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Commercial Law Memoryaid: Code of Commerce
Commercial Law Memoryaid: Code of Commerce
Commercial Law Memoryaid: Code of Commerce
C O M M E R C I A L L A W MEMORY AID
CODE OF COMMERCE
COMMERCIAL LAW - branch of private law which regulates the juridical relations arising
from commercial acts
OTHERS:
1. Commerce - bringing products from the manufacturers to the consumers
2. Characteristics of Commerce:
a. habituality
b. rapidity - if period is fixed, debtor in delay without need of demand; if contract
does not fix period, 10 days
c. intent to join
3. Merchant:
a. Individuals - legal capacity, 21 years, or subject to parental authority, habitually
engaged in commerce
b. Juridical Persons - commercial and industrial company organized in accordance
with law, habitually engaged in business
6. Aliens
a. capacitated under his national law to engage in business
b. engaged in the business in the Philippines not reserved for the Filipinos
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7. Family Code: Either spouse may engage in business; when objected to by the other,
court will look into valid grounds, i.e. serious and moral grounds
13. Merger and Consolidation subject to BOI requirements for the issuance of
certificate:
When merger and consolidation result in ownership and control of non-Filipino
nationals over more than 40% of the capital of a consolidated corporation.
14. SEC License issued upon compliance with the following requirements:
a. proof of compliance with principle of reciprocity
b. BOI certificate
c. Applicant for license gives required information
articles of incorporation
by-laws
names and addresses of resident agents
principal place of business in the Philippines
d. proof of solvency
d. deposit acceptable securities to protect future creditors
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C O M M E R C I A L L A W MEMORY AID
(Note: Material on the Retail Trade Liberalization Law will not be included in this
reviewer. Supplement to follow)
1. Retail Trade - any act, occupation, or calling of habitually selling direct to the general
public, merchandise, commodities, or goods for consumption
Jurisprudence has held that the term retail should be associated with and
limited to goods for personal, family or household use, consumption and utilization. The
Retail Trade Nationalization Law refers to consumption goods or consumer goods
which directly satisfy human wants and desires and are needed for home and daily life.
Excluded from the law are those goods which are considered generally raw material
used in the manufacture of other goods, or if not, as one of the component raw material,
or at least as elements utilized in the process of production and manufacturing.
3. General Rule: After 1964, only Filipinos or corporations whose capital is 100%
Filipino may engage in retail trade.
4. Exceptions, that is, instances when aliens may engage in retail trade in the
Philippines:
a. manufacturer or processor if capital does not exceed P5,000.00;
b. farmer or agriculturist when selling his products;
c. manufacturer or processor selling to industrial or commercial users or consumers
who use the produce to render service to the general public or to produce or
manufacture goods which are sold by them to the public;
d. hotel owners or keepers of restaurants included or incidental to the hotel
business;
e. sale by a manufacturer or processor to the Government or its agencies, including
government owned and controlled corporations
5. Query: How to determine citizenship of shares of the corporation when they are not
held directly by individuals, but in turn held by another entity?
Answer: apply the GRANDFATHER RULE, to wit:
Shares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital respectively, of
which belong to Filipino citizens, all of the said shares shall be recorded as owned by
Filipinos. But, if lets say, 50% of the capital stock belongs to Filipino citizens, only
50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall
be recorded as belonging to aliens.
However, while a corporation with 60% Filipino and 40% foreign equity ownership
is considered a Philippine national for purposes of investment, it is not qualified to invest
in or enter into a joint venture agreement with corporations or partnerships, the capital or
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ownership of which under the Constitution or other special laws are limited to Filipino
citizens only. Hence, for purposes of the law, whatever the percentage of Filipino
ownership in the owning corporation, the foreign ownership would always render a
portion of its holding in the company as foreign equity and would disqualify the
corporation to engage in retail trade.
ANTI-DUMMY ACT
1. The Act penalizes Filipinos who permit aliens to use them as nominees or dummies
to enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions
are imposed on the president, manager, board member or persons in charge of the
violating entity and causing the latter to forfeit its privileges, rights and franchises.
4. A Filipino common-law wife of an alien is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal
properties; however, allowing her common-law alien husband to take part in the
management of the retail business would be a violation of the law.
7. When a local corporation or person acts in the name of a foreign firm, the latter is
doing business in the Philippines.
