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Criminal Code September-2014 (Draft)
Criminal Code September-2014 (Draft)
Table of Contents
INTRODUCTION:
A. Historical Background
Article XII Section 16 of the 1987 Constitution: “The Congress shall not,
except by general law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the common
good and subject to the test of economic viability.”
Purposes:
1. Uniformity
2. To avoid corruption
B. Attributes of a Corporation
• Artificial Being
Case: Francisco v CA
Exceptions:
2. Freedom to travel
Keyword: CONTROL
2. Alter Ego Cases – when the corporate entity is merely a farce since the
corporation is an alter ego, business conduit or instrumentality of a person or
another corporation;
1. Identical shareholders;
*The probative factors of identity are not conclusive but may be considered as
strong evidence.
• Creature of Law
• Right of Succession
Ultra Vires Doctrine – Even if the act is lawful, moral and not contrary to
public order or policy but such act is not within the express, implied and
incidental powers of the corporation such act shall be void for being ultra
vires.
1. As to existence of Stocks:
A: NO
2. As to function/organizers:
4. As to legal status:
Requisites:
Open Corporation – one which is open to any person who may wish to become a
stockholder or member thereto.
Close Corporation – those whose shares of stock are held by limited number of
persons like the family or other closely knit group. (Sec. 96)
Contractual Significance:
1. Corporate Name;
2. Purpose Clause;
3. Principal office;
4. Term of existence;
5. Incorporators;
6. Directors or trustees;
7. Capitalization;
8. Shares of stock;
9. Treasurer’s Affidavit.
• Corporate Name
Purpose: Identification
*Corporation can not adopt any name or group of words at its pleasure
because of statutory limitation, viz., Sec. 18 of the Corporation Code
which provides that: “No corporate name may be allowed by the SEC if
the proposed name is identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the
amended name.
Requisites:
1. Period of use;
*In case of change of name, the corporation is not dissolve nor create a
new corporation; it also does not extinguish the corporate liability.
Procedure:
• Purpose Clause
*In case the primary purpose is not viable then secondary purpose may
be used.
• Principal Office
*The principal place of business may determine the venue of court cases
involving corporations. It may also determine if service of summons and
notices was properly made. It is also important for tax purposes (local
taxation).
• Term of Existence
*During the three year winding up period, the corporation still has
personality but activities are limited to the liquidation of the corporation
affairs and not to transact further business.
Keywords:
1. Excusable delay;
• Incorporators
Qualifications:
1. Every director must own at least one (1) share of the capital stock;
*Any director who ceases to be the owner of at least one share of the
capital stock of the corporation of which he is a director shall thereby
cease to be a director.
*Initial directors/trustees shall hold office for one year until their
successors are elected and qualified.
• Capitalization
Section 14(8) states that: “If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the Philippines, the number of
shares into which it is divided, and in case the share are par value 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.”
*It is required that at least 25% of the subscribed capital must be paid
and in no case may be paid-up capital be less than P5,000.
Paid-Up Capital – the portion of the authorized capital stock which has
been subscribed and actually paid.
• Shares of stock
Economic Value:
Political Value:
1. vote
- Provides that where the Article 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.
Classes of Shares:
Limitations:
1. No par value shares cannot have an issued price of less than P5.00;
5. The articles of incorporation must state the fact that it issued no par
value shares as well as the number of said shares;
3. Voting Shares – shares with the right to vote. They have the
right to participate in the management of the corporation
through the exercise of such right.
Exceptions:
*Preference does not give them a lien upon the property nor make
them creditors of the corporation.
Kinds:
Limitations:
2. The terms and conditions affecting said shares must be stated both
in the certificate of stock representing such share;
• Treasurer’s affidavit
*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 25% of the authorized
capital stock of the corporation has been subscribed, and at least 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 25% of the said
subscription, such paid up capital being not less than P5,000.
*If the Treasurer’s affidavit is false such act is tantamount to fraud. (PD
902-A)
*If there’s no Treasurer’s Affidavit, the first ground shall apply, i. e.,
noncompliance with the minimum requirement.
Sec. 22 of the Corporation Code states that: “If a corporation does not
formally organize and commence the transaction of its business or the
construction of its work within 2 years from the date of its incorporation, its
corporate powers cease and the corporation shall be deemed dissolved.
However, if the corporation has commenced the transaction of its business
but subsequently becomes continuously inoperative for a period of at least 5
years, the same shall be a ground for the suspension or revocation of its
corporate franchise or certificate of incorporation. This provision shall not
apply if the failure to organize, commence the transaction of its businesses
or the construction of its works, or to continuously operate is due to causes
beyond the control of the corporation as may be determined by the SEC.”
1. By Stockholders/Shareholders;
2. By Corporate Officers;
3. By Directors/Trustees
B. Board of Directors/Trustees
1. Corporate Powers;
General Rule: All corporate powers emanate from the Board of Directors/
Trustees.
The limiting clause means that there are certain corporate matters that
cannot be done by the Board by reason that such matters fall upon the
shareholders; or corporate matters that cannot be resolved by the Board
alone, i.e., it must be done with the approval of the shareholders.
*The directors are not liable to the stockholders in performing such acts.
Sec. 23 of the Corporation Code states that: “Every director must have
at least one share of the capital stock of the corporation of which he is a
director, which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one
share of the capital stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock corporations must
be members thereof. A majority of the directors or trustees of all
corporations organized under this Code must be residents of the
Philippines.”
*In order to be eligible as director, what is material is the legal title to and
not beneficial title or ownership of the stocks appearing on the books of
the corporation.
*The only procedure required by the Code is through Election. There can
be no other modes.
*It is not required that the candidate received the majority vote, what the
law provides is only plurality of votes.
2. Non-voting stocks;
3. Treasury Shares.
Methods of Voting:
Sec. 26 of the Corporation Code provides that: Within 30 days after the
election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall submit to the SEC,
the names, nationalities and residences of the directors, trustees and
officers elected. Should a director, trustee or officer die, resign or in any
manner cease to hold office, his heirs in case of his death, the secretary,
or any other officer of the corporation, or the director, trustee or officer
himself, shall immediately report such fact to the SEC.”
• Term of Office
*The directors or trustees shall hold office for one (1) year subject to the
“hold over” principle, i.e., they continue in office until their successors
are elected and qualified.
*The one year period does not apply to directors initially elected for
purposes of incorporation.
Requisites:
1. Justifiable cause;
Sec. 30 of the Corporation Code provides that: “In the absence of any
provision in the by-laws fixing their compensation, the directors shall not
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Exceptions:
C. Corporate Officers
Categories:
General Rule: No one, even corporate officers can bind the corporation.
It is only the Board of Directors who has the authority to bind the
corporation.
Exceptions:
1. If the By-Laws provides that such act is part of the function of such
office;
Exceptions:
*In Carag v NLRC, the Supreme Court held that not any violative of law,
the Code means that violation must have a corresponding penalty. Patently
unlawful act means that a law declares an act unlawful and that such law
provides penalty for that unlawful act.
• Self-Dealing Directors/Officers
Example:
Requisites:
2. The vote of such director or trustee was not necessary for the approval
of the contract;
Reason: A’s presence in the board meeting might affect the status of the
contract.
Example:
A: NO.
Exceptions:
General Rule: A director shall refund to the corporation all the profits he
realizes on a business opportunity which: 1. the corporation is financially
able to undertake; 2. from its nature, is in line with corporations business
and is of practical advantage to it; and 3. the corporation has an interest
or a reasonable expectancy.
Exception: His act has been ratified by a vote of the stockholders owning
or representing at least 2/3 of the outstanding capital stock.
E. Executive Committee
for which shareholders’ approval is also required; (2) the filing of vacancies in
the board; (3) the amendment or repeal of by-laws 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; and (5) a distribution
of cash dividends to the shareholders.”
Keyword: BY-LAWS
General Rule: The executive committee may act on specific matters within
the competence of the board as may be delegated to it in the by-laws or on
a majority vote of the board.
Exceptions:
CORPORATE POWERS:
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Sec. 45 of the Corporation Code states that: “No corporation under this
Code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except such as
are necessary or incidental to the exercise of powers so conferred.”
Ultra Vires Acts – an act committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
beyond the power conferred upon it by law.
1. Express
2. Implied
3. Incidental
*Aside from the votes of majority of the board and assent of the 2/3 of the
OCS, the approval of the SEC is necessary for the amendment of the
AOI.
*In Tan v Sycip, the Supreme Court held that in case of a non-stock
corporation, membership is personal and non-transferrable unless the
by-laws provides otherwise. The deceased member is not entitled to
vote.
A: YES. The SEC ruled that the 25% applies to the increase amount.
Purposes:
Requirements:
3. The sale does not bring about the illegal combinations and
monopolies.
Tests:
1. Quantitative Test – no statutory test; pertains to the disposition
of all assets
*The provision is so strict because the law wants the corporation will
reach its expiration term.
Q: With the sale of all the assets of the corporation, will the same result to
its dissolution?
A: NO. The two corporations are two separate personalities thus they are
separate and distinct from each other hence the buying corporation
cannot be held liable to the obligations of the selling corporation.
General Rule: The sale of all or substantially all of the assets of the
corporation does not make the buyer answerable for the obligations of
the seller.
Exceptions:
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Requisites:
Trust Fund Doctrine – The capital stock, property and other assets of the
corporation are regarded as equity in trust for the payment of the corporate
creditors. The subscribed capital stock 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. Corporation may not dissipate this and the creditors may
sue stockholders directly for the unpaid subscription.
Requisites:
• Declaration of Dividends
*The fact that the corporation has surplus earning does not mean that it
is mandated to declare dividends; it is still upon the sound discretion of
the board of directors.
*The board may opt to restrict its earnings, as the earnings may be
allocated to legitimate business purpose.
1. Board approval
2. Board approval;
1. Corporate expansion
A: Stockholders
*In Nielson case, the SC held that dividends cannot be given to non-
stockholders.
A: NO. The parties are not mutually creditor-debtor of each other. The
requisites under the Civil Code on legal compensation are not present.
• Management Contract
Requisite:
Reason: Sound business policy dictates that it would be better for the
corporation, at the inception of its operation, to be managed by a
company who has been experienced in a particular kind of business if the
managed corporation needs the technical expertise, skills, experiences,
background of another entity.
CORPORATE BY-LAWS:
ARTICLES OF BY-LAWS
INCORPORATION
External affairs Internal Affairs
Affects the status of Does not affect the status of
existence of the corporation the existence but has impact
on the existence; failure to
submit is a ground for
disenfranchisement
Joint decision of the board General Rule: joint decision
and stockholders
Exception: Delegates the
power to amend the By-Laws
to the Board
Laws for its government not inconsistent with this Code. For the adoption of
By-Laws by the corporation the 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, shall be
necessary. The By-Laws shall be signed by the stockholders or members
voting for them and shall be kept in the principal office of the corporation,
subject to the inspection of the stockholders or members during office
hours. A copy thereof, duly certified to by a majority of the directors or
trustees countersigned by the secretary of the corporation, shall be filed with
the SEC which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, By-Laws may
be adopted and filed prior to incorporation; in such case, such By-Laws
shall be approved and signed by all the incorporators and submitted to the
SEC, together with the articles of incorporation. In all cases, By-Laws shall
be effective only upon the issuance by the SEC of a certification that the By-
Laws are not inconsistent with this Code. The SEC shall not accept for filing
the By-Laws or any amendment thereto of any bank, banking institution,
building and loan association, trust company, insurance companies, public
utility, educational institution or other special corporations governed by
special laws, unless accompanied by a certificate of the appropriate
government agency to the effect that such By-Laws or amendments are in
accordance with law.”
*In Sawadjaan v CA, the SC held that meanwhile when the By-Laws is not
yet submitted, the corporation, at that time, and the very least, may be
considered as a De Facto Corporation and therefore, its right to exist as
such cannot be inquired into or cannot be collaterally attacked in a private
suit. It is for the State to initiate a proceeding questioning the existence, on
the ground of its non-submission of By-Laws, within the prescribed period.
Requisites:
E. Amendment to By-Laws
*In China Banking Corporation v CA, the SC held that in the absence of
evidence that China Bank is aware of the provisions of the By-Laws, China
Bank is not bound to observe the provisions of the By-Laws. Hence, China
Bank must be allowed to register the shares in its name.
Exception: If the third party has actual knowledge of the provisions of the
By-Laws.
CORPORATE MEETINGS:
Kinds:
a. Stockholders/Members:
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1. Regular meeting
2. Special meeting
b. Directors/Trustees:
1. Regular meeting
2. Special meeting
*Notice of regular or special meetings stating the date, time and place of the
meeting must be sent to every director or trustee at least 1 day prior to the
scheduled meeting unless otherwise provided by the by-laws.
B. Requirements of a Meeting
A: YES. There is conflict but this conflict may be reconciled. As a rule, the
by-laws may provide a different place of meeting provided that it is within
the Philippines and notice has been given. As an exception, if the by-laws is
silent of the place of the meeting, section 51 applies.
1. Delinquent shares
2. Treasury shares
3. Fractional shares
4. Escrow shares
• Rules on:
1. Delinquent Shares
accordance with the provisions of this Code, until and unless he pays
the amount due on his subscription with accrued interest, and the
costs and expenses of advertisement, if any.”
A: NO.
A: YES.
Q: Shares not yet fully paid but not yet delinquent, are they entitled to
vote?
A: YES.
*Delinquent stock is not entitled to vote and his presence would not
be taken for purposes of quorum.
*The only right remain is the right to receive dividends subject to the
provision of Section 43.
2. Escrow Shares
*Escrow shares are not entitled to vote before the fulfillment of the
condition imposed thereon.
3. Unpaid Shares
General Rule: The holder of unpaid shares can exercise the right to
vote.
4. Sequestered Shares
A: General Rule: No. PCGG cannot vote for the sequestered shares
because being a conservator/administrator, it should only perform
acts of administration and not acts of ownership.
Requisites:
A: General Rule: No. The right to vote remains to the owner thus, it is
the pledgor/mortgagor that can exercise it.
Case: Calapatia
*Proxy is a representative.
*Relationship: Principal-Agent.
*In Board meeting, proxy is not allowed (Sec. 25 of the Corporation Code).
Requisites:
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1. Must be in writing
2. Filed before the scheduled meeting; under the SEC rule, 10 days
before the scheduled meeting
trust agreement shall be cancelled and new ones shall be issued in the name
of the trustee or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be noted that the transfer
in the name of the trustee or trustees is made pursuant to said voting trust
agreement. The trustee or trustees shall execute and deliver to the
transferors voting trust certificates, which shall be transferable in the same
manner and with the same effect as certificates of stock. The voting trust
agreement filed with the corporation shall be subject to examination by any
stockholder of the corporation in the same manner as any other corporate
book or record: Provided, That both the transferor and the trustee or
trustees may exercise the right of inspection of all corporate books and
records in accordance with the provisions of this Code. Any other
stockholder may transfer his shares to the same trustee or trustees upon the
terms and conditions stated in the voting trust agreement, and thereupon
shall be bound by all the provisions of said agreement. No voting trust
agreement shall be entered into for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for
purposes of fraud. Unless expressly renewed, all rights granted in a voting
trust agreement shall automatically expire at the end of the agreed period,
and the voting trust certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the transferors. The
voting trustee or trustees may vote by proxy unless the agreement provides
otherwise.”
*In case of Lee v CA, the SC held that the stockholder concerned loses his
legal title to the shares so that if the stockholder is, at the same time, a
director of the corporation, automatically he is disqualified to continue
performing the duties of a director because the law requires each and every
director to have legal, not beneficial title to at least one share.
Q: Why derivative?
A: From the word derive. The one bringing the suit derives the cause of
action from the corporation.
A: No. Because the power to sue lies on the board thus when the board
refuses to take action in order to protect the corporation derivative suit may
be allowed.
*The stockholder must implead the real party in interest, i.e. the
corporation.
*In Chua v CA, the SC held that the corporation must be impleaded since
it is the real party in interest.
Individual suit is a suit filed by the stockholder because his personal right
has been violated. The cause of action is personal to the stockholder. The
party injured is the stockholder himself.
SUBSCRIPTION CONTRACT:
C. Kinds of Subscription
2 Fold Characteristics:
Sec. 62 of the Corporation Code provides that: “Stocks shall not be issued
for a consideration less than the par or issued price thereof. Consideration
for the issuance of stock may be any or a combination of any two or more of
the following: 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 for or services actually
rendered to the corporation; 4. Previously incurred indebtedness of the
corporation; 5. Amounts transferred from unrestricted retained earnings to
stated capital; and 6. Outstanding shares exchanged for stocks in the event
of reclassification of conversion. Where the consideration is other than
actual cash, or consists of intangible property such as patents of copyrights,
the valuation thereof shall initially be determined by the incorporators or the
board of directors, subject to the approval by the SEC. Shares of stock shall
not be issued in exchange for promissory notes or future service. The same
considerations provided for in this section, insofar as they may be
applicable, may be used for the issuance of bonds by the corporation. The
issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority conferred
upon it by the articles of incorporation or the by-laws, or in the absence
thereof, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose.”
