the office
of
the
complaint
by
the prosecutor
that
court to which it is has
jurisdiction
assigned or raffled.
over the offense
charged:
SEC. 2. Service of
a)
The
summons, orders and
complaint shall
other
court
state the full
processes.
name of the
Summons, orders and
complainant
other court processes
and the facts
may be served by the
showing
the
sheriff, his deputy or
capacity
or
other proper court
authority of the
officer
or
for
complaining
justifiable reasons, by
witness
to
the
counsel
or
institute
a
representative of the
criminal action
plaintiff
or
any
in
a
suitable
person
representative
authorized by the
capacity,
and
court
issuing
the
the
legal
summons.
existence of an
organized
Any private person
association of
who is authorized by
persons that is
the court to serve
instituting the
summons, orders and
criminal action.
other court processes
In
case
of
shall,
for
that
juridical
purpose,
be
persons, proof
considered an officer
of capacity to
of the court.
sue must be
attached to the
When the defendant
complaint.
is a foreign private
Where
the
juridical
entity,
complainant is
service may be made
a
juridical
on its resident agent
person
not
designated
in
registered
in
accordance with law
the Philippines,
for that purpose, or, if
documents
there be no such
proving its legal
agent,
on
the
existence
government
official
and/or
its
designated by law to
capacity to sue,
that effect, or on any
such
as
a
of its officers or
certificate
of
agents
within
the
registration or
Philippines.
extracts
from
relevant
If the foreign private
commercial
juridical entity is not
registries
or
registered
in
the
offices having
Philippines or has no
jurisdiction
resident
agent,
over
said
service may, with
entities,
shall
leave of court, be
effected out of the
Philippines
through
any of the following
means:
a)
By
personal
service
coursed
through
the
appropriate
court
in
the
foreign
country with the
assistance of the
Department
of
Foreign Affairs;
b) By publication
once
in
a
newspaper
of
general circulation
in
the
country
where
the
defendant may be
found
and
by
serving a copy of
the summons and
the court order by
registered mail at
the
last
known
address
of
the
defendant;
c) By facsimile or
any
recognized
electronic
means
that could generate
proof of service; or
d) By such other
means as the court
may,
in
its
discretion,
direct.
Should
either
personal
or
substituted service
fail, summons by
publication shall be
allowed.
In
the
case of juridical
entities, summons
by publication shall
be
done
by
indicating
the
names
of
the
officers or their
duly
authorized
representative.
SEC. 3. Answer.
Within fifteen (15)
be accepted if
these
are
originals or in
case of public
documents,
certified
true
copies thereof
executed
by
the
proper
officer of such
registries
or
offices. Where
the
complainant is
a
foreign
national or is
domiciled
or
has a real and
effective
industrial
establishment
in a country
which is a party
to
any
convention,
treaty
or
agreement
relating
to
intellectual
property rights
or
the
repression
of
unfair
competition to
which
the
Philippines
is
also a party, or
extends
reciprocal
rights
to
national of the
Philippines by
law,
the
verified
complaint must
contain
such
facts showing
entitlement to
file the action.
b)
The
complaint shall
state
the
address of the
respondent and
shall be in such
number
of
copies as there
are
respondents,
plus two (2)
copies for the
investigating
prosecutor. The
complaint shall
be subscribed
and sworn to
before
any
prosecutor
or
government
official
authorized
to
administer
oath,
or,
in
their
absence
or
unavailability,
before a notary
public.
The
administering
officer
must
certify that he
personally
examined the
complainant
and that he is
satisfied
that
the
complainant
voluntarily
executed
and
understood the
complaint.
c)
The
complaint shall
be
accompanied
by
the
affidavits of the
complainant
and
his
witnesses,
as
well as other
supporting
documents to
establish
probable cause.
Notarized
affidavits
of
witnesses shall
be allowed and
admitted
as
part
of
the
complaint,
provided
that
affidavits
executed
by
non-residents
of
the
Philippines
shall be duly
authenticated
by
the
concerned
Philippine
consular
or
diplomatic
office.
d) In instances
where multiple
complaints are
filed
by the
same
complainant,
copies of the
supporting
documents
shall
be
admitted after
they
are
compared with
and shown to
be
faithful
reproductions
of the originals
or
certified
documents
referred to in
subparagraphs
(a)
and
(c)
above.