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2. Definition:
A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER
whereby the latter releases the goods, documents or instruments tot he possession of
the former upon the ENTRUSTEES promise to hold said goods in trust for the
ENTRUSTER, and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER
THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE
ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.
4. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell
made by the ENTRUSTEE.
6. Pending the duration of the trust agreement, the ENTRUSTERS security interest
cannot be prejudiced by claims of creditors of the ENTRUSTEE.
7. Loss of goods pending the dispossession shall not extinguish the obligation to the
ENTRUSTER for the value thereof.
LETTERS OF CREDIT
1. Kinds:
a. Commercial Letters of Credit
b. Travelers Letters of Credit
JOINT ACCOUNTS
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3. No suit may be maintained - investor and third persons dealing with the merchant
conducting business.
2. The law covers all transactions, whether done in good faith or not, or whether or not
the seller is in a state of insolvency, that fall within the description of what is a bulk
sale.
4. Only creditors at the time of the sale in violation of the law are within the protection of
the laws and creditors subsequent to the sale are not covered.
5. Even if the transaction falls within the definition of bulk sale, the following are not
deemed covered by the law:
a. If the vendor, mortgagor, transferor or assignor produces and delivers a written
waiver of the provisions of the law from his creditors as shown by verified
statements;
b. The law does not apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process.
INSURANCE LAW
5. Requisites of Insurance:
a. existence of an insurable interest;
b. risk of loss;
c. assumption of risk;
d. scheme to distribute losses; and
e. payment of premiums
Note: If only a, b, and c are present, it is not a contract of insurance but a risk
shifting device.
b. insured - person in whose favor the contract is operative, and who is indemnified
against, or is to receive a certain sum upon the happening of a specified
contingency
c. beneficiary - may or may not be the same as the insured
8. Every person has an insurable interest in the life and health of:
a. himself, his spouse and his children
b. any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest
c. any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might prevent the
performance or delay it
d. any person upon whose life any estate or any interest vested in him depends
11. General Rule: A change of interest in any part of a thing insured unaccompanied by
a corresponding change in interest in the insurance suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person.
Exceptions: a. In case of life, health, and accident insurance
b. when the change in interest results after the occurrence of an injury
which results in a loss
a. a change of interest in one or more several distinct things, separately
insured by one policy
b. a change in the interest by will or succession on the death of the
insured (interest passes to the heirs)
c. a transfer of interest by one of several partners, joint owners in
common who are jointly insured to the others (even though it has been
agreed that the insurance shall seize upon the alienation of the thing
insured)
14. Concealment - a neglect to communicate that which the party knows or ought to
communicate
General Rule: The insured is not required to communicate the nature (or kind) or
the amount of his insurable interest in the life or property insured to the insurer.
Exception: a. When the insurer makes inquiry from the insured of the nature or
amount of the latters insurable interest, whether in life or property insurance;
b. insurance policy must specify the interest of the insured in the
property insured, if he is not the absolute owner thereof.
A concealment, whether intentional or not, entitles the injured party to rescind a
contract of insurance.
Requisites:
(a) the party concealing must have knowledge of the facts concealed;
(b) the facts concealed must be material to the risk;
(c) the party is duty bound to disclose such fact to the other;
(d) the party concealing makes no warranty as to the facts concealed;
(e) the other party has no other means of ascertaining the facts concealed.
Note: An insured need not die of the very disease he failed to reveal to the
insurer. It is sufficient that the non-revelation has misled the insurer in forming his
estimate of the disadvantages of the proposed policy or in making his inquiries in
order to entitle the insurance company to avoid the contract.
Note: The insured is under an obligation to disclose not only such material facts
as are known to him, but also those known to his agent where:
a. it was the duty of the agent to acquire and communicate information of the
facts in question;
b. it was possible for the agent, in the exercise of reasonable diligence, to have
made the communication before the making of the insurance contract.
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.
Neither party is bound to communicate his mere opinion, even upon inquiry,
because such opinion would add nothing to the appraisal of the application.
Waiver of material facts may be:
(a) by the terms of the insurance; or
(b) by the neglect to make inquiry as to such facts, where they are distinctly
implied in other facts which information is communicated
Materiality is to be determined not by the events but solely upon the probable and
reasonable influence of the facts on the party to whom the communication is due
in forming his estimate of the disadvantages of the proposed contract or in
making his inquiries.
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Concealment, whether intentional or not, entitles the other party to rescind the
contract.