1. Cash
2. Property
E. Payment of Subscription
2. By judicial action.
F. Certificate of Stock
*No certificate of stock shall be issued until the full payment of the
subscription.
Example:
P10 per share; payment made is P6000 covering 1000 shares. The P6000
shall be allocated equally to all shares. P6 per share has been paid. P4
per share is the liability.
A: They are negotiable in certain extent. That is why they are quasi-
negotiable.
*The title over the share can be assigned, transferred by indorsement and
delivery.
G. Transfer of Shares
*To make the transfer binding to the corporation and third person, the
transfer must be recorded in the stock and transfer book of the corporation.
4. Books of Proceedings
A: YES. Section 144 of the Corporation Code provides penalty for any
violation of the provision of the Code.
Examples:
A + B = B
A + B + C = C
A + B + C = A
A + B + C = B
Examples:
A + B = C
A + B + C = D
A + B + C = ABC
A + B + C = XYZ
3. Approval of SEC
1. All property, real or personal, and all receivables due to, and all
other interest of each constituent corporation, shall be deemed
transferred to and vested in such surviving or consolidated
corporation without further act or deed.
4. The rights of the creditors or lien upon the property of any of each
constituent corporation shall not be impaired by such merger or
consolidation.
RIGHT OF APPRAISAL:
Appraisal Right is the right to withdraw from the corporation and demand
payment of the fair value of his shares after dissenting from certain
corporate acts involving fundamental changes in corporate structure.
Requisites:
Sec. 82 of the Corporation Code provides that: “The appraisal right may be
exercised by any stockholder who shall have voted against the proposed
corporate action, by making a written demand on the corporation within 30
days after the date on which the vote was taken for payment of the fair value
of his shares: Provided, That failure to make the demand within such period
shall be deemed a waiver of the appraisal right. If the proposed corporate
action is implemented or affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or certificates of stock
representing his shares, the fair value thereof as of the day prior to the date
on which the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action. If within a period of 60 days from the
date the corporate action was approved by the stockholders, the
withdrawing stockholder and the corporation cannot agree on the fair value
of the shares, it shall be determined and appraised by 3 disinterested
persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings of the
majority of the appraisers shall be final, and their award shall be paid by the
corporation within 30 days after such award is made: Provided, That no
payment shall be made to any dissenting stockholder unless the corporation
has unrestricted retained earnings in its books to cover such payment: and
Provided, further, That upon payment by the corporation of the agreed or
awarded price, the stockholder shall forthwith transfer his shares to the
corporation.”
Requisites:
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3. Demand for payment must be made within 30 days from the date
vote is taken thereon. Failure to make demand shall be deemed a
waiver.
Sec. 83 of the Corporation Code provides that: “From the time of demand
for payment of the fair value of a stockholder’s shares until either the
abandonment of the corporate action involved or the purchase of the said
shares by the corporation, all rights accruing to such shares, including
voting and dividend rights, shall be suspended in accordance with the
provisions of this Code, except the right of such stockholder to receive
payment of the fair value thereof: Provided, That if the dissenting
stockholder is not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall immediately be restored.”
Effects:
1. All rights accruing to such shares shall be suspended from the time
of demand for payment of the fair value of the shares until either
the abandonment of the corporate action.
*Sec. 86. The dissenting stock can be sold during the pendency of its
payment.
NON-STOCK CORPORATIONS:
Sec. 87 of the Corporation Code states that: “For the purposes of this
Code, a non-stock is one where no part of its income is distributable as
dividends to its members, trustees, or officers, subject to the provisions of
this Code on dissolution: Provided, That any profit which a non-stock
corporation may obtain as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes
for which the corporation was organized, subject to the provisions of this
Title. The provisions governing stock corporations, when pertinent, shall be
applicable to non-stock corporations, except as may be covered by specific
provisions of this Title.”
R e a s o n : To p r o m o t e
camaraderie, togetherness,
unity and familiarity.
Generally, members could Election is vested upon Board
directly elect officers. Except of Directors
unless AOI provides otherwise.
Exception: Sec. 93
Order of distribution:
Sec. 95 of the Corporation Code provides that: “A plan providing for the
distribution of assets, not inconsistent with the provisions of this Title, may
be adopted by a non-stock corporation in the process of dissolution in the
following manner: The board of trustees shall, by majority vote, adopt a
resolution recommending a plan of distribution and directing the submission
thereof to a vote at a regular or special meeting of members having voting
rights. Written notice setting forth the proposed plan of distribution or a
summary thereof and the date, time and place of such meeting shall be
given to each member entitled to vote, within the time and in the manner
provided in this Code for the giving of notice of meetings to members. Such
plan of distribution shall be adopted upon approval of at least 2/3 of the
members having voting rights present or represented by proxy at such
meeting.”
A: YES.
Requirements:
A: Proprietary rights.
CLOSE CORPORATIONS:
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1. Membership is limited to 20
Exceptions:
2. Stock exchanges
3. Banks
4. Insurance companies
5. Public utilities
6. Educational institutions
*In San Juan Structural Steel Fabricators v CA, the SC held that the
circumstance that around 99.86% of the total share holding of petitioner
belongs to respondent would not justify classification of the corporation as
close.
more onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such
reasonable terms, conditions or period stated therein. If upon the expiration
of said period, the existing stockholders or the corporation fails to exercise
the option to purchase, the transferring stockholder may sell his shares to
any third person.”
CORPORATE DISSOLUTION/LIQUIDATION:
Modes of Dissolution:
1. Voluntary dissolution
2. Involuntary dissolution
Requisites:
6. The signed and countersigned copy will be filed with the SEC
and the latter will issue the certificate of dissolution
Sec. 119 of the Corporation Code provides that: “Where the dissolution
of a corporation may prejudice the rights of any creditor, the petition for
dissolution shall be filed with the Securities and Exchange Commission.
The petition shall be signed by a majority of its board of directors or
trustees or other officers having the management of its affairs, verified by
its president or secretary or one of its directors or trustees, and shall set
forth all claims and demands against it, and that its dissolution was
resolved upon by the affirmative vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at least two-
thirds (2/3) of the members at a meeting of its stockholders or members
called for that purpose. If the petition is sufficient in form and substance,
the Commission shall, by an order reciting the purpose of the petition, fix
a date on or before which objections thereto may be filed by any person,
which date shall not be less than thirty (30) days nor more than sixty (60)
days after the entry of the order. Before such date, a copy of the order
shall be published at least once a week for three (3) consecutive weeks in
a newspaper of general circulation published in the municipality or city
where the principal office of the corporation is situated, or if there be no
such newspaper, then in a newspaper of general circulation in the
Philippines, and a similar copy shall be posted for three (3) consecutive
weeks in three (3) public places in such municipality or city. Upon five (5)
day's notice, given after the date on which the right to file objections as
fixed in the order has expired, the Commission shall proceed to hear the
petition and try any issue made by the objections filed; and if no such
objection is sufficient, and the material allegations of the petition are true,
it shall render judgment dissolving the corporation and directing such
disposition of its assets as justice requires, and may appoint a receiver to
collect such assets and pay the debts of the corporation.”
Requisites:
Grounds:
9. De facto status
C. Corporate Liquidation
Sec. 122 of the Corporation Code provides that: “Every corporation whose
charter expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any other
manner, shall nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved, for the purpose
of prosecuting and defending suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey its property and to distribute
its assets, but not for the purpose of continuing the business for which it
was established. At any time during said three (3) years, the corporation is
authorized and empowered to convey all of its property to trustees for the
benefit of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property in
trust for the benefit of its stockholders, members, creditors and others in
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interest, all interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest. Upon the
winding up of the corporate affairs, any asset distributable to any creditor or
stockholder or member who is unknown or cannot be found shall be
escheated to the city or municipality where such assets are located. Except
by decrease of capital stock and as otherwise allowed by this Code, no
corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities.”
1. By Board of Directors
A: NO.
Reason: Beyond the 3 year period, there is no corporate existence for all
purposes subject to doctrine of relation.
A: YES. But for limited purpose only, i.e., for liquidation purposes only.
(Limited existence)
A: YES. But only when the subject matter is related to liquidation and
winding up of its remaining affairs.
*In Gelano v CA, the SC held that the lawyer of the corporation can be
considered as trustee. The term trustee must be considered in its generic
sense. Anyone who has been designated by the corporation to act on its
behalf could be considered as trustee for purposes of pursuing a claim for
and on behalf of the corporation. A lawyer falls within the ambit of the word
“trustee.”
*If the corporation is the creditor appoint a trustee. If the corporation is the
debtor appoint a receiver.
Q: What if the corporate properties have already been distributed among the
shareholders without trustee/receiver?
Substantive Grounds:
*A corporation cannot ask for corporate rehabilitation and at the same time
dissolution.
*With the passage of RA8799, the remedy could now be instituted with the
proper RTC.
Effect: Stay Order - stops or suspends the enforcement of all claims for
money or otherwise whether enforcement is by court or not, until
rehabilitation proceedings are terminated.
*In RCBC v IAC, the SC held that whether creditors are secured or not, stay
order will still affect them. The preference still remains it is just the
enforcement that is suspended.
FOREIGN CORPORATIONS:
Sec. 123 of the Corporation Code provides that: “For the purposes of this
Code, a foreign corporation is one formed, organized or existing under any
laws other than those of the Philippines and whose laws allow Filipino
citizens and corporations to do business in its own country or state. It shall
have the right to transact business in the Philippines after it shall have
obtained a license to transact business in this country in accordance with
this Code and a certificate of authority from the appropriate government
agency.”
Reciprocity Clause provides that the foreign laws allow Filipino citizens and
corporations to do business in its own country or state.
*The foreign corporation must appoint a resident agent so that court may
acquire jurisdiction over the foreign corporation
*License requirement does not prevent performance of acts that are isolated
from the main business of the corporation and there is no intent to continue
the same in the Philippines.
Exceptions:
1. Isolated transactions
2. Infringement of trademark
*In Home Insurance v Eastern Shipping Lines, the SC held that if at the
time the suit was brought, the suing foreign entity already have license to do
business in the Philippines, the suit will be allowed although at the time the
transaction was made it does not have the requisite of a license to do so,
the remedial defect is cured.
*In Ericks v CA, the SC held that license is necessary in order the foreign
corporation may sue. In this case, the court considered the continuity test,
they found out that the foreign corporation has the intent to continue
business in the Philippines.
1. Failure to file its annual report or pay any fees as required by the
Corporation Code
SEC JURISDICTION:
(f) Impose sanctions for the violation of laws and rules, regulations and
orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and
issue opinions and provide guidance on and supervise compliance with such
rules, regulation and orders;
(h) Enlist the aid and support of and/or deputized any and all enforcement
agencies of the Government, civil or military as well as any private
institution, corporation, firm, association or person in the implementation of
its powers and function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing
public;
(j) Punish for the contempt of the Commission, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by the
Rules of Court;
(l) Issue subpoena duces tecum and summon witnesses to appear in any
proceedings of the Commission and in appropriate cases, order the
examination, search and seizure of all documents, papers, files and records,
tax returns and books of accounts of any entity or person under
investigation as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or
certificate of registration of corporations, partnership or associations, upon
any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those
which may be implied from, or which are necessary or incidental to the
carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws.
*Judico v Quiambao
Q: How does the SRC protect the public who wishes to invest in securities?
Definition of terms:
d. Dealer – means any person who buys and sells securities for his/her
own account in the ordinary course of business.
o. Options – are contracts that give the buyer the right, but not the
obligation, to buy or sell an underlying security at a predetermined
price, called the exercise or strike price, on or before a predetermined
date, called the expiry date, which can only be extended in
accordance with Exchange rules.
x. Insider – means (a) the issuer; (b) a director or officer (or person
performing similar functions) of, or a person controlling the issuer; (c) a
person whose relationship or former relationship to the issuer gives or
gave him access to material information about the issuer or the
security that is not generally available to the public; (d) a government
employee, or director, or officer of an exchange, clearing agency and/
or self-regulatory organization who has access to material information
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Sec. 8.2 of the Securities Regulation Code states that: “The Commission may
conditionally approve the registration statement under such terms as it may deem
necessary.”
Sec. 8.3 of the Securities Regulation Code states that: “The Commission may
specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for
sale under this Section.”
Sec. 8.4 of the Securities Regulation Code states that: “A record of the
registration of securities shall be kept in Register Securities in which shall be
recorded orders entered by the Commission with respect such securities. Such
register and all documents or information with the respect to the securities
registered therein shall be open to public inspection at reasonable hours on
business days.
Sec. 8.5 of the Securities Regulation Code states that: “The Commission may
audit the financial statements, assets and other information of firm applying for
registration of its securities whenever it deems the same necessary to insure full
disclosure or to protect the interest of the investors and the public in general.”
*In approving the registration of the securities, the SEC is not only concerned with
the requirement that full disclosure of information is given to the public. The SEC is
also concerned with the merit of the securities themselves and the issuer.
*Baviera v Paglinawan
*There is no assurance on the part of the SEC that the securities presented are
valid and good for investors. However, there is a penal sanction in case the
securities are not what were disclosed.
A: Sec. 9.1 of the Securities Regulation Code provides that: “The requirement of
registration under Subsection 8.1 shall not as a general rule apply to any of the
following classes of securities: (a) Any security issued or guaranteed by the
Government of the Philippines, or by any political subdivision or agency thereof, or
by any person controlled or supervised by, and acting as an instrumentality of said
Government. (b) Any security issued or guaranteed by the government of any
country with which the Philippines maintains diplomatic relations, or by any state,
province or political subdivision thereof on the basis of reciprocity: Provided, That
the Commission may require compliance with the form and content for disclosures
the Commission may prescribe. (c) Certificates issued by a receiver or by a trustee
in bankruptcy duly approved by the proper adjudicatory body. (d) Any security or
its derivatives the sale or transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission, Housing and Land Use Rule
Regulatory Board, or the Bureau of Internal Revenue. (e) Any security issued by a
bank except its own shares of stock.”
Sec. 9.2 of the Securities Regulation Code provides that: “The Commission may,
by rule or regulation after public hearing, add to the foregoing any class of
securities if it finds that the enforcement of this Code with respect to such
securities is not necessary in the public interest and for the protection of
investors.”
*Q: What transactions are exempt from the registration requirement under
Securities Regulation Code?
A: Sec. 10.1 of the Securities Regulation Code provides that: “The requirement
of registration under Subsection 8.1 shall not apply to the sale of any security in
any of the following transactions: (a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in insolvency or bankruptcy. (b) By or
for the account of a pledge holder, or mortgagee or any of a pledge lien holder
selling of offering for sale or delivery in the ordinary course of business and not for
the purpose of avoiding the provision of this Code, to liquidate a bonafide debt, a
security pledged in good faith as security for such debt. (c) An isolated transaction
in which any security is sold, offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s account, such sale or offer for
sale or offer for sale, subscription or delivery not being made in the course of
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Sec. 10.2 of the Securities Regulation Code provides that: “The Commission
may exempt other transactions, if it finds that the requirements of registration
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under this Code is not necessary in the public interest or for the protection of the
investors such as by the reason of the small amount involved or the limited
character of the public offering.”
Sec. 10.3 of the Securities Regulation Code provides that: “Any person applying
for an exemption under this Section, shall file with the Commission a notice
identifying the exemption relied upon on such form and at such time as the
Commission by the rule may prescribe and with such notice shall pay to the
Commission fee equivalent to one-tenth (1/10) of one percent (1%) of the
maximum value aggregate price or issued value of the securities.”
*Q: What are the grounds for revocation and/or rejection of the registration of
securities/statement?