SEC.
2.
Procedure. The
preliminary
investigation shall
be conducted as
follows:
a) Within ten
(10) days after
the filing of the
complaint, the
investigating
prosecutor, on
the basis of the
complaint and
the
affidavits
and
other
evidence
accompanying
the same, may
dismiss
the
case
outright
for
being
patently
without basis or
merit and order
the release of
the accused if
in
custody,
and/or
seized
articles
in
custody, if any.
b) When the
complaint
is
not dismissed
pursuant to the
immediately
proceeding
paragraph, the
investigating
prosecutor,
within ten (10)
days from the
filing of the
complaint, shall
issue an order
to
the
respondent
attaching
thereto a copy
of
the
complaint and
its supporting
affidavits
and
documents,
and require the
respondent to
submit
his
counteraffidavit
and
the affidavits of
his
witnesses
and
other
documentary
evidence in the
format required
under Section 1
hereof,
wherever
applicable,
serving copies
thereof on the
complainant
not later than
ten (10) days
from receipt of
said order. The
counteraffidavits shall
be subscribed
and sworn to
and certified as
provided
in
paragraphs (b)
and
(c)
of
Section
1
hereof.
The
respondent
shall not be
allowed to file a
motion
to
dismiss in lieu
of a counteraffidavit.
c)
If
the
respondent
cannot
be
served with the
order of the
investigating
prosecutor, or if
served,
does
not
submit
counteraffidavits within
the ten (10)
day period, the
investigating
prosecutor shall
resolve
the
complaint
based on the
evidence
presented
by
the
complainant.
d)
The
investigating
prosecutor may
set a hearing if
there are facts
and issues to
be
clarified
from a party or
a witness. The
parties can be
present at the
hearing
but
without
the
right
to
examine
or
cross-examine.
They
may,
however,
submit to the
investigating
prosecutor
questions
which may be
asked to the
party
or
witness
concerned.
Within ten (10)
days from the
last
written
submission by
the parties or
the expiration
of the period
for
such
submission, the
investigating
prosecutor shall
determine
whether or not
there
is
sufficient
ground to hold
the respondent
for trial.
SEC.
3.
When
accused lawfully
arrested without
warrant. When
a
person
is
lawfully arrested
without
a
warrant,
the
information may
be filed by a
prosecutor
without need of
such investigation
provided
an
inquest had been
conducted
in
accordance with
existing Rules.
Before
the
information
is
filed, the person
arrested may ask
for a preliminary
investigation
in
accordance with
this Rule, but he
must
sign
a
waiver
of
the
provisions
of
Article 125 of the
Revised
Penal
Code,
as
amended, in the
presence of his
counsel.
Notwithstanding
the waiver, he
may apply for bail
and
the
investigation
must
be
terminated within
fifteen (15) days
from its inception.
After the filing of
the information in
court
without
preliminary
investigation, the
accused
may,
within five (5)
days from the
time he learns of
its filing, ask for a
preliminary
investigation with
the same right to
adduce evidence
in his defense as
provided in this
Rule.
Rule 5 MODES
DISCOVERY
OF
SEC 1. In general.
A party can avail of
any of the modes of
discovery not later
than thirty (30) days
from the joinder of
issues.
SEC. 2. Objections.
Any
mode
of
discovery, such as
interrogatories,
request
for
admission, production
or
inspection
of
documents or things,
may be objected to
within ten (10) days
from receipt of the
request for discovery
and only on the
ground
that
the
matter requested is
manifestly
incompetent,
immaterial,
or
irrelevant
or
is
undisclosed
information
or
privileged in nature,
or the request is for
harassment.
The
requesting party may
comment in writing
within three (3) days
from receipt of the
objection. Thereafter,
the court shall rule on
the objection not later
than ten (10) days
from receipt of the
comment
or
the
expiration
of
the
three-day period.
SEC. 3. Compliance.
Compliance with
any
mode
of
discovery shall be
made within ten (10)
days from receipt of
the
request
for
discovery, or if there
are objections, from
notice of the ruling of
the court.
SEC. 4. Sanctions.
The
sanctions
prescribed
by the
Rules of Court in
relation to the modes
of
discovery
shall
apply.
Rule 6 PRE-TRIAL
Rule
13
ARRAIGNMENT
SEC
1.