16. Representation
It is a factual statement made by the insured at the time of, or prior to, the
issuance of the policy, to give information to the insurer and otherwise induce him to
enter into the insurance contract.
Incontestable Clause: After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the insured for a period of 2
years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
Exceptions: (a) absence of insurable risk
(b) cause of loss is an unexpected risk
(a) fraud
(b) non-payment of premium
(c) violation of conditions relating to naval or military services
(d) failure to comply with conditions subsequent to the occurrence of the
loss
17. Warranties:
Warranty Representation
part of the insurance contract collateral inducement
always written on the policy maybe oral or written
conclusively presumed material materiality must be proved
must be strictly complied with requires substantial truth
made by the insured may be made by insurer or insured
Note: If there is a breach of warranty, even if the cause of the loss is a different
risk, the insurer is entitled to rescind the contract of insurance.
Breach must refer to a material warranty, whether intentional or not.
18. Policy
What is a Rider? It is an additional provision in a policy not part of the body of the
printed form.
Cover Note: written memorandum of the most important terms of a preliminary
contract of insurance, intended to give temporary protection pending the
investigation of the risk by the insurer, or until the issuance of a formal policy.
General Rule: Cover notes bind insurer temporarily pending the issuance of the
policy.
Exception: Where it is merely an acknowledgment on behalf of the company that
the latters branch office had received from the applicant the insurance premium
and accepted the application subject for processing by the insurance company
and that the latter will either approve or reject the same.
Kinds of Policies:
a. Open - the value of the thing insured is not agreed upon, but is left to be
ascertained at the time of the loss
b. Valued - expresses on its face an agreement that the thing insured shall be
valued at a specific sum
c. Running - contemplates successive insurance which provides that the object
of the policy may be from time to time defined especially as to the subject of
insurance by additional statements or endorsements
Note: If an amount is written on the face of an open policy, it is merely a
determination of the maximum limit of recovery and not as the value of the
policy.
Period for commencing an action against the policy: Within 1 year from the
time the cause of action accrues, i.e., from the time of rejection of the claim by
the insurer. Any condition, stipulation, or agreement limiting the time to less
than 1 year is void.
Grounds for Cancellation of a Policy by the Insurer:
For Policies Other than Life:
(1) prior notice of the cancellation to insured
(2) notice must be based on the ff. occurrences after effective date of the
policy
(a) non-payment of premiums
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C O M M E R C I A L L A W MEMORY AID
19. Premium
General Rule: No policy is binding until the premium thereof has been paid.
Exceptions: (a) in case of life or industrial life policy, whenever the grace period
applies
(b) in case of estoppel
Insurer is entitled to payment of premiums as soon as the thing insured is
exposed to the perils insured against.
When insurer entitled to Return of Premiums
a. when the contract is voidable on account of fraud or misrepresentation of the
insurer;
b. when on account of facts, the existence of which the insured was ignorant
without his fault
c. when by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy
d. when the insured has become a public enemy and the policy automatically
canceled (on the ground of equity)
e. in case of over-insurance by several insurers (ratable return of premiums,
proportioned to the amount by which the aggregate sum insured in all policies
exceed the insurable value of the thing at risk)
20. Loss
When Insurer is Liable:
a. where the peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been the remote cause or even the
immediate cause of the loss
b. where the thing insured is rescued from the peril insured against that would
otherwise have caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently deprives the
insured of its possession in whole or in part
c. where loss is caused by efforts to rescue the thing insured from a peril insured
against
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General Rule: The insurer is not liable for a loss caused by the willful act of the
insured.
Exception: Suicide Clause in Life Insurance: Insurer liable in case insured
committed suicide after the policy has been in force for a period of 2 years from
the date of its issue or last reinstatement. If insured kills himself within a period of
2 years, insurer is not liable.
Exception to Exception: If suicide is committed in a state of insanity, regardless of
the time of commission, the insurer is liable.
21. Double Insurance - exists where the same person is insured by several insurers
separately in respect to the same subject and interest
The Code prohibits double insurance without the consent of the insurer.
Liability of Insurer:
Insurance taken
from each insurer
---------------------------------- x value of property received = liability of insurer
total insurance
23. Marine Insurance: insures against perils of the sea, not of the ship
Charterer has insurable interest in the ship to the extent that he is liable to be
damnified by its loss.
Barratry: Any willful misconduct on the part of the masters or crew, in pursuance
of some unlawful or fraudulent purpose, without the consent of the owners and to
the prejudice of the owners interest.