A: Sec. 13.1 of the Securities Regulation Code provides that: “The Commission
may reject a registration statement and refuse registration of the security there-
under, or revoke the affectivity of a registration statement and the registration of
the security there-under after the due notice and hearing by issuing an order to
such effect, setting forth its finding in respect thereto, if it finds that: (a) The issuer:
(i) Has been judicially declared insolvent; (ii) Has violated any of the provision of
this Code, the rules promulgate pursuant thereto, or any order of the Commission
of which the issuer has notice in connection with the offering for which a
registration statement has been filed; (iii) Has been or is engaged or is about to
engage in fraudulent transactions; (iv) Has made any false or misleading
representation of material facts in any prospectus concerning the issuer or its
securities; (v) Has failed to comply with any requirements that the Commission
may impose as a condition for registration of the security for which the registration
statement has been filed; or (b) The registration statement is on its face incomplete
or inaccurate in any material respect or includes any untrue statements of a
material fact required to be stated therein or necessary to make the statement
therein not misleading; or (c) The issuer, any officer, director or controlling person
performing similar functions, or any under writer has been convicted, by a
competent judicial or administrative body, upon plea of guilty, or otherwise, of an
offense involving moral turpitude and /or fraud or is enjoined or restrained by the
Commission or other competent or administrative body for violations of securities,
commodities, and other related laws.”
or for the same or different parties; or (iii) By performing similar act where there is
no change in beneficial ownership. (b) To affect, alone or with others, a securities
or transactions in securities that: (I) Raises their price to induce the purchase of a
security, whether of the same or a different class of the same issuer or of
controlling, controlled, or commonly controlled company by others; or (iii) Creates
active trading to induce such a purchase or sale through manipulative devices
such as marking the close, painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices. (c) To circulate or
disseminate information that the price of any security listed in an Exchange will or
is likely to rise or fall because of manipulative market operations of any one or
more persons conducted for the purpose of raising or depressing the price of the
security for the purpose of inducing the purpose of sale of such security. (d) To
make false or misleading statement with respect to any material fact, which he
knew or had reasonable ground to believe was so false or misleading, for the
purpose of inducing the purchase or sale of any security listed or traded in an
Exchange. (e) To effect, either alone or others, any series of transactions for the
purchase and/or sale of any security traded in an Exchange for the purpose of
pegging, fixing or stabilizing the price of such security; unless otherwise allowed
by this Code or by rules of the Commission.”
Sec. 24.2 of the Securities Regulation Code provides that: “No person shall use
or employ, in connection with the purchase or sale of any security any manipulative
or deceptive device or contrivance. Neither shall any short sale be effected nor any
stop-loss order be executed in connection with the purchase or sale of any
security except in accordance with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest for the protection
of investors.”
Acts that are considered unlawful with respect to the purchase and sale of
securities:
Sec. 26 of the Securities Regulation Code states that: “It shall be unlawful for
any person, directly or indirectly, in connection with the purchase or sale of any
securities to: 1. Employ any device, scheme, or artifice to defraud; 2. Obtain
money or property by means of any untrue statement of a material fact of any
omission to state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not misleading; or
3. Engage in any act, transaction, practice or course of business which operates or
would operate as a fraud or deceit upon any person.”
A: Sec. 27.3 of the Securities Regulation Code states that: “It shall be unlawful
for any insider to communicate material non-public information about the issuer or
the security to any person who, by virtue of the communication, becomes an
insider as defined in Subsection 3.8, where the insider communicating the
information knows or has reason to believe that such person will likely buy or sell a
security of the issuer whole in possession of such information.”
Tender Offer
Sec. 19 of the Securities Regulation Code provides that: “Any person or group
of persons acting in concert who intends to acquire at least 15% of any class of
any equity security of a listed corporation of any class of any equity security of a
corporation with assets of at least fifty million pesos (50,000,000.00) and having
two hundred(200) or more stockholders at least one hundred shares each or who
intends to acquire at least thirty percent(30%) of such equity over a period of
twelve months(12) shall make a tender offer to stockholders by filling with the
Commission a declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of this Code as the
Commission may prescribe. Such person or group of persons shall publish all
request or invitations or tender offer or requesting such tender offers subsequent
to the initial solicitation or request shall contain such information as the
Commission may prescribe, and shall be filed with the Commission and sent to the
issuer not alter than the time copies of such materials are first published or sent or
given to security holders. (a) Any solicitation or recommendation to the holders of
such a security to accept or reject a tender offer or request or invitation for tenders
shall be made in accordance with such rules and regulations as may be prescribe.
(b) Securities deposited pursuant to a tender offer or request or invitation for
tenders may be withdrawn by or on behalf of the depositor at any time throughout
the period that tender offer remains open and if the securities deposited have not
been previously accepted for payment, and at any time after sixty (60) days from
the date of the original tender offer to request or invitation, except as the
Commission may otherwise prescribe. (c) Where the securities offered exceed that
which person or group of persons is bound or willing to take up and pay for, the
securities that are subject of the tender offers shall be taken up us nearly as may
be pro data, disregarding fractions, according to the number of securities
deposited to each depositor. The provision of this subject shall also apply to
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securities deposited within ten (10) days after notice of increase in the
consideration offered to security holders, as described in paragraph (e) of this
subsection, is first published or sent or given to security holders. (d) Where any
person varies the terms of a tender offer or request or invitation for tenders before
the expiration thereof by increasing the consideration offered to holders of such
securities, such person shall pay the increased consideration to each security
holder whose securities are taken up and paid for whether or not such securities
have been taken up by such person before the variation of the tender offer or
request or invitation.”
*Cemco Holdings, Inc. v National Life Insurance, the SC held that tender offer rule
is applicable in this case. Rationale: 1. The statute covers not only direct
acquisition but also indirect acquisition or “any type of acquisition”; 2. The
legislative intent of Sec. 19 of the Code is to regulate activities relating to
acquisition of control of the listed company and for the purpose of protecting the
minority stockholders of a listed corporation. Whatever may be the method by
which control of a public company is obtained, either through the direct purchase
of its stocks or through indirect means, mandatory tender offer rule applies.
A: It is mandatory when:
2. In all cases when the rules provide for mandatory tender offer, the
following rules on sales be complied with:
shall close at the same time and upon the same terms as the
tender offer made to the public.
*Q: When may the SEC exempt a person from the mandatory tender offer
requirement?
A: Upon written application, the SEC may exempt from the requirement to make a
mandatory tender offer the following proposed purchases of equity shares of a
public company:
Any person making a tender offer shall make a public announcement of his
intention, prior to the commencement of the offer; Provided, however, such
announcement shall not be made until the bidder has the resources to implement
the offer in full.
PRELIMINARY CONSIDERATIONS:
A. Governing Laws
1. Promissory Note
2. Bill of Exchange
A: Negotiable instrument.
Reasons:
1. Negotiability and
A: NO.
A: Legal tender is that kind of money that the law compels a creditor to
accept in payment of his debt when tendered by the debtor in the right
amount.
Q: What attribute that legal tender has that negotiable instrument do not
have?
A: Element of compulsion.
A. Requisites of negotiability
Requisites:
Q: What is a condition?
i. Reference to transaction
*must be determinable
2. Maturity Date
*It is the holder of the instrument that has the call in case the
negotiable instrument is silent, i.e., it stated no maturity date.
• Does not specify the value given or that any value had been given
therefor
• Does not specify the place where it is drawn or the place where it is
payable
• Bears a seal
b. Confession of judgment
*It waives his right to due process; his right of a day in court.
c. Waiver of benefit
Q: What are the benefits that can be waived but the negotiability of the
instrument is not affected?
NEGOTIATION:
A. Modes of transfer
*If the instrument is a non-negotiable the only transfer that can be made is
by assignment.
Assignment Negotiation
Pertains to contracts in general Pertains to negotiable instruments
Assignee takes the instrument Holder in due course takes it free
subject to the defenses obtaining from personal defenses available
among the original parties among the parties
Assignee steps into the shoes of the Holder in due course may acquire a
assignor and merely acquires better right than the right of the
whatever rights the assignor may transferor
have
Governed by the Civil Code Governed by the Negotiable
Instrument Law
D. Concept of delivery
E. Indorsement
1. Concept
2. How made
instrument. But where the instrument has been paid in part, it may be
indorsed as to the residue.”
3. Kinds
a. Special
Example:
b. Blank
Example”
Front (Back)
Back
MZVC - Commercial Law Review 116 of 335
a. Conditional
Q: What is suspended?
Example:
A → B ----› C
b. Unconditional
a. Qualified
b. Unqualified
*Indorsement of this kind makes the indorsee liable for warranties and
held the indorsee secondarily liable in case of dishonor.
a. Restrictive
- the indorser has the legal title while the beneficial title remains with
the principal.
*Vests the title in the indorsee in trust for or to the use of some other
persons
-the beneficial title belongs to other person whereas the legal title
remains with the beneficiary.
*It does not follow that if the instrument is restrictively indorsed the
liability is qualified.
b. Unrestrictive
a. in a representative capacity
c. Place of indorsement
Example:
A → B → C → D
HOLDERS:
Sec. 191 of the Negotiable Instrument Law states that: “"Holder" means
the payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof.”
*Requisites on Sec. 52 boils down to good faith and innocence of the holder.
*This is equivalent to innocent buyer in good faith under New Civil Code.
*Complete: all necessary details that define the necessary rights thereto
and all the requisites of Sec. 1 must be present.
*There is defective in the title when there is error in the indorsement and/
or in delivery.
Example:
A → B → C
*Infirmities must include things that are wrong with the instrument itself.
These are infirmities not visible to the naked eye.
*As long as he has knowledge of the infirmity due course holding is not
present.
Q: How can we reconcile the 1st requirement and the 4th requirement?
Example:
A: NO
4. Good faith
A: The holder of the instrument need not prove that he is a holder in due
course.
E. Shelter Rule
Sec. 58 of the Negotiable Instrument Law provides that: “In the hands of
any holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not himself a
party to any fraud or illegality affecting the instrument, has all the rights of
such former holder in respect of all parties prior to the latter.”
Requisites:
1. That the holder derived his title from a holder in due course.
Example:
A → B → C → D → E → F
Q: Is it worth comparing the holders in due course and the one who derived
title from the holder in due course?
A: YES.
Advantages:
Holder in A person
due course derived
title from a
holder in
due course
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LIABILITY OF PARTIES:
Q: What is your understanding of parties liable? When do you say a party is liable?
Distinction:
A: YES.
A: NO.
Distinction:
Liability Warranties
It is material to determine It is immaterial to know
whether the person is whether the person is
primarily or secondarily primarily or secondarily liable
liable
Liability in general
a. Warranty
b. Engagement to pay
A: YES.
1. Qualified Indorsers
*If the refusal amounted to tortious act, the drawee may be held liable
but not based on contract.
1. Maker
2. Drawer
3. Acceptor
Sec. 127 of the Negotiable Instrument Law states that: “A bill of itself
does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereof, and the drawee is not liable on
the bill unless and until he accepts the same.”
4. Indorsers
a. General indorsers
*General indorsers are liable for warranties and they are secondarily
liable for engagement to pay.
b. Qualified indorsers
c. Order of liability
6. Other cases
a. Irregular indorser
c. Accommodation party
DEFENSES:
Distinctions:
Kinds:
1. Real defense
2. Personal defense
B. Real defenses
Examples:
A: Minority
A: NO. As maker, he admits the existence of the payee and his then
capacity to indorse.
3. Fraud in factum
*The person who signs the instrument lacks knowledge of the character
or essential terms of the instrument. But the defense is not available if the
party involved had reasonable opportunity to obtain such knowledge.
2. Prior parties/indorsers
b. Of indorser’s signature
Example:
A (maker) → B → C → D → E
A: YES.
Q: Can E go after B?
A: NO.
Recourse: Go after C or D
Example:
X → A → B → C → D → E
A: NO.
c. Of drawer’s signature
Example:
X → A (drawer) → B → C → D → E (holder)
A: NO.
Case: Gempesaw v CA
A: Because the holder in due course may still demand payment but
according to its original tenor.
Sec. 125 of the Negotiable Instrument Law states that: “Any alteration
which changes:
6. Extinctive prescription
C. Personal defenses
A: Because only holders not in due course can raise these defenses.
Principle: One who made possible to the infirmity shall bear the loss
Example:
_______
The true date is June 1, 2008 maturity date will be June 11, 2008
The date inserted is May 25, 2008 the maturity date will be June 4, 2008
A → B → C → D → E
If E is a holder in due course and A is the maker, though both E and A are
innocent, A shall suffer the consequence for he made possible to the loss
If E is not a holder in due course and A is the maker, E is not innocent but
A is innocent thus E cannot held A liable.
Example:
The amount
A → B → C → D → E
Q: Is there a defense?
A: YES.
Q: Can it be used?
Reason: The holder not in due course is not an innocent party as far as
the maker is concern thus the contract is avoided.
Example:
Principle: One who makes the infirmity possible shall bear the loss.
Reason: Breach of warranty, i.e., that they had good title to the
instrument.
*Defense pro tanto means that the person is not totally exonerated from
liability; he is liable upto the amount he benefited.
*The general indorser is liable for breach of warranty, i.e., his warranty
that at the time of his indorsement the instrument is valid and existing.
Example:
A: NO. One who made the infirmity possible shall bear the loss.
ENFORCEMENT OF LIABILITY:
1. Presentment
2. Dishonor
• Promissory Note
Example:
M → A → B → C → D → E
A: YES.
Q: If the holder is running after the indorsement for breach of warranty, is
presentment and dishonour essential?
A: NO.
• Bill of Exchange
2. If dishonored by non-acceptance:
1. Concept of presentment
a. Date of presentment
b. Place of presentment
D. Notice of dishonor
a. Dishonor by non-payment
A: Secondary liability
Example:
A → B → C → D → E
b. Dishonor by non-acceptance
a. Holder
b. Agent
3. Form of Notice
Sec. 96 of the Negotiable Instrument Law states that: “The notice may
be in writing or merely oral and may be given in any terms which
sufficiently identify the instrument, and indicate that it has been
dishonored by non-acceptance or non-payment. It may in all cases be
given by delivering it personally or through the mails.”
c. Notice to partners
e. Notice to bankrupt
Sec. 110 of the Negotiable Instrument Law states that: “Where the
waiver is embodied in the instrument itself, it is binding upon all parties;
but, where it is written above the signature of an indorser, it binds him
only.”
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity
to contract;
(c) When the drawer is the person to whom the instrument is presented
for payment;
(d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;
(a) When the drawee is a fictitious person or person not having capacity
to contract, and the indorser was aware of that fact at the time he
indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is presented
for payment;
(c) Where the instrument was made or accepted for his accommodation.”
Sec. 113 of the Negotiable Instrument Law states that: “Delay in giving
notice of dishonor is excused when the delay is caused by circumstances
beyond the control of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay ceases to operate,
notice must be given with reasonable diligence.”
DISCHARGE OF INSTRUMENTS:
A. Concept of Discharge
2. Intentional cancellation
Article 1231 of the New Civil Code provides that: “Obligations are
extinguished: (1) By payment or performance: (2) By the loss of the thing
due: (3) By the condonation or remission of the debt; (4) By the confusion
or merger of the rights of creditor and debtor; (5) By compensation; (6) By
novation. Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code.”
CHECKS:
A. Checks defined
Sec. 185 of the Negotiable Instrument Law provides that: “A check is a bill
of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.”
*In case of refusal by drawee bank, payee or holder cannot compel drawee
bank to pay because there is no privity of contract.
Payee – the person who is named to received the payment. The one who
can indorse for further negotiation.
D. Kinds of check
*The drawee and the drawer are one and the same.
BSP Circular No. 291 series 2001 provides that: “The Monetary Board,
in its Resolution No. 707 dated 10 May 2001 decided to authorize the
issuance of cashier’s, manager’s or certified checks or other similar
instruments in blank or payable to cash, bearer or numbered account as
an exception from the provisions of Circular no. 259, subject to the
following conditions: a. That the amount of each check shall not exceed
P10,000.00; b. That the buyer of the check is properly identified as
required under Circular No. 259 dated 29 September; c. That a register
of said checks shall be maintained with the following minimum
information: 1. Date issued; 2. Amount; 3. Name of buyer; 4. Date paid; 5.
If the aggregate instruments purchased by the same person within any
thirty (30) day period amounts to at least fifty thousand pesos (P50,000),
the purpose of the buyer should be stated.; d. That banks which issue as
well as those which accept as deposits, said cashier’s, manager’s or
certified checks or other similar instruments issued in blank or payable to
cash, bearer or numbered account shall take such measure(s) as may be
necessary to ensure that said instruments are not being used/resorted to
by the buyer or depositor in furtherance of a money-laundering activity;
e. That the deposit of said instruments shall be subject to the same
requirements/scrutiny applicable to cash deposits; f. That transactions
involving said instruments should be accordingly reported to the Bangko
Sentral ng Pilipinas if there is reasonable ground to suspect that said
transactions are being used to launder funds of illegitimate origin.”
Sec. 188 of the Negotiable Instrument Law provides that: “Where the
holder of a check procures it to be accepted or certified, the drawer and
all indorsers are discharged from liability thereon.”
Article 541 of the Code of Commerce provides that: “The maker of any
legal holder of a check shall be entitled to indicate therein that it be paid
to a certain banker or institution, which he shall do by writing across the
face the name of said banker or institution, or only the words "and
company".