Pre-trial; AND PRE-TRIAL
mandatory nature.
Within five (5) days SEC
1.
after the period for Arraignment.
availing
of,
or The arraignment
compliance with, any shall
be
of the modes of conducted
in
discovery prescribed accordance with
in Rule 5 hereof, Rule 116 of the
whichever
comes Rules of Court. If
later, the handling the accused is in
court
shall custody for the
immediately set the crime charged, he
case for pre-trial and shall
be
direct the parties to immediately
submit
their arraigned. If the
respective
pre-trial accused enters a
briefs.
plea of guilty, he
shall forthwith be
The parties shall file sentenced. After
with the court and arraignment, the
furnish each other court
shall
copies
of
their immediately
respective
pre-trial schedule the case
briefs in such manner for pre-trial.
as to ensure receipt
by the court, and the SEC. 2. Referral to
other party at least mediation.
or both parties;
e) Amendments to
the pleadings;
f) Statement of the
issues, which shall
separately
summarize
the
factual and legal
issues involved in
the case;
g)
Names,
addresses
and
contact numbers of
affiants and their
judicial
affidavits
supporting
the
parties' respective
positions on each of
the issues; h) All
other
pieces
of
evidence, whether
documentary
or
otherwise, and their
respective
purposes;
i) Specific proposals
for
an
amicable
settlement;
j)
Possibility
of
referral to mediation
or other alternative
modes of dispute
resolution;
k)
Requests
for
closed
door
hearings in cases
involving
trade
secrets, undisclosed
information
and
patents; and
l)
Such
other
matters as may aid
in the just and
speedy disposition
of the case.
SEC. 2. Nature and
purpose of pre-trial.
Upon appearance
of the parties during
the pre-trial, the court
shall order the parties
to appear before the
Philippine Mediation
Center in accordance
with mediation rules
proceedings, the
court
shall
continue with the
pre-trial.
SEC. 3. Pre-trial.
During the pretrial, a stipulation
of facts may be
entered into, or
the propriety of
allowing
the
accused to enter
a plea of guilty to
a lesser offense
may
be
considered,
or
such
other
matters as may
be taken up to
clarify the issues
and to ensure a
speedy
disposition of the
case.
However,
no admission by
the accused shall
be used against
him
unless
reduced to writing
and signed by the
accused and his
counsel. A refusal
or
failure
to
stipulate shall not
prejudice
the
accused.
The pre-trial shall
be terminated not
later than thirty
(30) days from
the date of its
commencement,
excluding
the
period
for
mediation
and
JDR.
Should
a
party desire to
present additional
affidavits
or
counter affidavits
as part of his
direct evidence,
he
shall
so
manifest
during
the
pre-trial,
stating
the
purpose thereof.
If allowed by the
court,
the
additional
affidavits of the
prosecution
or
the
counteraffidavits of the
defense shall be
submitted to the
court and served
on the adverse
party not later
than three (3)
days after the
termination of the
pre-trial. If the
additional
affidavits
are
presented by the
prosecution, the
accused may file
his
counteraffidavits
and
serve the same
on
the
prosecution
within three (3)
days from such
service.
Before the pretrial, the court
may require the
marking
of
documentary or
object
evidence
by the branch
clerk of court or
any
authorized
court personnel.
SEC.
4.
Nonappearance
at
the pre-trial. If
the counsel for
the accused or
the
prosecutor
does not appear
at the pre-trial
and
does
not
offer
an
acceptable
excuse for his
c)
Permissible
amendments to the
pleadings;
d) The possibility of
obtaining
stipulations
and
admissions of facts
and documents;
e) Objections to the
admissibility
of
testimonial,
documentary and
other evidence;
f) Submission of
judicial affidavits of
witnesses
and
objections to the
form or substance
of any affidavit, or
part thereof;
g) Simplification of
the issues; and
h)
Such
other
matters as may aid
in the speedy and
summary
disposition of the
case.
SEC. 3. Effect of
failure to appear.
The failure of the
plaintiff to submit a
pre-trial brief within
the specified period
or to appear in the
pre-trial shall be a
cause
for
the
dismissal
of
the
complaint
with
prejudice,
unless
otherwise ordered by
the
court.