Insurable Interest in Marine Insurance: Determined when one will sustain loss
from the destruction of the subject matter or derive benefit from its preservation.
Charter Party: Contract by virtue of which the owner or the agent of a vessel binds
himself to transport merchandise or persons for a fixed price. It has also been
defined as a contract by virtue of which the owner or the agent of the vessel for the
transportation of goods or persons from one port to another.
Freightage: Signifies all the benefits derived by the owner, carriage of his own
goods, or those of others.
Implied Warranties:
a. that the ship is seaworthy - complied with if the ship is seaworthy at the time of
commencement of risk, except: (a) insurance for a specified length of time - at
the commencement of every voyage it undertakes during that time; (b) cargo to
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Deviation
a. a departure from the course of the voyage insured
b. unreasonable delay in pursuing the voyage
c. commencement of an entirely different voyage
Loss
a. Actual Total Loss
a total destruction of the thing insured
the irretrievable loss of the thing by sinking or by being broken up
any damage to the thing which renders it valueless tot he owner for which he
held it
any other event which effectively deprives the owner of possession, at the
port of destination, of the thing insured
b. Constructive Total Loss - gives to the person insured the right to abandon
Average - any extraordinary or additional expense incurred during the voyage for
the preservation of the vessel, cargo, or both and all damages to the vessel and
cargo from the time it is loaded and the voyage commenced until it ends and the
cargo unloaded
Notice of Abandonment:
a. may be oral or in writing (if oral, written notice must be submitted within 7 days
from oral notice)
b. must be explicit
c. must specify the particular cause for abandonment
d. need not be accompanied by proof of interest or loss
Acceptance of Abandonment
a. may be express or implied (i.e. silence for unreasonable length of time)
b. conclusive upon the parties and admits the loss and sufficiency of abandonment
c. irrevocable, unless the ground on which it is made is proved to be unfounded
If insurer refuses to accept a valid abandonment - liable as upon actual total loss
Co-insurance: form of insurance in which the person who insures his property for
less than the entire value is understood to be his own insurer for the difference
which exists between the true value of the property and the amount of insurance
When does alteration in the use or condition entitle the insurer to rescind the
contract?
a. such alteration violates a provision in the policy
b. it was made without the insurers consent
c. it is done within the insureds control, and it increases the risk of loss or
damage
Rules:
a. policy shall not protect the insured from injury consequent upon his negligent
use or management of fire, so long as it is confined to the place where it ought
to be
b. if it escapes, even though the insured was negligent, the insurer is liable
c. even though a fire may remain in its proper place, it may become hostile if it by
accident, becomes so extensive as to be beyond control
25. Casualty Insurance: Any injury that is intended, unexpected and unusual, even
though it results from an act or even which was intelligently done.
No Fault Indemnity Clause: The insurance company shall pay any claim for death
or bodily injuries sustained by a passenger or 3 rd party without the necessity of
proving fault or negligence of any kind subject to certain conditions. This does not
apply to property damage.
27. Life Insurance: an insurance in human life and insurance appertaining thereto or
connected therewith may be payable:
a. on the death of the insured
b. on his surviving a specified period
c. otherwise, contingently on the continuance or cessation of life
(b and c refer to endowment or annuities)
Period of Incontestability - after the lapse of 2 years from the date of issue or
date of approval of last reinstatement
b. Claims Settlement
Insurance Agent - any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transacts for a person other than himself an
application for a policy or contract of insurance to or from such company or offers or
assumes to act in negotiating of such insurance. He must be first licensed as such
before doing any acts as insurance agent.
Insurance Broker - any person for any compensation, commission or any other thing of
value, acts, or aids in any manner in soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out insurance, on behalf of an insured other
than himself. A license is required.