Sec. 186 of the Negotiable Instrument Law provides that: “A check must
be presented for payment 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.”
*In case of death of the drawer, the bank may refuse payment provided that
there was a proper notice of the death of the drawer given to bank.
Letters of Credit
LETTERS OF CREDIT
Definition:
A: YES.
Reasons why businessmen open letter of credit:
1. Lack of funds
2. Security purposes
3. Don’t want to part his money until the goods are received
Applicable Laws:
1. Buyer – one who procures the letter of credit and obliges himself to
reimburse the issuing bank upon receipt of the document of title.
2. Issuing Bank – one which undertakes to pay the seller upon receipt of
the draft and proper documents of titles and to surrender the
documents to the buyer upon reimbursement.
3. Seller – one who in compliance with the contract of sale ships the
goods to the buyer and delivers the documents of title and draft to the
issuing bank to recover payment.
7. Negotiating Bank
*Most common parties are the buyer, seller and issuing bank.
a. Independence Principle
This principle provides that the three contracts entered into in this
transaction, the contracts are: 1. Contract of sale between the buyer and
seller; 2. Contract of the buyer with the issuing bank; and 3. Letter of Credit
proper, are separate from each other thus any infirmity from one contract
does not affect the other contracts.
A direct consequence of this principle is the rule that banks only deal with
documents and not with goods, services or obligations to which they relate.
*In BPI v De Reny, the SC held that the bank has no obligation to inquire the
specifications of the goods.
1. Vouchers;
3. Purchase orders
*In Transfield v Luzon, the SC held that Luzon can ran after the Letter of
Credit despite the pending arbitration of before the Commission because of
the independence principle.
Warehouse Receipts
Document of Title to Goods includes any bill of lading, dock warrant, ‘quedan’, or
warehouse receipt or order for delivery of goods, or any other document used in
the ordinary course of business in the sale or transfer of goods, as proof of
possession or control of the goods, or authorizing or purporting to authorize the
possessor of the document to transfer or receive either by indorsement or by
delivery, goods represented by such document.
*Document of title to goods facilitates sale of goods; it also facilitates the transfer
of title to goods.
*It is the delivery of the thing that transfers ownership to the buyer.
Kinds:
A: Bailor-bailee relationship
Purposes:
1.To regulate the business of receiving commodities for storage in order;
2.To protect persons who may want to avail themselves of warehouse facilities;
and
4. liable for double market value should he accept if goods are damaged or
destroyed.
• A mill which must store palay temporarily must still get the license from the
Bureau.
DUTIES OF A WAREHOUSEMAN
Duties:
1. Included in the business of receiving commodity for storage (Sec. 2)
WAREHOUSE RECEIPTS
A. Functions
1. It is a contract
B. Forms of Receipts
*The date of the issue of the receipt pertains to the time when the contract
was perfected.
*The purpose for the description of the goods or of the packages containing
them is for identification.
1. Negotiable
2. Non-negotiable
Q: Regardless of the forms of the warehouse receipt, are the functions of the
warehouse receipts still applicable?
A: YES.
Example:
W → A(depositor) → B(buyer)
Q: What are the legal contemplations of the issuance of such warehouse receipt?
A: 1. Transfer of title is possible assuming that the transferor has legal title to the
goods; 2. Warehouseman’s direct obligation; 3. those provided in Sec. 25 of the
Warehouse Receipts Law; and Sec. 49 of the Warehouse Receipt Law.
*Sec. 49 of the Warehouse Receipts Law substantially provides that the seller’s
recourse is to look for any other properties in case the goods is not sufficient to
cover his lien.
NEGOTIATION OF RECEIPTS
A: By delivery.
b. Effects of negotiation
2. Sec. 44 of the Warehouse Receipt Law states that: “A person who, for
value, negotiates or transfers a receipt by indorsement or delivery, including
one who assigns for value a claim secured by a receipt, unless a contrary
intention appears, warrants: (a) That the receipt is genuine, (b) That he
has a legal right to negotiate or transfer it, (c) That he has knowledge of no
fact which would impair the validity or worth of the receipt, and (d) That he
has a right to transfer the title to the goods and that the goods are
merchantable or fit for a particular purpose whenever such warranties would
have been implied, if the contract of the parties had been to transfer without
a receipt of the goods represented thereby.”
Example:
W → A (depositor) → B (buyer)
Q: Is A still liable to B?
Recourse: In case there is breach of warranty, the buyer can always go after
the depositor.
5. Sec. 25 of the Warehouse Receipt Law states that: “If goods are
delivered to a warehouseman by the owner or by a person whose act in
conveying the title to them to a purchaser in good faith for value would bind
the owner, and a negotiable receipt is issued for them, they can not
thereafter, while in the possession of the warehouseman, be attached by
garnishment or otherwise, or be levied upon under an execution unless the
receipt be first surrendered to the warehouseman or its negotiation
enjoined. The warehouseman shall in no case be compelled to deliver up
the actual possession of the goods until the receipt is surrendered to him or
impounded by the court.”
Sec. 47 of the Warehouse Receipt Law provides that: “The validity of the
negotiation of a receipt is not impaired by the fact that such negotiation was
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a breach of duty on the part of the person making the negotiation or by the
fact that the owner of the receipt was induced by fraud, mistake or duress or
to entrust the possession or custody of the receipt to such person, if the
person to whom the receipt was negotiated or a person to whom the receipt
was subsequently negotiated paid value therefor, without notice of the
breach of duty, or fraud, mistake or duress.”
Article 1518 of the New Civil Code states that: “The validity of the
negotiation of a negotiable document of title is not impaired by the fact that
the negotiation was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the document was deprived of
the possession of the same by loss, theft, fraud, accident, mistake, duress,
or conversion, if the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated paid value
therefor in good faith without notice of the breach of duty, or loss, theft,
fraud, accident, mistake, duress or conversion.”
Sec. 39 of the Warehouse Receipt Law states that: “A receipt which is not in
such form that it can be negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee. A non-negotiable receipt can not be negotiated,
and the indorsement of such a receipt gives the transferee no additional right.”
Sec. 44 of the Warehouse Receipt Law provides that: “A person who, for value,
negotiates or transfers a receipt by indorsement or delivery, including one who
assigns for value a claim secured by a receipt, unless a contrary intention appears,
warrants: (a) That the receipt is genuine, (b) That he has a legal right to
negotiate or transfer it, (c) That he has knowledge of no fact which would impair
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the validity or worth of the receipt, and (d) That he has a right to transfer the title
to the goods and that the goods are merchantable or fit for a particular purpose
whenever such warranties would have been implied, if the contract of the parties
had been to transfer without a receipt of the goods represented thereby.”
*Sec. 44(b) of the Warehouse Receipt Law provides that: “That he has a legal right
to negotiate or transfer it” example of which is if the receipt was stolen by
someone.
*Sec. 44(c) of the Warehouse Receipt Law provides that: “That he has knowledge
of no fact which would impair the validity or worth of the receipt” example of which
is the absence or illegality of consideration.
*Sec. 44(c) of the Warehouse Receipt Law guarantees that the goods are
merchantable and fit.
Sec. 27 of the Warehouse Receipt Law provides that: “Subject to the provisions
of section thirty, a warehouseman shall have a lien on goods deposited or on the
proceeds thereof in his hands, for all lawful charges for storage and preservation of
the goods; also for all lawful claims for money advanced, interest, insurance,
transportation, labor, weighing, coopering and other charges and expenses in
relation to such goods, also for all reasonable charges and expenses for notice,
and advertisements of sale, and for sale of the goods where default had been
made in satisfying the warehouseman's lien.”
Sec. 33 of the Warehouse Receipt Law states that: “A warehouseman's lien for a
claim which has become due may be satisfied as follows: (a) An itemized
statement of the warehouseman's claim, showing the sum due at the time of the
notice and the date or dates when it becomes due, (b) A brief description of the
goods against which the lien exists, (c) A demand that the amount of the claim
as stated in the notice of such further claim as shall accrue, shall be paid on or
before a day mentioned, not less than ten days from the delivery of the notice if it
is personally delivered, or from the time when the notice shall reach its destination,
according to the due course of post, if the notice is sent by mail, (d) A statement
that unless the claim is paid within the time specified, the goods will be advertised
for sale and sold by auction at a specified time and place. In accordance with the
terms of a notice so given, a sale of the goods by auction may be had to satisfy
any valid claim of the warehouseman for which he has a lien on the goods. The
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sale shall be had in the place where the lien was acquired, or, if such place is
manifestly unsuitable for the purpose of the claim specified in the notice to the
depositor has elapsed, and advertisement of the sale, describing the goods to be
sold, and stating the name of the owner or person on whose account the goods
are held, and the time and place of the sale, shall be published once a week for
two consecutive weeks in a newspaper published in the place where such sale is
to be held. The sale shall not be held less than fifteen days from the time of the
first publication. If there is no newspaper published in such place, the
advertisement shall be posted at least ten days before such sale in not less than
six conspicuous places therein. From the proceeds of such sale, the
warehouseman shall satisfy his lien including the reasonable charges of notice,
advertisement and sale. The balance, if any, of such proceeds shall be held by the
warehouseman and delivered on demand to the person to whom he would have
been bound to deliver or justified in delivering goods. At any time before the goods
are so sold, any person claiming a right of property or possession therein may pay
the warehouseman the amount necessary to satisfy his lien and to pay the
reasonable expenses and liabilities incurred in serving notices and advertising and
preparing for the sale up to the time of such payment. The warehouseman shall
deliver the goods to the person making payment if he is a person entitled, under
the provision of this Act, to the possession of the goods on payment of charges
thereon. Otherwise, the warehouseman shall retain the possession of the goods
according to the terms of the original contract of deposit.”
Sec. 34 of the Warehouse Receipt Law states that: “If goods are of a perishable
nature, or by keeping will deteriorate greatly in value, or, by their order, leakage,
inflammability, or explosive nature, will be liable to injure other property , the
warehouseman may give such notice to the owner or to the person in whose
names the goods are stored, as is reasonable and possible under the
circumstances, to satisfy the lien upon such goods and to remove them from the
warehouse and in the event of the failure of such person to satisfy the lien and to
receive the goods within the time so specified, the warehouseman may sell the
goods at public or private sale without advertising. If the warehouseman, after a
reasonable effort, is unable to sell such goods, he may dispose of them in any
lawful manner and shall incur no liability by reason thereof. The proceeds of any
sale made under the terms of this section shall be disposed of in the same way as
the proceeds of sales made under the terms of the preceding section.”
Sec. 35 of the Warehouse Receipt Law states that: “The remedy for enforcing a
lien herein provided does not preclude any other remedies allowed by law for the
enforcement of a lien against personal property nor bar the right to recover so
much of the warehouseman's claim as shall not be paid by the proceeds of the
sale of the property.”
5. The bailee has information that the delivery about to be made was to
one not lawfully entitled to the possession of the goods.
ADVERSE CLAIMS
Sec. 17 of the Warehouse Receipt Law provides that: “If more than one person
claims the title or possession of the goods, the warehouseman may, either as a
defense to an action brought against him for non-delivery of the goods or as an
original suit, whichever is appropriate, require all known claimants to interplead.”
Sec. 18 of the Warehouse Receipt Law provides that: “If someone other than the
depositor or person claiming under him has a claim to the title or possession of
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 or to the adverse claimant until the
warehouseman has had a reasonable time to ascertain the validity of the adverse
claim or to bring legal proceedings to compel claimants to interplead.”
Sec. 19 of the Warehouse Receipt Law provides that: “Except as provided in the
two preceding sections and in sections nine and thirty-six, no right or title of a third
person shall be a defense to an action brought by the depositor or person claiming
under him against the warehouseman for failure to deliver the goods according to
the terms of the receipt.”
Trust Receipts
A: 1. Entruster-entrustee; 2. Seller-buyer
*Trust Receipt Law does not infringe the Philippine Constitution on non-
imprisonment for non-payment of contractual debt because what the trust receipt
law punishes is the abuse made by the entrustee.
Sec. 4 of the Trust Receipt Law provides that: “A trust receipt transaction, within
the meaning of this Decree, is any transaction by and between a person referred to
in this Decree as the entruster, and another person referred to in this Decree as
entrustee, whereby the entruster, who owns or holds absolute title or security
interests over certain specified goods, documents or instruments, releases the
same to the possession of the entrustee upon the latter's execution and delivery to
the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for
the entruster and to sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to
the extent of the amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in
the trust receipt, or for other purposes substantially equivalent to any of the
following: 1. In the case of goods or documents, (a) to sell the goods or procure
their sale; or (b) to manufacture or process the goods with the purpose of ultimate
sale: Provided, That, in the case of goods delivered under trust receipt for the
purpose of manufacturing or processing before its ultimate sale, the entruster shall
retain its title over the goods whether in its original or processed form until the
entrustee has complied fully with his obligation under the trust receipt; or (c) to
load, unload, ship or tranship or otherwise deal with them in a manner preliminary
or necessary to their sale; or 2. In the case of instruments, (a) to sell or procure
their sale or exchange; or (b) to deliver them to a principal; or (c) to effect the
consummation of some transactions involving delivery to a depository or register;
or (d) to effect their presentation, collection or renewal. The sale of goods,
documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as
against the buyer, general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit, retaining title or other
interest as security for the payment of the purchase price, does not constitute a
trust receipt transaction and is outside the purview and coverage of this Decree. “
Sec. 5 of the Trust Receipt Law provides that: “A trust receipt need not be in any
particular form, but every such receipt must substantially contain (a) a description
of the goods, documents or instruments subject of the trust receipt; (2) the total
invoice value of the goods and the amount of the draft to be paid by the entrustee;
(3) an undertaking or a commitment of the entrustee (a) to hold in trust for the
entruster the goods, documents or instruments therein described; (b) to dispose of
them in the manner provided for in the trust receipt; and (c) to turn over the
proceeds of the sale of the goods, documents or instruments to the entruster to
the extent of the amount owing to the entruster or as appears in the trust receipt or
to return the goods, documents or instruments in the event of their non-sale within
the period specified therein. The trust receipt may contain other terms and
conditions agreed upon by the parties in addition to those hereinabove
enumerated provided that such terms and conditions shall not be contrary to the
provisions of this Decree, any existing laws, public policy or morals, public order or
good customs.”
3. Seller of the Goods - Not strictly and actually a party to the trust
receipt transaction; but merely a party to the contract of sale with the
buyer/importer (entrustee).
Sec. 7 of the Trust Receipt Law provides that: “The entruster shall be entitled to
the proceeds from the sale of the goods, documents or instruments released under
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a trust receipt to the entrustee to the extent of the amount owing to the entruster
or as appears in the trust receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt provided such are not contrary to the
provisions of this Decree. The entruster may cancel the trust and take possession
of the goods, documents or instruments subject of the trust or of the proceeds
realized therefrom at any time upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust receipt or any other agreement
between the entruster and the entrustee, and the entruster in possession of the
goods, documents or instruments may, on or after default, give notice to the
entrustee of the intention to sell, and may, not less than five days after serving or
sending of such notice, sell the goods, documents or instruments at public or
private sale, and the entruster may, at a public sale, become a purchaser. The
proceeds of any such sale, whether public or private, shall be applied (a) to the
payment of the expenses thereof; (b) to the payment of the expenses of re-taking,
keeping and storing the goods, documents or instruments; (c) to the satisfaction of
the entrustee's indebtedness to the entruster. The entrustee shall receive any
surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be
deemed sufficiently given if in writing, and either personally served on the
entrustee or sent by post-paid ordinary mail to the entrustee's last known business
address.”
*In Rosario Textile v Home Banker’s, the SC held that ownership of the entruster
of the goods is only a fiction. The one really owns the goods are the entrustee.
Sec. 8 of the Trust Receipt Law provides that: “The entruster holding a security
interest shall not, merely by virtue of such interest or having given the entrustee
liberty of sale or other disposition of the goods, documents or instruments under
the terms of the trust receipt transaction be responsible as principal or as vendor
under any sale or contract to sell made by the entrustee.”
Sec. 12 of the Trust Receipt Law provides that: “The entruster's security interest
in goods, documents, or instruments pursuant to the written terms of a trust
receipt shall be valid as against all creditors of the entrustee for the duration of the
trust receipt agreement.”
Sec. 9 of the Trust Receipt Law states that: “The entrustee shall (1) hold the
goods, documents or instruments in trust for the entruster and shall dispose of
them strictly in accordance with the terms and conditions of the trust receipt; (2)
receive the proceeds in trust for the entruster and turn over the same to the
entruster to the extent of the amount owing to the entruster or as appears on the
trust receipt; (3) insure the goods for their total value against loss from fire, theft,
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pilferage or other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as property of the
entruster; (5) return the goods, documents or instruments in the event of non-sale
or upon demand of the entruster; and (6) observe all other terms and conditions of
the trust receipt not contrary to the provisions of this Decree.”