The
defendant
who
submits a pre-trial
brief
and
who
appears during the
pre-trial
shall
be
entitled
to
a
judgment
on
the
counterclaim unless
the court requires
evidence ex parte for
a
judgment.
Any
cross-claim shall be
dismissed.
lack
of
cooperation, the
court may impose
proper sanctions
or penalties.
SEC. 5. Record of
pre-trial Within
five (5) days after
the termination of
the pre-trial, the
court shall issue
an order stating
the matters taken
up
therein,
including but not
limited to:
a)
Plea
bargaining;
b)
The
stipulations or
admissions
entered into by
the parties;
c) Whether, on
the basis of the
stipulations and
admissions
made by the
parties,
judgment may
be
rendered
without
the
need of further
proceedings, in
which
event
judgment shall
be
rendered
within
thirty
(30) days from
issuance of the
order;
d)
A
clear
specification of
material facts
which
remain
controverted;
e) Trial dates of
each party;
f) Such other
matters
intended
to
expedite
the
disposition
of
the case.
The
proceedings in the
pre-trial
shall
be
recorded,
excluding
mediation and JDR.
Within ten (10) days
after the termination
of the pre-trial, the
court shall issue an
order
which
shall
recite in detail the
matters taken up in
the
pre-trial,
the
actions taken on such
matters,
the
amendments allowed
in the pleadings, and
the agreements or
admissions made by
the parties as to any
of
the
matters
considered. The court
shall
rule
on all
objections
to
or
comments
on
the
admissibility of any
documentary or other
evidence,
including
any affidavit or any
part
thereof.
The
court shall indicate
whether
the
case
shall be submitted for
decision immediately
after pre-trial, or on
the basis of position
papers,
or
after
clarificatory hearing,
or after trial.
SEC. 6. Submission of
position papers. If
the case is to be
submitted
for
decision on the basis
of position papers,
the court, in the PreTrial
Order,
shall
direct the parties to
file
simultaneously
their
respective
position
papers,
setting forth the law
and the facts relied
upon by them and
attaching
thereto
affidavits
of
their
witnesses in questionand-answer
format
numbered
consecutively,
and
other evidence on the
factual issues defined
in the order, together
with their respective
draft decisions, if so
desired, within a nonextendible period of
thirty (30) days from
receipt of the order.
No reply or rejoinder
shall be allowed.
SEC. 7. Clarificatory
hearing or hearings
following pre-trial.
If there are matters to
be clarified, the court
shall include in the
to simultaneously file,
within ten (10) days
from such date, their
respective
position
papers as required
under Section 6, Rule
6, above.
SEC. 2. Clarificatory
hearing or hearings
following submission
of position papers.
Upon submission of
the parties' position
papers immediately
after the pre-trial as
required under Sec. 6
of the preceding Rule,
and the court deems
it necessary to hold
clarificatory hearing
or hearings on any
matter
before
rendering judgment,
it shall set the case
for such purpose.
case,
such
as
those submitted:
(a) during the
preliminary
investigation;
and/or
(b) during the
pre-trial,
shall
constitute
the
direct testimonies
of the witnesses
who
executed
them.
Such
witnesses may be
subjected to cross
examination
by
the adverse party.
SEC. 2. Conduct
of trial. The
court
shall
conduct hearings
expeditiously so
as
to
ensure
speedy trial. Each
party shall have a
maximum period
The order setting the of sixty (60) days
case for clarificatory to present his
hearing
must
be evidence-in-chief
issued not later than on the trial dates
fifteen (15) days after agreed
upon
receipt of the last during the preposition papers or the trial.
expiration
of
the
period for filing the
SEC.
3.
same
and
the Submission
of
clarificatory hearing memoranda.
affidavits.
The
judicial affidavits shall
serve as the direct
testimonies of the
witnesses during trial,
subject
to
crossexamination by the
adverse party.
SEC. 4. Period of trial.
A
period
not
exceeding thirty (30)
days shall be allotted
to the plaintiff and a
similar period to the
defendant
in
the
manner prescribed in
the Pre-Trial Order.
The failure of a party
to present a witness
on a scheduled trial
date shall be deemed
a waiver of such trial
date.
However,
a
party may present
such
witness
or
witnesses within the
party's
remaining
allotted trial dates.
No extension shall be
allowed by the judge
except for justifiable
reasons.