1. Warehouse - a building or place where goods are deposited and stored for profit.
2. Warehouseman - person lawfully engaged in the business of storing goods for profit.
8. Terms which may be inserted in a Warehouse Receipt: Any other terms except (a)
those contrary to the provisions of this Act; (b) those that would impair a
warehousemans obligation to exercise that degree of care in the safekeeping of the
goods entrusted to him.
c. to the purchaser in case of sale of the goods by the warehouseman to enforce his
lien
d. to the purchaser where perishable or hazardous goods are sold at private or
public sale
17. What happens if there is proper delivery or partial delivery but the warehouseman
fails to cancel the receipt or record on the receipt of such partial delivery?
a. If goods covered by a negotiable warehouse receipt are delivered by a
warehouseman but he fails to take the receipt and cancel it, then he is still liable
to one who purchases for value and in good faith such receipt.
b. If he makes partial delivery of the goods but fails to record the partial delivery on
the receipt then he may still be held liable for the entire receipt to one who
purchases for value and in good faith such receipt.
b. If someone other than the depositor or person claiming under the depositor has a
claim to the title or possession of the goods and the warehouseman has
information of such claim, the warehouseman shall be excused from liability for
refusing to deliver the goods either to the depositor or person claiming under him
until he has had a reasonable time to ascertain the validity of the adverse claim or
to bring legal proceedings to compel all claimants to interplead.
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c. The warehouseman will not be required to deliver the goods if such had been
lost. But this is without prejudice to liabilities which may be incurred by him due
to such loss.
d. The warehouseman having a valid lien against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.
22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt)
Creditors of the depositors, before negotiation, may protect themselves by obtaining
a writ of preliminary injunction and serve the same on the depositor before he has a
chance to negotiate the receipt. Once enjoined, there will be no longer a danger that a
3rd person will be prejudiced so the goods may now be attached, levied upon, or that the
vendors lien or the right of stoppage in transit be exercised.
Distinction between a non negotiable receipt from a negotiable receipt with regard
to attachment or execution upon goods:
A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts
payment of the debt from a person does not warrant the genuineness of the
receipt not the quality or quantity of the goods therein described.
Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-
mingling must:
a. obtain prior license from the Bureau of Commerce
b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse
against which bond depositors may sue directly
c. open to the public, no discrimination allowed
d. liable for double market value should he accept goods in excess of the capacity
of warehouse if goods are damaged or destroyed
Note: for palay and corn license, a bond with the National Grains Authority is
required; also an insurance cover is required.
2. Exempt Transactions
a. government to government transactions or with international banking institutions
b. transactions affecting high priority economic projects
c. forward exchange transactions between banks
d. import and export and other international banking, financial, investment and
industrial transactions
5. Relatively Disqualified
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TRANSPORTATION LAW
1. Loan In Respondentia - taken on security of the cargo repayable upon the safe
arrival at cargo destination
15. Average:
a. all extraordinary or accidental expenses which may be incurred during the voyage
for the preservation of the vessel or cargo or both
b. all damages or deterioration which the vessel may suffer from the time it puts to
sea at the port of departure until it casts anchor at the port of destination, and
those suffered by the merchandise from the time they are loaded in the port of
shipment until they are unloaded in the port of their consignment
e. within 24 hours upon arrival at the first port the captain makes, he shall deliver
one copy of these minutes to the maritime judicial authority thereat
19. Arrivals under Stress - arrival of the vessel at a port not of destination on account
of (a) lack of provisions; (b) well-founded fear of seizure; (c) by reason of accident of
the sea disabling it to navigate
When Not Lawful:
a. lack of provisions due to negligence to carry according to usage and customs
b. risk of enemy not well known or manifest
c. defect of vessel due to improper repair
d. malice, negligence, lack of foresight or skill of captain
23. Error in Extremis - sudden movement made by a faultless vessel during the 3 rd
zone of collision with another vessel which is at fault, even if the said movement is
wrong, no responsibility will fall on said vessel
24. Shipwreck - denotes all types of loss/ wreck of a vessel at sea either by being
swallowed up by the waves, by running against another vessel or thing at sea or on
coast where the vessel is rendered incapable of navigation
26. Derelict - a ship or cargo which is abandoned and deserted at sea by those who
are in charge of it, without any hope of recovering it, or without any intention of
returning it
28. Contract of Towage - contract whereby a vessel usually motorized pulls another
from one place to another for compensation. It is a contract of services.
1. When Applicable:
a. contracts for the carriage of goods
b. by sea
c. to and from Philippine ports
d. in foreign trade
2. Notice of Loss or damage must be given in writing to the carrier or his agent at the
port of discharge or at the time of the removal of the goods into the custody of the
person entitled to delivery. If the loss or damage is not apparent, the notice must be
given within 3 days of delivery. However, the carrier shall be discharged from all
liability in respect of loss or damage of goods unless suit is brought within 1 year
after delivery of the goods or the date when the goods should have been delivered.