*Failure to return the proceeds or failure to return the goods in case of non-sale is
equivalent to estafa.
Sec. 10 of the Trust Receipt Law states that: “The risk of loss shall be borne by
the entrustee. Loss of goods, documents or instruments which are the subject of a
trust receipt, pending their disposition, irrespective of whether or not it was due to
the fault or negligence of the entrustee, shall not extinguish his obligation to the
entruster for the value thereof.”
*In Landl & Co. (Phil.) v Metrobank, the SC held that the entrustee is still liable to
pay the entruster (bank) even if the goods were returned to the latter.
RIGHTS OF PURCHASER
Sec. 11 of the Trust Receipt Law provides that: “Any purchaser of goods from an
entrustee with right to sell, or of documents or instruments through their
customary form of transfer, who buys the goods, documents, or instruments for
value and in good faith from the entrustee, acquires said goods, documents or
instruments free from the entruster's security interest.”
PENALTIES
Sec. 13 of the Trust Receipt Law provides that: “The failure of an entrustee to
turn over the proceeds of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable under the provisions of Article
Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand
eight hundred and fifteen, as amended, otherwise known as the Revised Penal
Code. If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall
be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense.”
*The criminal liability does not infringe the Constitution because what the law
punishes is the abuse in the use of the commercial facility made by the entrustee.
*This is not a dacion en pago because the liability of the entrustee is not
extinguished from the moment the goods are returned to the entruster.
Transportation Law
TRANSPORTATION LAW
PRELIMINARY CONSIDERATIONS:
A. Governing Laws
5. Salvage Law
Sec. 13 (b) of the Public Service Act provides that: “The term 'public
service' includes every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street railway,
traction railway, sub-way motor vehicle, either for freight or passenger, or
both with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries, and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine railway,
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marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas electric light, heat and power, water supply and power,
petroleum, sewerage system, wire or wireless communications system, wire
or wireless broadcasting stations and other similar public services: Provided,
however, That a person engaged in agriculture, not otherwise a public
service, who owns a motor vehicle and uses it personally and/or enters into
a special contract whereby said motor vehicle is offered for hire or
compensation to a third party or third engaged in agriculture, not itself or
themselves a public service, for operation by the latter for a limited time and
for a specific purpose directly connected with the cultivation of his or their
farm, the transportation, processing, and marketing of agricultural products
of such third party or third parties shall not be considered as operating a
public service for the purposes of this Act.”
Public utilities are privately owned and operated business whose services
are essential to the general public.
Sec. 11 of Article XII of the 1987 Constitution states that: “No franchise,
certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must
be citizens of the Philippines.”
Sec. 18 of Article XII of the 1987 Constitution provides that: “The State
may, in the interest of national welfare or defense, establish and operate vital
industries and, upon payment of just compensation, transfer to public
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D. Regulatory agencies
*In Tatad v Garcia, the SC held that the controlling factor is the citizenship
of the person operating a common carrier.
Guiding Principles:
1. Prior or Old Operator Rule – the first licensee will be protected in
his investment and will not be subjected to ruinous competition.
Factors:
1. Public interest
2. Public convenience
3. Public necessity
GENERAL CONCEPTS:
B. Perfection
C. Common Carrier
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1. Statutory definition
Article 1732 of the New Civil Code provides that: “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.”
Distinctions:
*The SC held that the following services are not considered a common carrier:
*In Crisostomo v CA, the SC held that the respondent being a travel agency is not
a common carrier because the services offered is not one that carries passenger
from one place to another.
Tests:
a. Carriage of passengers:
1. Common carrier
2. Passengers
b. Carriage of goods:
1. Shipper
2. Carrier
Registered owner rule states that the person who is the registered owner
of a vehicle is liable for any damages caused by the negligent operation of
the vehicle although the same was already sold or conveyed to another
person at the time of the accident. The registered owner is liable to the
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injured party subject to his right of recourse against the transferee or the
buyer.
Purpose of this rule: easy identification of the owner to be sued for liability.
Recourse: Registered owner may bring the case to the court to sue the
buyer or operator of the vehicle at fault.
*In the case of Duavit v CA, the SC held that the registered owner is not
liable if the vehicle was taken from his garage without his knowledge or
consent. To hold the registered owner liable would be absurd as it would be
holding liable the owner of a stolen vehicle for an accident caused by the
person who stole such vehicle.
*If the registered owner and the buyer entered into this transaction they are
In pari delicto thus, in case something happen the court will not aid them.
The court will leave them as they were.
Reason: The nature of the business is imbued with public interest and
public policy; because of the exigencies of the business. The public has
no choice but to trust on the skills of the employees of the common
carrier. The goods and the life of the passenger are placed in the hands of
the common carrier.
Article 364 of the Code of Commerce provides that: “If the effect of the
damage referred to in Article 361 is merely a diminution in the value of the
gods, the obligation of the carrier shall be reduced to the payment of the
amount which, in the judgment of experts, constitutes such difference in
value.”
Presumption of negligence
Article 1735 of the New Civil Code provides that: “In all cases other
than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if
the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they
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2. Duration of liability
Article 1736 of the New Civil Code states that: “The extraordinary
responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of Article 1738.”
Article 1737 of the New Civil Code states that: “The common carrier's
duty to observe extraordinary diligence over the goods remains in full
force and effect even when they are temporarily unloaded or stored in
transit, unless the shipper or owner has made use of the right of
stoppage in transitu.”
Article 1738 of the New Civil Code provides that: “The extraordinary
liability of the common carrier continues to be operative even during the
time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.”
Article 1734 of the New Civil Code provides that: “Common carriers are
responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
General Rule: Common carriers are responsible for the loss, destruction
or deterioration of the goods.
Exceptions:
Article 1740 of the New Civil Code states that: “If the common carrier
negligently incurs in delay in transporting the goods, a natural disaster
shall not free such carrier from responsibility.”
a. Fortuitous event
Article 1739 of the New Civil Code provides that: “In order that the
common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent
or minimize loss before, during and after the occurrence of flood,
storm or other natural disaster in order that the common carrier may
be exempted from liability for the loss, destruction, or deterioration of
the goods. The same duty is incumbent upon the common carrier in
case of an act of the public enemy referred to in Article 1734, No. 2.”
Requisites:
b. Public enemy
Article 1739 of the New Civil Code states that: “In order that the
common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent
or minimize loss before, during and after the occurrence of flood,
storm or other natural disaster in order that the common carrier may
be exempted from liability for the loss, destruction, or deterioration of
the goods. The same duty is incumbent upon the common carrier in
case of an act of the public enemy referred to in Article 1734, No. 2.”
*In Compania Maritima v CA, the SC held that the common carrier is
also at fault; the common carrier should have exercise extraordinary
diligence by not relying solely on the statement of the shipper; it
should have conducted its own weighing. In this case the common
carrier is not totally absolved from its liability.
d. Improper packing
Article 1742 of the New Civil Code states that: “Even if the loss,
destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the
containers, the common carrier must exercise due diligence to
forestall or lessen the loss.”
*If the defect is apparent, the carrier may refuse to accept the goods
for carriage; if the shipper insists, the remedy is to make a
protestation; make a foul bill of lading.
*In Iron Bulk v CA (Dec. 8, 2003), carrier issued pro forma bill of
lading stated where in that it accepted goods in good condition. The
goods arrived defective. The SC held that the carrier is not exempt
from liability because it accepted the goods without protestation.
*Foul Bill of Lading preserves the right of the carrier to use the excuse
provided in 1734.
Article 1743 of the New Civil Code states that: “If through the order
of public authority the goods are seized or destroyed, the common
carrier is not responsible, provided said public authority had power to
issue the order.”
*The important requisite is that the public authority has the power to
issue an order.
Case: Ganzon v CA
Article 1741 of the New Civil Code states that: “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 in damages, which however, shall be equitably
reduced.”
Article 1744 of the New Civil Code states that: “A stipulation between
the common carrier and the shipper or owner limiting the liability of the
former for the loss, destruction, or deterioration of the goods to a degree
less than extraordinary diligence shall be valid, provided it be:
Article 1748 of the New Civil Code provides that: “An agreement
limiting the common carrier's liability for delay on account of strikes or
riots is valid.”
Article 1749 of the New Civil Code states that: “A stipulation that the
common carrier's liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is
binding.”
Article 1750 of the New Civil Code provides that: “A contract fixing the
sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed
upon.”
a. Requisites
Article 1751 of the New Civil Code provides that: “The fact that the
common carrier has no competitor along the line or route, or a part
thereof, to which the contract refers shall be taken into consideration
on the question of whether or not a stipulation limiting the common
carrier's liability is reasonable, just and in consonance with public
policy.”
b. Invalid stipulations
Article 1745 of the New Civil Code states that: “Any of the following
or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction,
or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the
custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less
than that of a good father of a family, or of a man of ordinary prudence
in the vigilance over the movables transported; (5) That the common
carrier shall not be responsible for the acts or omission of his or its
employees;
(6) That the common carrier's 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;
(7) 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.”
*Even if they agreed with regard to numbers 1,2 and 3, the stipulation
is void because it is contrary to public policy because all these
stipulations exempt the carrier from liability.
c. Effect of delay
Article 1747 of the New Civil Code states that: “If the common
carrier, without just cause, delays the transportation of the goods or
changes the stipulated or usual route, the contract limiting the
common carrier's liability cannot be availed of in case of the loss,
destruction, or deterioration of the goods.”
Article 1752 of the New Civil Code states that: “Even when there is
an agreement limiting the liability of the common carrier in the
vigilance over the goods, the common carrier is disputably presumed
to have been negligent in case of their loss, destruction or
deterioration.”
B. Other obligations
viii.Strike; and
a. Time of delivery
b. Consequences of delay
Article 1740 of the New Civil Code provides that: “If the common
carrier negligently incurs in delay in transporting the goods, a natural
disaster shall not free such carrier from responsibility.”
Article 1747 of the New Civil Code provides that: “If the common
carrier, without just cause, delays the transportation of the goods or
changes the stipulated or usual route, the contract limiting the
common carrier's liability cannot be availed of in case of the loss,
destruction, or deterioration of the goods.”
Article 370 of the Code of Commerce provides that: “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. If no indemnity has been stipulated
and the delay exceeds the time fixed in the bill of lading, the carrier
shall be liable for the damages which the delay may have caused.”
Article 372 of the Code of Commerce states that: “The value of the
goods which the carrier must pay in cases of loss or misplacement
shall be determined in accordance with that declared in the bill of
lading, the shipper not being allowed to present proof that among the
goods declared therein there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and
accessory means of transportation shall be especially bound in favour
of the shipper, although with respect to railroads said liability shall be
subordinated to the provisions of the laws of concession with respect
to the property, and to what this Code established as to the manner
and form of effecting seizures and attachments against said
companies.”
Article 373 of the Code of Commerce states that: “The carrier who
makes the delivery of the merchandise to the consignee by virtue of
combined agreements or services with other carriers shall assume the
obligations of those who preceded him in the conveyance, reserving
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his right to proceed against the latter if he was not the party directly
responsible for the fault which gave rise to the claim of the shipper or
consignee. The carrier who makes the delivery shall likewise acquire
all the actins and rights of those who preceded him in the conveyance.
The shipper and the consignee shall have an immediate right of action
against the carrier who executed the transportation contract, or
against the other carriers who may have received the goods
transported without reservation. However, the reservation made by the
latter shall not relieve them from the responsibilities which they may
have incurred by their own acts.”
Effects of delay:
c. Place of Delivery
A. Safety of Passengers
Article 1755 of the New Civil Code provides that: “A common carrier is
bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances.”
*There are claims not really focused on death, injuries, loss or damage of
goods but concentrates on moral damages; and the SC said that these
claims can still prosper in because there is still a breach of contract of
carriage.
*In CAL v PAL, the SC held that hijacking of the airplane is considered to
be a force majeure thus cannot held the carrier liable.
*In Japan Airlines v Asuncion (January 28, 2005), the SC held that the
things invoked by the respondent do not fall within the ambit of
extraordinary diligence. Though it is the duty of the carrier to check that
travel documents are with the passengers but it is not under the
obligation of the carrier to check the veracity of the information in the
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travel document; it also held that the obligation of the carrier is limited to
endorsing and not to influence. The issue of whether or not an alien be
admitted entrance to a country is a sovereign act and such cannot be
interfered by the petitioner.
2. Duration of liability
*In LRTA v Navidad, the SC held the petitioner carrier liable for breach of
contract. The SC held that Nicanor Navidad was a passenger when he
died after he fell on the LRT tracks and was struck by a moving train. He
was considered a passenger because he entered the LRT station after
having purchased a token and he fell while he was on the platform
waiting for a train. Thus, he was where he was supposed to be with the
intention of boarding a train.
*Once created, the relationship will not ordinarily terminate until the
passenger has, after reaching his destination, safely alighted from the
carrier’s conveyance or has had a reasonable opportunity to leave the
carrier’s premises. All persons who remain on the premises within 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 includes
reasonable time to look after his baggage and prepare for his departure.
*In La Mallorca v CA, the SC held that there was a breach of duty to
exercise extraordinary diligence with respect to the 4 year old child and
the carrier is liable as a consequence. The presence of passengers near
the bus was not unreasonable and they were, therefore, to be considered
still as passengers of the carrier, entitled to the protection under their
contract.
3. Presumption of negligence
Article 1756 of the New Civil Code states that: “In case of death of or
injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.”
Article 1759 of the New Civil Code provides that: “Common carriers are
liable for the death of or injuries to passengers through the negligence or
wilful acts of the former's employees, although such employees may
have acted beyond the scope of their authority or in violation of the
orders of the common carriers.
This 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.”
Article 1763 of the New Civil Code provides that: “A common carrier is
responsible for injuries suffered by a passenger on account of the wilful
acts or negligence of other passengers or of strangers, if the common
carrier's employees through the exercise of the diligence of a good father
of a family could have prevented or stopped the act or omission. “
Article 1757 of the New Civil Code provides that: “The responsibility of
a common carrier for the safety of passengers as required in Articles
1733 and 1755 cannot be dispensed with or lessened by stipulation, by
the posting of notices, by statements on tickets, or otherwise.”
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Article 1758 of the New Civil Code provides that: “When a passenger is
carried gratuitously, a stipulation limiting the common carrier's liability for
negligence is valid, but not for wilful acts or gross negligence.
The reduction of fare does not justify any limitation of the common
carrier's liability.”
Article 1760 of the New Civil Code states that: “The common carrier's
responsibility prescribed in the preceding article cannot be eliminated or
limited by stipulation, by the posting of notices, by statements on the
tickets or otherwise.”
B. Passenger’s Baggages
Article 1754 of the New Civil Code provides that: “The provisions of
Articles 1733 to 1753 shall apply to the passenger's baggage which is not in
his personal custody or in that of his employee. As to other baggage, the
rules in Articles 1998 and 2000 to 2003 concerning the responsibility of
hotel-keepers shall be applicable.”
Article 1998 of the New Civil Code states that: “The deposit of effects
made by the travellers in hotels or inns shall also be regarded as necessary.
The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to
the care and vigilance of their effects.”
Article 2000 of the New Civil Code states that: “The responsibility referred
to in the two preceding articles shall include the loss of, or injury to the
personal property of the guests caused by the servants or employees of the
keepers of hotels or inns as well as strangers; but not that which may
proceed from any force majeure. The fact that travellers are constrained to
rely on the vigilance of the keeper of the hotels or inns shall be considered in
determining the degree of care required of him.”
Article 2001 of the New Civil Code provides that: “The act of a thief or
robber, who has entered the hotel is not deemed force majeure, unless it is
done with the use of arms or through an irresistible force.”
Article 2002 of the New Civil Code provides that: “The hotel-keeper is not
liable for compensation if the loss is due to the acts of the guest, his family,
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servants or visitors, or if the loss arises from the character of the things
brought into the hotel.”
Article 2003 of the New Civil Code provides that: “The hotel-keeper cannot
free himself from responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation between the
hotel-keeper and the guest whereby the responsibility of the former as set
forth in articles 1998 to 2001 is suppressed or diminished shall be void.”
*They are not absolutely responsible as depository because the law requires
notice.
*The carrier who has in his custody the baggage of the passenger to be
carried like any other goods is required to observe extraordinary diligence. In
case of loss or damage the carrier is presumed negligent.
Article 1761 of the New Civil Code provides that: “The passenger must
observe the diligence of a good father of a family to avoid injury to himself.”