SEC. 5. Offer of and
ruling on exhibits.
Evidence
presented
during the trial and
not
otherwise
admitted
by
the
parties or ruled upon
by the court during
the pre-trial shall be
offered
orally
immediately after the
completion of the
presentation
of
evidence of the party
concerned.
The
opposing party shall
immediately raise the
objections
on
the
offer of exhibits and
thereafter, the court
shall at once rule on
the
offer
and
objections
court.
in
open
Immediately after an
oral ruling on the last
offer of evidence, the
court shall order the
parties
to
simultaneously
submit
their
respective
draft
decisions, within a
non-extendible period
of thirty (30) days. In
case the ruling is in
writing,
the
court
shall order the parties
to
simultaneously
submit
their
respective
draft
decisions within a
nonextendible period
of thirty (30) days
from receipt of the
order.
Rule 8 JUDGMENT
SEC
1.
Judgment
immediately
after
pre-trial. Where the
case is submitted for
decision immediately
after
pre-trial
in
accordance with Sec.
5, Rule 6, the court
shall render judgment
within forty-five (45)
days after pre-trial.
SEC.
2.
Judgment
after submission of
position papers.
Within forty-five (45)
days after receipt of
the
last
position
paper,
affidavits,
documentary and real
evidence,
or
the
expiration
of
the
period for filing the
same under Sec. 6 of
Rule 6 and Sec. 1 of
Rule 7, the court shall
render judgment on
the basis of the
parties'
position
papers,
affidavits,
documentary and real
evidence.
SEC.
3.
Judgment
after
clarificatory
hearing. Within
forty-five (45) days
after termination of
clarificatory hearing
or hearings under
Sec. 7 of Rule 6 and
Sec. 2 of Rule 7, the
court shall render
judgment.
SEC.
4.
Judgment
after trial. Within
sixty (60) days after
receipt of the draft
decision of the parties
under Sec. 6 of Rule
7, the court shall
render judgment.
SEC.
5.
Judgments
executory
pending
appeal.
Unless
restrained by a higher
court, the judgment
of the court shall be
executory
even
pending appeal under
such
terms
and
conditions
as
the
court may prescribe.
Rule 9 APPEAL
Rule 15 APPEAL
SEC 1. Who may
appeal. Any party
may appeal from a
judgment
or
final
order.
Unless
inconsistent with these Rules, the rules on
discovery and evidence under the Rules of
Court shall apply.
What evidence would be needed in
patents cases?
Rule 17
X. SPECIAL LAWS
Notwithstanding
the
provisions
of
Republic Act No.1405 as amended,
Republic Act No. 8791 and other laws, the
AMLC may inquire into or examine any
particular
deposit
or
investment,
including related accounts, with any
banking institution or non0bank financial
institution upon order of any competent
court based on ex parte application in
cases of violations of this Act, when it has
been established that there is probable
cause that the deposits or investments,
including related accounts involved, are
related to an unlawful activity as defined
in Section 3(1) hereof or a money
laundering offense under Section 4
hereof; except that no court order shall be
required in cases involving activities
defined in Section 3(i)(1),(2), and
(12)hereof and felonies or offenses of a
nature similar to those mentioned in
Section 3(i)(1),(2) and (12) which are
punishable under the penal laws of other
countries, and terrorism and conspiracy
to commit terrorism as defined and
penalized under Republic Act No. 9372.
The Court of Appeals shall act on the
application to inquire into or examine any
deposit or investment with any banking
institution
or
non-bank
financial
institution within twenty-four (24) hours
from filing of the application.
Nothing contained in this Act nor in
related antecedent laws or existing
agreements shall be construed to allow
the AMLC to participate in any manner in
the operations of the BIR. (Section 20,
RA10365, amending RA 9160)
The authority to inquire into or examine
the main account and the related
accounts
shall
comply
with
the
requirements of Article III, Sections 2 and
3 of the 1987 Constitution, which are
hereby
incorporated
by
reference.
Likewise, the constitutional injunction
against ex post facto laws and bills of
attainder shall be respected in the
implementation of this Act.
To ensure the compliance with this Act,
the Bangko Sentral nang Pilipinas may in
the course of a periodic or special
examination, check the compliance of a
covered institution with the requirements
of the AMLA and its implementing rules
and regulations.