Notice of loss, if not given, that fact shall not affect or prejudice the right of the
shipper to bring suit within the 1 year prescriptive period.
WARSAW CONVENTION
1. When Applicable:
a. international transport by air
b. transport of persons, baggage, or goods
3. Meaning of Transport by Air - period during which the baggage or goods are in
charge of the carrier, whether in an airport or on board an aircraft, or in the case of
landing outside an airport, in any place whatsoever
4. Action for damages must be brought at the option of the plaintiff, either:
a. before the court of the domicile of the carrier;
b. court of principal place of business of carrier;
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c. court where he has a place of business through which the contract has been
made;
d. before the court at the place of destination
6. The right to damages shall be extinguished if an action is not brought within 2 years
from the date of arrival at the destination, or from the date on which the aircraft ought
to have arrived, or from the date on which the transportation stopped.
8. Notice Requirements:
COGSA Code of Commerce Warsaw Convention
loss/damage apparent protest at time of protest at time of
receipt of goods receipt of goods
loss/damage not protest within 3 days protest within 24
apparent from delivery hours after receipt
damage of baggage protest within 3 days
from receipt
damage of goods within 7 days from
receipt
delay within 21 days from
receipt
1. Every person that may own, operate, manage, control in the Philippines, for
hire/compensation with general/limited clientele whether permanent, occasional,
accidental, and done for a general business purpose any common carrier, shipyard,
electric light, heat and power and public utility.
2. Public Utility - business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service.
1. Prior Operator Rule - before permitting a new operator to invade the territory of
another already established, the prior operator must be given an opportunity to
extend its service to meet the public needs in the matter of transportation.
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4. Prior Applicant Rule - presupposes a situation where two interested persons apply for
a CPC in the same community over which no person has yet been granted a CPC to
operate. If both applicants equal, then the applicant who applied first will be given
the CPC.
CORPORATION LAW
7. 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. Corporations may not dissipate this and the creditors may
sue the stockholders directly for their unpaid subscriptions
8. Voting Shares
a. Founders Shares - given rights and privileges not enjoyed by owners of other
stocks; right to vote/be voted in the election of directors shall not exceed 5 years
Non-Voting Shares
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a. Preferred Shares - issued only with par value; given preference in distribution of
assets in liquidation and in payment of dividends and other preferences stated in
the articles of incorporation
b. Redeemable Shares - expressly provided in articles; have to be purchased/taken
up upon expiration of period of said shares purchased whether or not there is
unrestricted retained earnings
c. Treasury Stocks - stocks previously issued and fully paid for and reacquired by
the corporation through lawful means (purchase, donation, etc.)
10. Preferred Cumulative Participating Share of Stock - share entitling its holder to
preference in the payment of dividends ahead of common stockholders and to be
paid the dividends ahead of common stockholders and to be paid the dividends due
for prior years and to participate further with common stockholders in dividend
declarations
11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock - stock
deposited with a 3rd person to be delivered to stockholder/assignor after complying
with certain conditions - usually payment of full subscription price
12. Over-issued Stock - stock issued in excess of authorized capital stock; null and
void
13. Watered Stock - stock issued gratuitously, money/property less than par value,
services less than par value, dividends where no surplus profits exist
15. Chattel mortgage of shares registered with the Registrar of Deeds need not be
registered in corporate books to bind third parties because corporate books only
cover absolute transfers. But the pledgee/mortgagee may not have voting rights
unless stated in the contract and registered in the corporate name.
21. Merger - one corporation absorbs the other and remains in existence while the
other is dissolved
23. Theory of General Capacity - a corporation is said to hold such powers as are not
prohibited/withheld from it by general law
24. Theory of Special Capacity - the corporation cannot exercise powers except
those expressly/impliedly given
25. Concession Theory - a group of persons wanting to create a corporation will have
to execute documents and comply with requirements set by the state before being
given corporate personality; merely a privilege; state may provide causes for which
the privilege may be withdrawn
27. Where similar acts have been approved by the directors as a matter of general
practice, custom and policy, the general manager may bind the company even
without formal authorization of the board of directors
30. Cumulative Voting - the number of votes that a shareholders number of shares
multiplied by the number of directors may give all said votes to one candidate or he
may distribute them as he may deem fit. Cumulative voting is a matter of right in a
stock corporation. In a non-stock corporation, it cannot be utilized unless allowed by
the by-laws/articles
31. The power of removal of directors that may be exercised with or without cause
cannot apply to the director representing the minority shareholders. He may only be
removed with cause.