Article 1762 of the New Civil Code states that: “The contributory
negligence of the passenger does not bar recovery of damages for his death
or injuries, if the proximate cause thereof is the negligence of the common
carrier, but the amount of damages shall be equitably reduced.”
*The carrier may be able to prove that the only cause of the loss of the
goods is any of the following acts of the shipper:
*The shipper must likewise see to it that the goods are properly packed;
otherwise, liability of the carrier may be mitigated or barred depending on
the circumstances.
B. Payment of freight
Shipper - before or at the time he delivers the goods to the carrier for
shipment.
Passengers - they are contractually bound to pay the fare within such time
as prescribed by regulations or by the carrier.
Time to pay:
Consignees to whom the shipment was made may not defer the payment of
the expenses and transportation charges of the goods they receive after the
lapse of 24 hours following their delivery.
*In case of delay in payment, the carrier may demand the judicial sale of the
goods transported in an amount necessary to cover the cost of
transportation and the expenses incurred.
Article 374 of the Code of Commerce provides that: “The carrier who
makes the delivery of the merchandise to the consignee by virtue of
combined agreements or services with other carriers shall assume the
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obligations of those who preceded him in the conveyance, reserving his right
to proceed against the latter if he was not the party directly responsible for
the fault which gave rise to the claim of the shipper or consignee. The carrier
who makes the delivery shall likewise acquire all the actions and rights of
those who preceded him in the conveyance. The shipper and the consignee
shall have an immediate right of action against the carrier who executed the
transportation contract, or against the other carriers who may have received
the goods transported without reservation. However, the reservation made
by the latter shall not relieve them from the responsibilities which they may
have incurred by their own acts.”
*Liability for demurrage exists only when expressly stipulated in the contract.
EXTRAORDINARY DILIGENCE:
A. Underlying reason
Reasons:
2. Relationship of trust;
B. Effect of Stipulation
Article 1744 of the New Civil Code states that: “A stipulation between
the common carrier and the shipper or owner limiting the liability of the
former for the loss, destruction, or deterioration of the goods to a degree
less than extraordinary diligence shall be valid, provided it be:
Article 1757 of the New Civil Code states that: “The responsibility of a
common carrier for the safety of passengers as required in Articles 1733
and 1755 cannot be dispensed with or lessened by stipulation, by the
posting of notices, by statements on tickets, or otherwise.”
Article 1758 of the New Civil Code states that: “When a passenger is
carried gratuitously, a stipulation limiting the common carrier's liability for
negligence is valid, but not for wilful acts or gross negligence.
The reduction of fare does not justify any limitation of the common
carrier's liability.”
Article 1760 of the New Civil Code states that: “The common carrier's
responsibility prescribed in the preceding article cannot be eliminated or
limited by stipulation, by the posting of notices, by statements on the
tickets or otherwise.”
Sec. 3 [1] of the COGSA provides that: “The carrier shall be bound
before and at the beginning of the voyage to exercise due diligence to
—
(c) Make the holds, refrigerating and cooling chambers, and all other
parts of the ship in which goods are carried, fit and safe for their
reception, carriage, and preservation.”
Sec. 3 [2] of the COGSA provides that: “The carrier shall properly and
carefully load, handle, stow, carry, keep, care for, and discharge the
goods carried.”
*Extraordinary diligence requires that the ship which will transport the
passengers and goods is seaworthy.
2. Overloading
3. Proper storage
*The ship must not be only seaworthy but it must also be cargoworthy.
The ship must be an efficient storehouse for her cargo.
*If the negligence of the captain and crew can be traced to the fact
that they are really incompetent, the Limited Liability Rule cannot be
invoked because the ship owner may be deemed negligent.
*If route is stipulated upon by the shipper and carrier, carrier can’t
change unless due to force majeure.
*Carrier shall be liable for all losses suffered from any other cause,
beside the sum stipulated for such case.
*If due to said force majeure he took another route and incurred
expenses by reason thereof, he shall be reimbursed for such increase
upon formal proof thereof (Art. 359, Code of Commerce).
Transshipment is the act of taking cargo out of one ship and loading it
in another.
*When done without legal excuse, however competent and safe the
vessel into which the transfer is made, is a violation of the contract
and an infringement of the right of the shipper and subjects the carrier
to liability if the freight is lost even by a cause otherwise excepted
(Magellan Manufacturing Corp. v. CA).
1. Vehicle’s condition
*Owners are required to make sure that the vehicles they are using are
in good order and condition.
3. Obligation to Inspect
5. RA 6235 (An Act Prohibiting Certain Acts Inimical to Civil Aviation and
for Other Purposes) - acts punishable:
Culpa contractual only the carrier is primarily liable and not the driver.
Culpa aquiliana the carrier and the driver are solidarily liable as joint
tortfeasor.
Purpose of notice: To inform the carrier that the shipment has been
damaged and that it is charged with liability therefor, and to give it an
opportunity to make an investigation and fix responsibility while the
matter is fresh.
Prescriptive period:
Exceptions:
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1. COGSA – 1 year
A: NO
*One year period applies to shipper, assignee, insurer, subrogees, and
successor in interest.
Recoverable Damages
The court may award the following damages:
1. Actual/Compensatory Damages
2. Temperate Damages
3. Liquidated Damages
4. Exemplary Damages
5. Moral Damages
6. Nominal Damages
Article 2199 of the Civil Code states that: “Except as provided by law or by
stipulation, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Such compensation is
referred to as actual or compensatory damages.”
Article 2224 of the New Civil Code provides that: “Temperate or moderate
damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss
has been suffered but its amount can not, from the nature of the case, be
provided with certainty.”
*There is no actual certainty of the actual amount loss. The court is allowed
to calculate the amount.
Article 2226 of the New Civil Code provides that: “Liquidated damages are
those agreed upon by the parties to a contract, to be paid in case of breach
thereof.”
Article 2229 of the New Civil Code provides that: “Exemplary or corrective
damages are imposed, by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages.”
*This cannot be awarded unless the plaintiff is entitled to moral at the same
time actual or temperate damages.
Article 2231 of the New Civil Code states that: “In quasi-delicts, exemplary
damages may be granted if the defendant acted with gross negligence.”
Article 2232 of the New Civil Code states that: “In contracts and quasi-
contracts, the court may award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner.”
Article 2233 of the New Civil Code states that: “Exemplary damages
cannot be recovered as a matter of right; the court will decide whether or not
they should be adjudicated.”
Article 2234 of the New Civil Code states that: “While the amount of the
exemplary damages need not be proved, the plaintiff must show that he is
entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be
awarded In case liquidated damages have been agreed upon, although no
proof of loss is necessary in order that such liquidated damages may be
recovered, nevertheless, before the court may consider the question of
granting exemplary in addition to the liquidated damages, the plaintiff must
show that he would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated damages.”
Article 2235 of the New Civil Code states that: “A stipulation whereby
exemplary damages are renounced in advance shall be null and void.”
Nominal damages are not for indemnification of loss but for vindication of a
right violated.
Article 2221 of the New Civil Code provides that: “Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.”
Article 2222 of the New Civil Code states that: “The court may award
nominal damages in every obligation arising from any source enumerated in
Article 1157, or in every case where any property right has been invaded.”
Article 2223 of the New Civil Code states that: “The adjudication of
nominal damages shall preclude further contest upon the right involved and
all accessory questions, as between the parties to the suit, or their
respective heirs and assigns.”
*In Japan Airlines v CA, JAL failed to give the plaintiff the priority for the
first available flight. The SC awarded nominal damages.
Article 2217 of the New Civil Code provides that: “Moral damages include
physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act for
omission.”
MARITIME LAW:
Maritime Law is the system of laws which particularly relates to the affairs
and business of the sea, to ships, their crews and navigation, and to
maritime conveyance of persons and property.
1. Concept
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A: YES
A: Shipowner or Agents.
Article 586 2nd paragraph states that: “By ship agent is understood the
person entrusted with provisioning or representing the vessel in the port
in which it may be found.”
Article 618 1st paragraph states that: “The ship captain shall be civilly
liable to the ship agent, and the latter to the third persons who may have
made contracts with the former; x x x.”
Q: What kind?
Article 587 of the Code of Commerce provides that: “The ship agent
shall also be civilly liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipments and the freight it may have
earned during the voyage.”
Article 837 of the Code of Commerce provides that: “The civil liability
incurred by the shipowners in the case prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances
and freightage earned during the voyage.”
When applicable:
Exceptions:
*Freightage collectible
Q: Why is an exception?
*In Yangco v Laserna case, the SC held that it covers anything that
is connected with maritime transactions
3. Abandonment
Article 587 of the Code of Commerce states that: “The ship agent shall
also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which
he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipments and the freight it may have
earned during the voyage.”
A: All claims should be collated before they can be satisfied from what
remains of the insurance proceeds and freightage at the time of the loss.
No claimant should be given preference over the others by the simple
expedience of having filed or completed its action earlier than the rest.
Thus, the execution of judgment in earlier completed cases, even those
already final and executory, must be stayed pending completion of all
cases occasioned by the subject sinking. Then and only then can all such
claims be simultaneously settled, either completely or pro-rata should the
insurance proceeds and freightage be not enough to satisfy the claim.
C. Vessels
1. Acquisition
a. By prescription
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Requisites:
b. By sale
Article 576 of the Code of Commerce states that: “In the sale of a
vessel it shall always be understood as included the rigging, masts,
stores and engine of a steamer appurtenant thereto, which at the time
belongs to the vendor. The arms, munitions of war, provisions and fuel
shall not be considered as included in the sale. The vendor shall be
under the obligation to deliver to the purchaser a certified copy of the
record sheet of the vessel in the registry up to the date of sale.”
Article 577 of the Code of Commerce states that: “If the alienation
of the vessel should be made while it is on voyage, the freightage
which it earns from the time it receives its last cargo shall pertain
entirely to the purchaser, and the payment of the crew and other
persons who make up its complement for the same voyage shall be
for his account. If the sale is made after the vessel has arrived at the
port of its destination, the freightage shall pertain to the vendor, and
the payment of the crew and other individuals who make up its
complement shall be for his account, unless the contrary is stipulated
in either case.
*If made while it is on voyage, the freightage which it earns from the
time it receives its last cargo shall pertain entirely to the purchaser,
and the payment of the crew and other persons who make up its
complement shall be for his account.
*If made after vessel arrived at port of its destination, freightage shall
pertain to the vendor, and the payment of the crew and other
individuals who make up its complement shall be for his account,
unless the contrary is stipulated in either case.
Article 578 of the Code of Commerce states that: “If the vessel
being on a voyage or in a foreign port, its owner or owners should
voluntarily alienate it, either to Filipinos or to foreigners domiciled in
the capital or in a port of another country, the bill of sale shall be
executed before the consul of the Republic of the Philippines at the
port where it terminates its voyage and said instrument shall produce
no effect with respect to third persons if it is not inscribed in the
registry of the consulate. The consul shall immediately forward a true
copy of the instrument of purchase and sale of the vessel to the
registry of vessels of the port where said vessel is inscribed and
registered. In every case the alienation of the vessel must be made to
appear with a statement of whether the vendor receives its price in
whole or in part, or whether he preserves in whole or in part any claim
on said vessel. In case the sale is made to a Filipino, this fact shall be
stated in the certificate of navigation. When a vessel, being in a
voyage, shall be rendered useless for navigation, the captain shall
apply to the competent judge or court of the port of arrival, should it
be in the Philippines; and should it be in a foreign country, to the
consul of the Republic of the Philippines, should there be one, or,
where there is none, to the judge or court or to the local authority; and
the consul, or the judge or court, shall order an examination of the
vessel to be made. If the consignee or the insurer should reside at said
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c. Registration
Section 810 of the Tariff and Customs Code provides that: “The
Bureau of Customs is vested with exclusive authority over the
registration and documentation of Philippine vessels. By it shall be
kept and preserved the records of registration and of transfers and
encumbrances of vessels; and by it shall be issued all certificates,
licenses or other documents incident to registration and
documentation, or otherwise requisite for Philippine vessels.”
d. Ship’s manifest
Sec. 906 of the Tariff and Customs Code provides that: “Manifests
shall be required for cargo and passengers transported from one place
or port in the Philippines to another only when one or both of such
places is a port of entry.”
Article 587 of the Code of Commerce provides that: “The ship agent
shall also be civilly liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself thereform by
abandoning the vessel with all her equipments and the freight it may have
earned during the voyage.”
Article 589 of the Code of Commerce provides that: “If two or more
persons should be part owners of a merchant vessel, a partnership
shall be presumes as estrablished by the co-owners. This partnership
shall be governed by the resolution of the majority of the members. If
the part-owners should not be more than two, the disagreement of
views, if any, shall be decided by the vote of the member having the
largest interest. If the interests are equal, it should be decided by lot.
The person having the smallest share in the ownership shall have one
vote; and proportionately the other part owners as many votes as they
have parts equal to the smallest one. A vessel may not be detained,
attached or levied upon in execution in its entirety, for the private
debts of a part owner, but the proceedings shall be limited to the
interest which the debtor may have in the vessel, without interfering
with the navigation.”
Article 591 of the Code of Commerce provides that: “All the part
owners shall be liable, in proportion to their respective ownership, for
the expenses for repairing the vessel, and for other expenses which
are incurred by virtue of a resolution of the majority. They shall likewise
be liable in the same proportion for the expenses for the maintenance,
equipment, and provisioning of the vessel, necessary for navigation.”
Article 595 of the Code of Commerce states that: “The ship agent,
whether he is at the same time the owner of the vessel, or a manager
for an owner or for an association of co-owners, must have the
capacity to trade and must be recorded in the merchant’s registry of
the province. The ship agent shall represent the ownership of the
vessel, and may, in his own name and in such capacity, take judicial
and extrajudicial steps in matters relating to commerce.”
Article 596 of the Code of Commerce provides that: “The ship agent
may discharge the duties of captain of the vessel, subject in every
case to the provision of Article 609. If two or more co-owners apply for
the position of captain, the disagreement shall be decided by a vote of
the members; and if the vote should result in a tie, it shall be decided
in favor of the co-owner having the larger interest in the vessel. If the
interests of the applicants should be equal, and there should be a tie,
the matter shall be decided by lot.”
Article 597 of the Code of Commerce states that: “The ship agent
shall designate and come to terms with the captain, and shall contract
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in the name of the owners, who shall be bound in all that refer to
repairs, details equipment, armament, provisions of food and fuel, and
freight of the vessel, and, in general, in all that relate to the
requirements of navigation.”
Article 598 of the Code of Commerce states that: “The ship agent
may not order a new voyage, or make contracts for a new charter, or
insure the vessel, without the authorization of its owner or resolution of
the majority of the co-owners, unless these powers were granted him
in the certificate of his appointment. If he insures the vessel without
authorization therefore, he is subsidiarily liable for the solvency of the
insurer.”
Article 599 of the Code of Commerce states that: “The ship agent
managing for an association shall render to his associates an account
of the results of each voyage of the vessel, without prejudice to always
having the books and correspondence relating to the vessel and to its
voyages at their disposal.”
Article 600 of the Code of Commerce states that: “After the account
of the managing agent has been approved by a relative majority, the
co-owners shall pay the expenses in proportion to their interest,
without prejudice to the civil or criminal actions which the minority
may deem fit to institute afterwards. In order to enforce the payment,
the managing agent shall be entitled to an executor action (‘accion
ejecutiva’), which shall be instituted by virtue of a resolution of the
majority, and without further proceedings than the acknowledgment of
the signatures of the persons who voted for the resolution.”
Article 602 of the Code of Commerce states that: “The ship agent
shall indemnify the captain for all the expenses he may have incurred
with funds of his own or of others, for the benefit of the vessel.”
*The ship agent is entrusted with the provisioning and representing the
vessel in the port in which it may be found. His liability to passengers
and cargo owners for loss or injury is the same as the shipowner.
*He is solidarily liable with the owner for such loss or damage subject
to his right to claim reimbursement from the shipowner.
a. Qualifications
while on a voyage, the repairs on the hull and engines of the vessel
and in its rigging and equipment, which are absolutely necessary to
enable it to continue and finish its voyage; but if he should arrive at a
point where there is a consignee of the vessel, he shall act in
concurrence with the latter.”
4. Before receiving cargo, to make with the officers of the crew and
two experts, if required by the shippers and passengers, an
examination of the vessel, in order to ascertain whether it is water-
tight, with the rigging and engines in good condition, and with the
equipment required for good navigation, preserving under his
responsibility a certificate of the memorandum of his inspection,
signed by all those who may have taken part therein. The experts shall
be appointed, one by the captain of the vessel and another by those
who request its examination, and in case of disagreement a third shall
be appointed by the marine authority of the port or by the authority
exercising his functions;
5. To remain constantly on board the vessel with the crew while the
cargo is being taken on board and to carefully watch the stowage
thereof; not to consent to the loading of any merchandise or matter of
a dangerous character, such as inflammable or explosive substances,
without the precautions which are recommended for their packing,
handling and isolation; not to permit the carriage on deck of any cargo
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10. To place under good care and custody all the papers and
belongings of any members of the crew who might die on the vessel,
drawing up a detailed inventory, in the presence of passengers, or, in
their absence, of members of the crew as witnesses;
12. To inform the ship agent from the port at which the vessel arrives,
of the reason of his arrival, taking advantage of the semaphore,
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telegraph, mail, etc., as the case may be; to notify him of the cargo he
may have received, stating the names and domiciles of the shippers,
freightage earned, and amounts borrowed on bottomry loan; to advise
him of his departure, and of any operation and date which may be of
interest to him;
14. To remain on board, in case the vessel is in danger, until all hope
to save it is lost, and before abandoning it, to hear the officers of the
crew, abiding by the decision of the majority; and if the boats are to be
taken to, he shall take with him, before anything else, the books and
papers, and then the articles of most value, being obliged to prove, in
case of the loss of the books and papers, that he did all he could to
save them;
15. In case of wreck, to make the proper protest in due form at the
first port of arrival, before the competent authority or the Philippine
consul, within 24 hours, specifying therein all the incidents of the
wreck, in accordance with subdivision 8 of this article;
c. Discretion powers
3. Pilot
a. Concept
E. Charter parties
1. Concept
Charter party is a lease contract by which with the entire ship or some
principal part thereof is let by the owner to another person for a specified
period of time or use.
Kinds:
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Exception: Shipowner may still be held liable if the injury was caused
by unseaworthiness or negligence of the shipowner beyond before the
demise or bareboat took over.
A: YES provided it is not prohibited. This is just like the rule in lease.
Article 652 of the Code of Commerce states that: “A charter party must
be drawn in duplicate and signed by the contracting parties, and when
either does not know how or is not able to do so, by two witnesses at his
request. The charter party shall contain, besides the conditions freely
stipulated, the following circumstances: 1. The kind, name, and tonnage
of the vessel; 2. Its flag and port of registry; 3. The name, surname, and
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domicile of the captain; 4. The name, surname, and domicile of the ship
agent, if the latter should make the charter party; 5. The name, surname,
and domicile of the charterer; and if he states that he is acting by
commission, that of the person for whose account he makes the
contract; 6. The port of loading and unloading; 7. The capacity, number
of tons or the weight or measurement which they respectively bind
themselves to load and to transport, or whether the charter party is total;
8. The freightage to be paid, stating whether it is to be a fixed amount for
the voyage or so much per month, or for the space to be occupied, or for
the weight or measure of the goods of which the cargo consists, or in any
other manner whatsoever agreed upon; 9. The amount of primage to be
paid to the captain; 10. The days agreed upon for loading and unloading;
11. The lay days and extra lay days to be allowed and the demurrage to
be paid for each of them.”
Requisites:
1. Consent of the contracting parties
3. Freight
Demurrage is the sum due, by express contract, for the detention of the
vessel, in loading and unloading, beyond the time allowed in the contract
of affreightment, and to any other improper detention or delay beyond the
time set for loading.
1. Definition
Parties:
3. Lender
4. Formalities needed
General Rule: If the property that was collateral was loss, the loan is
extinguished.
b. If the loan is bigger than the value of the collateral, the loan
becomes a simple loan.
Article 726 of the Code of Commerce states that: “If the lender should
prove that he loaned as amount larger than the value of the object liable
for the bottomry loan, on account of fraudulent measures employed by
the borrower, the loan shall be valid only for the amount at which said
object is appraised by experts. The surplus principal shall be returned
with legal interests for the entire time required for repayment.”
Article 727 of the Code of Commerce states that: “If the full amount of
the loan contracted in order to load the vessel should not be used for the
cargo, the balance shall be returned before clearing. The same procedure
shall be observed with regard to the goods taken as loan, if they were not
loaded.”
Article 728 of the Code of Commerce states that: “The loan which the
captain takes at the point of residence of the owners of the vessel shall
only affect that part thereof which belongs to the captain, if the other
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owners or their agents should not have given their express authorization
therefor or should not have taken part in the transaction. If one or more of
the owners should be requested to furnish the amount necessary to
repair or provision the vessel, and they should not do so within 24 hours,
the interest which the parties in default may have in the vessel shall be
liable for the loan in the proper proportion. Outside of the residence of the
owners the captain may contract loans in accordance with the provisions
of Articles 583 and 611.”
Article 729 of the Code of Commerce provides that: “Should the goods
on which money is taken not be subjected to risk, the contract shall be
considered a simple loan, with the obligation on the part of the borrower
to return the principal and interest at the legal rate, if that agreed upon
should not be lower.”
G. Averages
1. Concept
Article 806 of the Code of Commerce provides that: “For the purposes
of this code the following shall be considered averages: 1. All
extraordinary or accidental expenses which may be incurred during the
voyage in order to preserve the vessel, the cargo, or both; 2. Any
damages or deteriorations which the vessel may suffer from the time it
puts to sea from the port of departure until it casts anchor in 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.”
a. Simple average
Q: Who is liable?
b. General average
3. The cables and masts which are cut or rendered useless, the
anchors and the chains which are abandoned, in order to
save the cargo, the vessel, or both;
Article 816 of the Code of Commerce states that: “In order that the
goods jettisoned may be included in the gross average and the
owners thereof be entitled to indemnity, it shall be necessary insofar
as the cargo is concerned that their existence on board be proven by
means of the bill of lading; and with regard to those belonging to the
vessel, by means of the inventory prepared before the departure in
accordance with the first paragraph of Article 812.”
Article 861 of the Code of Commerce provides that: “If, after the
vessel has been saved from the risk which gave rise to the jettison, it
should be lost through another accident taking place during the
voyage, the goods saved and existing from the first risk shall continue
liable to contribution by reason of the gross average according to their
value in the condition in which they may be found, deducting the
expenses incurred in saving them.”
Remedy: Reimbursement
Requisites:
2. That for the common safety part of the vessel or the cargo or
both is sacrificed deliberately;
Formalities:
H. Collisions
1. Definition
Possible damage:
a. Damage to vessel
b. Loss/damage to cargo
Example:
Q: A and B collided, A was found to be negligent, who bears the
consequential damages?
A: With regard to the vessel, each vessel shall be liable for their own
losses. With regard to the cargoes and passengers, they are solidarily
liable.
*In this doctrine, both parties are at fault but only one party is liable. Only
the party who has the last clear opportunity to avoid the impact is held
liable.
3. Rule on liability
Article 826 of the Code of Commerce provides that: “If a vessel should
collide with another, through the fault, negligence, or lack of skill of the
captain, sailing mate, or any other member of the complement, the owner
of the vessel at fault shall indemnify the losses and damages suffered,
after an expert appraisal.”
Article 827 of the Code of Commerce provides that: “If the collision is
imputable to both vessels, each one shall suffer its own damages, and
both shall be solidarily responsible for the losses and damages
occasioned to their cargoes.”
Article 829 of the Code of Commerce states that: “In the cases above
mentioned the civil action of the owner against the person causing the
injury as well as the criminal liabilities, which may be proper, are
reserved.”
Article 830 of the Code of Commerce states that: “If a vessel should
collide with another, through fortuitous event or force majeure, each
vessel and its cargo shall bear its own damages.”
Requisites:
1. The natural disaster must have been the proximate and only
cause of the loss;
3. The common carrier must not have been guilty of delay; and
Article 831 of the Code of Commerce provides that: “If a vessel should
be forced by a third vessel to collide with another, the owner of the third
vessel shall indemnify the losses and damages caused, the captain
thereof being civilly liable to said owner.”
Article 837 of the Code of Commerce states that: “The civil liability
incurred by the shipowners in the case prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances
and freightage.”
1. Concept
The arrival of a vessel at the nearest and most convenient port instead of
the port of destination, if during the voyage the vessel cannot continue
the trip to the port of destination.
Article 819 of the Code of Commerce provides that: “If during the
voyage the captain should believe that the vessel can not continue the
trip to the port of destination on account of the lack provisions, well
founded fear of seizure, privateers, or pirates, or by reason of any
accident of the sea disabling it to navigate, he shall assemble the officers
and shall summon the persons interested in the cargo who may be
present, and who may attend the meeting without the right to vote; and if,
after examining the circumstances of the case, the reason should be
considered well-founded, the arrival at the nearest and most convenient
port shall be agreed upon, drafting and entering the proper minutes,
which shall be signed by all, in the log book. The captain shall have the
deciding vote, and the persons interested in the cargo, may make the
objections and protests they may deem proper, which shall be entered in
the minutes in order that they may make use thereof in the manner they
may consider advisable.”
2. When improper
Article 820 of the Code of Commerce provides that: “An arrival shall
not be considered lawful in the following cases:
1. If the lack of provisions should arise from the failure to take the
necessary provisions for the voyage according to usage and
customs, or if they should have been rendered useless or lost
through bad stowage or negligence in their care;
3. If the defect of the vessel should have arisen from the fact that it
was not repaired, rigged, equipped, and prepared in a manner
suitable for the voyage, or from some erroneous order of the
captain;
3. Expenses
Article 822 of the Code of Commerce provides that: “If in order to make
repairs to the vessel or because there is danger that the cargo may suffer,
it should be necessary to unload, the captain must request the
authorization from the competent judge or court for the removal, and
carry it out with the knowledge of the person interested in the cargo, or
his representative, should there be any. In a foreign port, it shall be the
duty of the Philippine Consul, where there is one, to give the
authorization. In the first case, the expenses shall be for the account of
the ship agent or owner, and in the second, they shall be chargeable
against the owners of the merchandise for whose benefit the act was
performed. If the unloading should take place for both reasons, the
expenses shall be divided proportionately between the value of the vessel
and that of the cargo.”
4. Custody of Cargo
Article 823 of the Code of Commerce provides that: “The custody and
preservation of the cargo which has been unloaded shall be intrusted to
the captain, who shall be responsible for the same, except in cases of
force majeure.”
Article 824 of the Code of Commerce states that: “If the entire cargo or
part thereof should appear to be damaged, or there should be imminent
danger of its being damaged, the captain may request of the competent
judge or court, or of the consul in a proper case, the sale of all or of part
of the former, and the person taking cognizance of the matter shall
authorize it, after an examination and declaration of experts,
advertisements, and other formalities required by the case, and an entry
in the book, in accordance with the provisions of Article 624. The captain
shall, in proper case, justify the legality of his conduct, under the penalty
of answering to the shipper for the price the merchandise would have
brought if they had arrived in good condition at the port of destination.”
5. Captain’s liability
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Article 825 of the Code of Commerce states that: “The captain shall be
responsible for the damages caused by his delay, if after the cause of the
arrival under stress has ceased, he should not continue the voyage. If the
cause of arrival should have been the fear of enemies, privateers, or
pirates, a deliberation and resolution in a meeting of the officers of the
vessel and persons interested in the cargo who may be present, in
accordance with the provisions contained in Article 819, shall precede the
departure.”
Article 840 of the Code of Commerce provides that: “The losses and
deteriorations by a vessel and her cargo by reason of shipwreck or
stranding shall be individually for the account of the owners, the part
which may be saved belonging to them in the same proportion.”
Article 841 of the Code of Commerce states that: “If the wreck or
stranding should be caused by the malice, negligence, or lack of skill of
the captain, or because the vessel put to sea was insufficiently repaired
and equipped, the ship agent or the shippers may demand indemnity of
the captain for the damages caused to the vessel or to the cargo by the
accident, in accordance with the provisions contained in Articles 610,
612, 614, and 621.”
Article 842 of the Code of Commerce states that: “The goods saved
from the wreck shall be specially bound for the payment of the expenses
of the respective salvage, and the amount thereof must be paid by the
owners of the former before they are delivered to them, and with
preference over any other obligation if the merchandise should be sold.”
Article 843 of the Code of Commerce states that: “If several vessels
sail under convoy, and any of them should be wrecked, the cargo saved
shall be distributed among the rest in proportion to the amount which
each one is able to take. If any captain should refuse, without sufficient
cause, to receive what may correspond to him, the captain of the
wrecked vessel shall enter a protest against him, before two sea officials,
of the losses and damages resulting therefrom, ratifying the protest within
24 hours after arrival at the first port, and including it in the proceedings
he must institute in accordance with the provisions contained in Article
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612. If it is not possible to transfer to the other vessels the entire cargo of
the vessel wrecked, the goods of the highest value and smallest volume
shall be saved first, the designation thereof to be made by the captain
with the concurrence of the officers of his vessel.”
Article 845 of the Code of Commerce provides that: “If on the vessel
there should be no person interested in the cargo who can pay the
expenses and freightage corresponding to the salvage, the competent
judge or court may order the sale of the part necessary to cover the
same. This shall also be done when its preservation is dangerous, or
when in a period of one year it should not have been possible to
ascertain who are its legitimate owners. In both cases the proceedings
shall be with the publicity and formalities prescribed in Article 579, and
the net proceeds of the sale shall be safely deposited, in the discretion of
the judge or court, so that they may be delivered to the legitimate owner
thereof.”
J. Salvage
1. Definition
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- Services one person render to the owner of a ship or goods, by his own
labor, preserving the goods or the ship which the owner or those
entrusted with the care of them have either abandoned in distress at sea,
or are unable to protect or secure.
Salvors Owners
Entitled to compensation for He does not renounce his
services rendered right to the derelict
Acquires a lien upon the Has a right to the delivery
property salvaged until he is of the vessel or things
compensated saved after the salvage is
accomplished, provided he
pays or gives a bond
To all intents and purposes, Should make a claim within
he is a joint owner and if the 3 months after the
property is lost he must bear publication of a salvage
his share report, otherwise the thing
saved shall be sold
Acquires the right of Entitled to the salvage
possession of derelict for reward for the use of his
purposes of a salvage claim vessel in rendering salvage
services
Entitled to half of the
deposit of the derelict sold,
if after the lapse of 3 years
no claim was made
WARSAW CONVENTION:
1. International transportation
2. Air transportation
*The Convention does not apply to transportation performed under the terms of
any international postal convention.
When inapplicable:
Transportation Documents:
Limit of Liability:
1. Passenger:
*1.51 US Dollar
2. Checked in baggage:
4. Goods to be shipped:
1. Notice of claim
2. Prescriptive period
Venue:
At the option of the plaintiff, the action for damages may be filed in the:
3. Court where it has a place of business through which the contract has
been made; or
*In Santos III v Northwest Airline, the SC held that the forum of action is a matter
of jurisdiction rather than of venue.
Insurance Law
INTRODUCTION:
GSIS Act
Act 1498
A: Insurer
A: Insured
C. Characteristics
*The risk is distributed to the group of persons having the same risk.
Catch: not all policyholders will suffer the same risk at the same time.
Q: Is there a contract?
A: YES.
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A: NO. Because the contract was already prepared by the insurer, the
only thing that the insured can do is either take it wholly or leave it.
*The insurer becomes liable upon the happening of the peril insured
against.
*Since there was an assumption of risk on the part of the insurer, it is their
duty to make an intelligent estimates that is the reason why it requires the
parties to the contract of insurance to disclose conditions affecting the
risk of which he is aware, or material fact, which the applicant knows, and
those, which he ought to know.
*Material facts are facts needed by the insurer for the determination of
whether he will assume or not the risk.
D. Elements of Insurance
2. Risk of loss
3. Assumption of risks
5. Payment of premiums
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E. Right of Subrogation
*The insurer can only recover from the third person what the insured could
have recovered. Thus, there can be no recovery if the insurer voluntarily paid
even if the loss is not covered by the policy.
*The insured can no longer recover from the offending party what was paid
to him by the insurer but he can recover any deficiency, that is, if his
damages is more than what was paid. The deficiency is not covered by the
right of subrogation.
2. Where the insurer pays the insured for a loss or risk not covered by
the policy
3. In life insurance
CONTRACT OF INSURANCE:
B. Perfection
*In Great Pacific Life Assurance Corporation v CA, the SC held that the
insured is the one making the offer by submitting an application to the
insurer and the latter accepts the offer by approving the application. Thus,
mere submission of the application without the corresponding approval of
the policy does not result in the perfection of the contract of insurance.
Sec. 7 of the Insurance Code states that: “Anyone except a public enemy
may be insured.”
General Rule: When one insures his own life, he may designate any person
as the beneficiary, whether or not the beneficiary has an insurable interest in
the life of the insured.
*The designation of persons mentioned in Article 739 is void but the policy is
binding.