32. General Rule: If surplus profits exceed the requirements the corporation shall
declare dividends. This is compulsory if the surplus is equal/or more than the paid-
up capital.
Exceptions:
a. justified by approved expansion projects
b. prohibited by creditor to declare dividends
c. retention is necessary under existing circumstances
34. Individual Suit - one brought to assert a right of a stockholder peculiar to himself
35. Representative Suit - brought by the stockholder in his own behalf and in behalf
of other stockholders similarly situated, having common cause against the
corporation
36. Derivative Suit - brought by a stockholder for and in behalf of the corporation to
protect/vindicate corporate rights after he has exhausted intra-corporate remedies
Requisites:
a. cause of action in favor of the corporation
b. refusal of corporation to sue
c. injury to the corporation
Although corporations dissolved have 3 years to wind up, they can convey their
properties to a trustee who can continue the suit beyond the 3 year period. The
lawyer who handled the case in the trial court may be considered as trustee for the
dissolved corporation with respect to the matter in litigation only even if no
appointment was extended to him. (Selano vs. CA)
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C O M M E R C I A L L A W MEMORY AID
In a case filed before dissolution, it may continue even beyond the 3 year period until
final determination of litigation. Otherwise, the corporation in liquidation would lose
what justly belongs to them/be exempt from payment of obligations because of a
technicality.
1. General Rule: All securities before being offered for sale/actual sale to the public
must first be registered and have the proper permit.
Exception:
a. exempt securities
b. securities emanating from exempt transactions
2. Exempt Securities
a. issued by the government subdivisions/instrumentalities
b. issued by foreign government which the Philippines has diplomatic relations
c. issued by receiver/trustee of an insolvent approved by the court
d. issued by building and loan association
e. issued by receiver/trustee of an insolvent approved by the court
f. policy of insurance issued by insurance corporation supervised by the insurance
commission
g. security/right/interest in real property including subdivision lot/condominium
supervised by the Ministry of Human Settlements
h. pension plans regulated by BIR/Insurance Commission
3. Exempt Transactions
a. judicial sale by execution, etc. in insolvency
b. sale of pledged property/foreclosed property to liquidate an obligation
c. isolated transactions on securities done by owner/agent
d. stock transfers emanating from mergers and consolidations
e. pre-incorporation subscription
f. securities issued by public service operator to broaden equity base
6. Acts Prohibited
a. manipulation of security prices
b. manipulation of deceptive devices
c. artificial measures of price control
d. fraudulent transactions
e. insider trading
f. false prospectus, communications, reports
1. Deposits in banks, including government banks, may not be inquired into by any
person, except:
a. if depositor agrees in writing
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C O M M E R C I A L L A W MEMORY AID
b. impeachment cases
c. by court order in cases of bribery and dereliction of duty against public officials
d. deposit is subject of litigation
e. anti-graft cases
f. general and special examination of bank order of the Monetary Board of bank
fraud or serious irregularity
g. re-examination made by an independent auditor hired by a bank to conduct its
regular trust
Copyright
6. Criminal Penalties
a. imprisonment of 1 to 3 years plus fine of P50,000 to P150,000 for the first offense
b. imprisonment of 3 years and 1 day to 6 years plus fine ranging from P150,000 to
P500,000 for the 2nd offense
c. imprisonment of 6 years and 1 day to 9 years plus fine of P500,000 to
P1,000,000 for the 3rd/subsequent offenses
IN ALL CASES, subsidiary imprisonment in cases of insolvency
7. Presumptions:
a. Presumption of copyright in the work of other subject matter to which the action
related
b. Plaintiff is presumed to be the owner of the copyright
c. The natural person whose name is indicated on a work in the usual manner as
the author shall, in the absence of proof to the contrary, be presumed to be the
author of the work. This is applicable even if the name is a pseudonym, where
the pseudonym leaves no doubt as to the identity of the author.
8. Prescription: No damages may be recovered after 4 years from time the cause of
action arose.
Patents
2. Non-Patentable Inventions
a. discoveries, scientific theories and mathematical methods
b. schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers
c. methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body
Exception: products and composition for use in any of these methods
d. plant varieties or animal breeds or essentially biological process for the
production of plants and animals
Exception: micro-organisms and non-biological and micro-biological processes
e. aesthetic creations
a. contrary to public order or morality
3. Requisites of Patentability
a. new, novelty
b. involves an inventive step;
c. is industrially applicable
4. Novelty
The novelty requirement in the Code is absolute. Thus, an invention is not
considered new if it forms part of a prior art. A prior art consists of:
a. anything which has been made available to the public anywhere in the world before
the filing date or the priority date of the application, or
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C O M M E R C I A L L A W MEMORY AID
b. the whole contents of an application for a patent, utility model, or industrial design
registration, published in the IPO gazette, filed or effective in the Philippines, with a
filing or priority date that is earlier than the filing or priority date of the application,
provided that the application which has validly claimed the filing date of an earlier
application (priority date) is prior art with effect as of the filing date of such earlier
application, and provided further, that the applicant and the inventor identified in both
applications are not one and the same
5. Inventive Step - an invention involves an inventive step, if having regard to the prior
art, it is not obvious to a person skilled in the art at the time of the filing date of
priority date of the application claiming the invention
7. The First-to-File System - if 2 or more persons have made the invention separately
and independently of each other, the right to the patent belongs to the person who
filed an application for such invention, or where 2 or more applications are filed for
the same invention, the right of the patent belongs to the person who has the earliest
filing date or the earliest priority date
Under this system, the patent is granted to the inventor who filed his patent
application earlier than others thus simplifying the determination of who is entitled to own
the patent.
The First-to-File System increases the rights of the inventor by:
a. guaranteeing the confidentiality of the application prior to its publication
b. giving the inventor inchoate rights against an infringer after the publication of the
application and before the grant of the patent and
c. expanding the rights of the inventor to institute cancellation proceedings for the
duration of the term of the patent. Cancellation proceedings may be filed at any
time during the term of the patent.
Under this system, the applicant declared by final court order as having the right to
the patent may:
a. prosecute the application as his own application in place of the original applicant
b. file a new patent application in respect of the same invention
c. request that the application be refused or
d. seek the cancellation of the patent, if one has already been issued
9. Non-Prejudicial Disclosure
The disclosure of information contained in the application during the 12 months
preceding the filing date or the priority date of the application shall not prejudice the
applicant on the ground of lack of novelty if such disclosure was made by (a) inventor;
(b) a patent office and the information was contained
10. Term of Patent - 20 years from the filing date of the application
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C O M M E R C I A L L A W MEMORY AID
13. Utility Models - an invention qualifies for registration as a utility model if it is new
and industrially applicable
- no inventive step required for registration
- no search and examination required
14. Term Protection - 7 years after the filing date of application without possibility of
renewal
15. Industrial Design - any composition of lines or colors or any 3 dimensional form,
whether or not associated with lines or colors
Industrial Designs essentially dictated by technical or functional considerations to
obtain a technical result or those that are contrary to public order, health or morals shall
not be protected
16. Term of Protection - 5 years from filing date of application, renewable for not
more than 2 consecutive periods of 5 years each
Insolvency Law
2. Fraudulent Preference - any act of insolvent which gives rise/has tendency to give
preference to a creditor to the assets of the insolvent prejudicial to the right of other
creditors of said insolvent
b. suit not yet filed - cannot be filed anymore, but claims may be presented to
assignee
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C O M M E R C I A L L A W MEMORY AID
1. The law primarily governs chattel mortgage. Provisions on pledge of NCC in so far
as not in conflict with CML also govern chattel mortgages.
3. Growing fruits are covered by chattel mortgage but they may not be pledged.
4. Machinery placed on plant or building owned by another can be the object of chattel
mortgage.
9. Requisites of CML:
a. constituted to secure the fulfillment of principal obligation
b. mortgagor is absolute owner of the thing mortgaged
c. persons constituting the mortgage have the free disposal of the property and in
the absence thereof, they be legally authorized for the purpose
d. recorded to bind 3rd persons
11. Affidavit of Good Faith - where the parties severally swear that the mortgage is made
for the purpose of securing the obligation specified and for no other purpose and that
the same is a just and valid obligation and not one entered into for fraud
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C O M M E R C I A L L A W MEMORY AID
12. Future property may not be covered by CM but when such property is a:
a. renewal of, or in substitution for goods on hand when the mortgage was
executed, or
b. purchased with proceeds (not of your own money) of said goods, said property
may be covered by CM
13. Criminal Acts - removal of chattel to another city or province without written
consent of mortgagee, selling property already pledged, or mortgaged without written
consent of mortgagee