*In property insurance, the beneficiary must have insurable interest on the
property.
Sec. 11 of the Insurance Code states that: “The insured shall have the right
to change the beneficiary he designated in the policy, unless he has
expressly waived this right in said policy.” *The designation is revocable
unless the right to revoke is expressly waived in the policy.
*In life or health insurance, the insured cannot assign the policy if the
designation of the beneficiary is irrevocable. Reason: The irrevocable
beneficiary has vested right.
*If the insured refuses to pay the premiums, the designated irrevocable
beneficiary may continue the policy by paying premiums that are due.
(Article 1236 NCC)
A: YES. Under Article 42 of the Family Code, Article 43 (4) of the Family
Code, Article 50 of the Family Code and Article 64 of the Family Code.
1. Rule on minors
Sec. 3 of the Insurance Code states that: “Any minor of the age of
eighteen years or more, may, notwithstanding such minority, contract for
life, health and accident insurance, with any insurance company duly
authorized to do business in the Philippines, provided the insurance is
taken on his own life and the beneficiary appointed is the minor's estate
or the minor's father, mother, husband, wife, child, brother or sister.”
Sec. 3 of the Insurance Code provides that: “The married woman or the
minor herein allowed to take out an insurance policy may exercise all the
rights and privileges of an owner under a policy.”
Sec. 4 of the Insurance Code states that: “The preceding section does not
authorize an insurance for or against the drawing of any lottery, or for or
against any chance or ticket in a lottery drawing a prize.”
Sec. 4 of the Insurance Code states that: “The preceding section does not
authorize an insurance for or against the drawing of any lottery, or for or
against any chance or ticket in a lottery drawing a prize.”
Reason: The insured should not be happy because of the loss he suffered.
A: Insurable interest.
INSURABLE INTEREST:
(a) Of himself, of his spouse and of his children; (b) Of any person on whom
he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(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 the performance; and
(d) Of any person upon whose life any estate or interest vested in him
depends.”
*In life insurance, persons prohibited to make donation to each other are
also prohibited to become beneficiaries of each other.
(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises.”
Sec. 19 of the Insurance Code states that: “An interest in property insured
must exist when the insurance takes effect, and when the loss occurs, but
not exist in the meantime; and interest in the life or health of a person
insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.”
Sec. 20 of the Insurance Code states that: “Except in the cases specified
in the next four sections, and in the cases of life, accident, and health
insurance, 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.”
Sec. 8 of the Insurance Code states that: “Unless the policy otherwise
provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is deemed to
be upon the interest of the mortgagor, who does not cease to be a party
to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it
had been performed by the mortgagor.”
Basis: Sec. 8 of the Insurance Code states that: “Unless the policy
otherwise provides, where a mortgagor of property effects insurance
in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of
his, prior to the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to
be performed by the mortgagor, may be performed by the mortgagee
therein named, with the same effect as if it had been performed by the
mortgagor.”
Sec. 9 of the Insurance Code states that: “If an insurer assents to the
transfer of an insurance from a mortgagor to a mortgagee, and, at the
time of his assent, imposes further obligation on the assignee, making
a new contract with him, the act of the mortgagor cannot affect the
rights of said assignee.”
Article 1306 of the New Civil Code provides that: “The contracting
parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
Insurable Interest I n s u r a b l e
in Property Interest in Life
As to Limited to the G e n e ra l R u l e :
measure actual value of the Insurable Interest
interest in the in life is
property. unlimited.
Exception: In life
i n s u r a n c e
effected by a
creditor on the
life of the
debtor.
As to time The insurable General Rule: It
w h e n interest exists when is enough that
insurable the insurance takes the insurable
interest effect and when the interest exists at
must exist loss occurs but not the time the
need exist in the policy takes
meantime. effect and need
not exist at the
time of the loss.
Exception:
Obligee must
have insurable
interest at the
time the policy
took effect and
at the time of
loss.
As to There must be a The expectation
expectatio legal basis. of the benefit to
n of be derived need
benefit to not have any
be derived legal basis.
MZVC - Commercial Law Review 259 of 335
A: Insured.
*Concealment and representation are devices that are related to the formation of
the contract whereas warranties and condition are devices that are related to the
execution of the contract.
A. Concealment
1. Concept
2. Duty to Communicate
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3. Test of Materiality
*The fact disclosed may not be the proximate cause of the loss still there
is breach because there is a vitiation of consent, the contract is voidable.
4. Effect of Concealment
*It vitiates the contract and entitles the insurer to rescind, even if the
death or loss is due to a cause not related to the concealed matter.
(b) 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;
(d) Those which prove or tend to prove the existence of a risk excluded
by a warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are
not otherwise material.”
6. Waiver of Information
B. Representation
1. Concept
2. Kinds of Representation
3. Test of Materiality
*Facts that may probably and reasonably influence the other party in
forming his estimate.
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
two 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 rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his
agent.”
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
two 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 rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his
agent.”
*If the insured dies within 2 year period, the insurer may still rescind the
contract. If the insured died after the 2 year period, the insurer cannot
rescind the contract.
8.
D. Warranties
Examples:
2. Notice of loss
3. Proof of loss
Warranty Representation
Part of the contract A collateral inducement
Written on the policy or in a Need not be written
valid rider or attachment
Generally conclusively Should be established to be
presumed to be material material
The fact warranted must be Re q u i r e s o n l y t o b e
strictly complied with substantially true
2. Kinds of Warranties
1. Express
4. Effect of Breach
Sec. 75 of the Insurance Code states that: “A policy may declare that a
violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.”
POLICY OF INSURANCE:
Sec. 49 of the Insurance Code states that: “The written instrument in which
a contract of insurance is set forth, is called a policy of insurance.”
Sec. 50 of the Insurance Code provides that: “The policy shall be in printed
form which may contain blank spaces; and any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided therein. Any rider,
clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on
the insured, unless the descriptive title or name of the rider, clause, warranty
or endorsement is also mentioned and written on the blank spaces provided
in the policy. Unless applied for by the insured or owner, any rider, clause,
warranty or endorsement issued after the original policy shall be
countersigned by the insured or owner, which countersignature shall be
taken as his agreement to the contents of such rider, clause, warranty or
MZVC - Commercial Law Review 267 of 335
*Contract of insurance may be made in any form but the policy of insurance
must be in writing.
(b) The amount to be insured except in the cases of open or running policies;
(e) The interest of the insured in property insured, if he is not the absolute
owner thereof;
*Riders, together with other attachments to the policy like clause, warranty
or endorsements, are not binding on the insured unless the descriptive title
or name thereof is mentioned and written on the blank spaces provided in
the policy.
*Riders and the like shall be countersigned by the insured or owner unless
he was the one who applied for the rider, clause, and warranty.
*When the requirements for a rider are complied with including clause,
warranty or endorsement, it is considered part of the policy.
E. Kinds of Policy
1. Open
Sec. 60 of the Insurance Code states that: “An open policy is one in
which the value of the thing insured is not agreed upon, but is left to be
ascertained in case of loss.”
Disadvantage: hassle
Example:
2. Valued
Example:
The insured can recover the whole P1M without proving the actual value
of the property.
3. Running
F. Cover Notes
Sec. 52 of the Insurance Code provides that: “Cover notes may be issued
to bind insurance temporarily pending the issuance of the policy. Within
sixty days after the issue of the cover note, a policy shall be issued in lieu
thereof, including within its terms the identical insurance bound under the
cover note and the premium therefor. Cover notes may be extended or
renewed beyond such sixty days with the written approval of the
Commissioner if he determines that such extension is not contrary to and is
not for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing such
extensions for the purpose of preventing such violations and may by such
rules and regulations dispense with the requirement of written approval by
him in the case of extension in compliance with such rules and regulations. “
*In Pacific Timber Export Corporation v CA, the SC held that no separate
premium is required for the cover note. As an exception, the parties may
agree otherwise.
G. Cancellation of Policy
Sec. 64 of the Insurance Code states that: “No policy of insurance other
than life shall be cancelled by the insurer except upon prior notice thereof to
the insured, and no notice of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the policy, of one or more of
the following:
(b) conviction of a crime arising out of acts increasing the hazard insured
against;
(e) physical changes in the property insured which result in the property
becoming uninsurable; or
Prescriptive Period:
Oral = 6 years; written= 10 years
Sec. 65 of the Insurance Code states that: “All notices of cancellation
mentioned in the preceding section shall be in writing, mailed or delivered to
the named insured at the address shown in the policy, and shall state (a)
which of the grounds set forth in section sixty-four is relied upon and (b)
that, upon written request of the named insured, the insurer will furnish the
facts on which the cancellation is based.”
Sec. 66 of the Insurance Code states that: “In case of insurance other than
life, unless the insurer at least forty-five days in advance of the end of the
policy period mails or delivers to the named insured at the address shown in
the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the named
insured shall be entitled to renew the policy upon payment of the premium
due on the effective date of the renewal. Any policy written for a term of less
MZVC - Commercial Law Review 271 of 335
than one year shall be considered as if written for a term of one year. Any
policy written for a term longer than one year or any policy with no fixed
expiration date shall be considered as if written for successive policy periods
or terms of one year.”
PREMIUM:
A. Concept
stipulation therein that it shall not be binding until the premium is actually
paid.”
Exceptions:
Requisites:
4. Where a credit term was agreed upon like the agreement in UCPB
General Insurance, Inc. v Masagana Telemart where the insurer
granted a 60-90 day credit term for the payment of the premiums
despite full awareness of Sec.77;
Article 1306 of the : “New Civil Code states that: “The contracting parties
may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.”
A. Beneficiary
MZVC - Commercial Law Review 274 of 335
Sec. 11 of the Insurance Code provides that: “The insured shall have the
right to change the beneficiary he designated in the policy, unless he has
expressly waived this right in said policy.”
Sec. 53 of the Insurance Code states that: “The insurance proceeds shall
be applied exclusively to the proper interest of the person in whose name or
for whose benefit it is made unless otherwise specified in the policy.”
Sec. 56 of the Insurance Code states that: “When the description of the
insured in a policy is so general that it may comprehend any person or any
class of persons, only he who can show that it was intended to include him
can claim the benefit of the policy.”
Exception: Irrevocable
Exceptions:
4. In cases of annulment
*Under Article 1236 of the New Civil Code, the beneficiary may pay the
premium even against the will of the insurer.
Article 739 of the New Civil Code states that: ”The following donations
shall be void:
(2) Those made between persons found guilty of the same criminal offense,
in consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants,
by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action.”
Sec. 88 of the Insurance Code states that: “In case of loss upon an
insurance against fire, an insurer is exonerated, if notice thereof be not given
to him by an insured, or some person entitled to the benefit of the insurance,
without unnecessary delay.”
Sec. 92 of the Insurance Code provides that: “If the policy requires, by way
of preliminary proof of loss, the certificate or testimony of a person other
than the insured, it is sufficient for the insured to use reasonable diligence to
procure it, and in case of the refusal of such person to give it, then to furnish
reasonable evidence to the insurer that such refusal was not induced by any
just grounds of disbelief in the facts necessary to be certified or testified.”
DOUBLE INSURANCE:
Requisites:
Distinctions:
*There is over-insurance if the total amount exceeds the value of the thing
insured.
Example:
Basis: Sec. 75 of the Insurance Code which provides that: “A policy may
declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.”
Sec. 94 of the Insurance Code states that: “Where the insured is over-
insured by double insurance:
(a) The insured, unless the policy otherwise provides, may claim payment
from the insurers in such order as he may select, up to the amount for which
the insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, the
insured must give credit as against the valuation for any sum received by
him under any other policy without regard to the actual value of the subject
matter insured;
(c) Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by
him under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies,
he must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is
liable under his contract.”
Formula:
Insurance Policy
500000
X = --------- x 1M = 200,000
2.5M
1M
Y = -------- x 1M = 400,000
2.5M
1M
Z = -------- x 1M = 400,000
2.5M
*As far as the excess payment is concern, the excess shall be held in trust
by the insured.
REINSURANCE:
A. Definition
Example:
A: General Rule: NO
Exception: Stipulation stating that the policy is taken for the benefit of the
insured of the first contract of insurance. (Stipulation pour autrui)
A: YES. Immediately arises from the time the liability of X has occur.
B. Nature
Sec. 98 of the Insurance Code provides that: “The original insured has no
interest in a contract of reinsurance.”
Q: Is reinsurance mandatory?
A: General Rule: NO
Exceptions:
Distinctions:
MARINE INSURANCE:
A. Definition
*In Roque v IAC, the SC held that cargo can be the subject of marine
insurance, and once it is entered into, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo, whether he be the
shipowner or not. Although he has no control over the vessel, the shipper
has control in the choice of vessel.
2. “all risks” marine insurance policy means that all risks are
covered unless expressly excepted. The burden rests on the
insurer to prove that the loss is caused by a risk that is excluded.
Sec. 100 of the Insurance Code provides that: “The owner of a ship has
in all cases an insurable interest in it, even when it has been chartered by
one who covenants to pay him its value in case of loss: Provided, That in
this case the insurer shall be liable for only that part of the loss which the
insured cannot recover from the charterer.“
*The insurable interest of the shipowner is over the value of the vessel
and over expected freightage.
Measurement: Ownership
*It does not matter whether the ship was mortgaged or chartered.
Sec. 100 of the Insurance Code states that: “The owner of a ship has
in all cases an insurable interest in it, even when it has been chartered
by one who covenants to pay him its value in case of loss: Provided,
That in this case the insurer shall be liable for only that part of the loss
which the insured cannot recover from the charterer.”
Sec. 101 of the Insurance Code which provides that: “The insurable
interest of the owner of the ship hypothecated by bottomry is only the
excess of its value over the amount secured by bottomry.”
Q: What is bottomry?
A: it is a contract of loan which said loan is used for the repair of the
vessel. The payment of which is conditional.
*Owner incurs loss due to the damage of the vessel but at the same
time he receives gain due to the extinguishment of his loan obligation.
Sec. 102 of the Insurance Code states that: “Freightage, in the sense
of a policy of marine insurance, signifies all the benefits derived by the
owner, either from the chartering of the ship or its employment for the
carriage of his own goods or those of others.”
Sec. 103 of the Insurance Code provides that: “The owner of a ship
has an insurable interest in expected freightage which according to
the ordinary and probable course of things he would have earned but
for the intervention of a peril insured against or other peril incident to
the voyage.”
2. Charterer’s insurable
Sec. 106 of the Insurance Code provides that: “The charterer of a ship
has an insurable interest in it, to the extent that he is liable to be
damnified by its loss.”
E. Concealment
2. Duty to communicate
Sec. 107 of the Insurance Code which provides that: “In marine
insurance each party is bound to communicate, in addition to what is
required by section twenty-eight, all the information which he possesses,
material to the risk, except such as is mentioned in Section thirty, and to
state the exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to disclose.”
3. Opinions or expectations of third persons
Sec. 108 of the Insurance Code which provides that: “In marine
insurance, information of the belief or expectation of a third person, in
reference to a material fact, is material.”
F. Representations
Sec. 112 of the Insurance Code provides that: “The eventual falsity of a
representation as to expectation does not, in the absence of fraud, avoid
a contract of marine insurance.”
1. Seaworthiness
Sec. 113 of the Insurance Code provides that: “In every marine
insurance upon a ship or freight, or freightage, or upon any thing which is
the subject of marine insurance, a warranty is implied that the ship is
seaworthy.”
Example:
On the part of the insurer, the inured warrants that his vessel is ship
worthy. The burden falls on the shipowner/insured of proving
otherwise.
Requisites:
Example:
A: YES. The cargo owner has the control in the selection of the vessel
where his cargoes to be shipped.
Sec. 115 of the Insurance Code provides that: “An implied warranty
of seaworthiness is complied with if the ship be seaworthy at the time
of the of commencement of the risk, except in the following cases:
Example:
(b) When the insurance is upon the cargo which, by the terms of
the policy, description of the voyage, or established custom
of the trade, is to be transhipped at an intermediate port, the
implied warranty is not complied with unless each vessel
upon which the cargo is shipped, or transhipped, be
seaworthy at the commencement of each particular voyage.
(Cargo Policy)”
*There is a single ship that completes the voyage however, the ship
will undergo different degree of perils.
Exceptions:
1. Time policy
2. Cargo policy
3. Voyage policy
Sec. 118 of the Insurance Code provides that: “When the ship
becomes unseaworthy during the voyage to which an insurance
relates, an unreasonable delay in repairing the defect exonerates the
insurer on ship or shipowner's interest from liability from any loss
arising therefrom.”
Sec. 120 of the Insurance Code states that: “Where the nationality or
neutrality of a ship or cargo is expressly warranted, it is implied that the
ship will carry the requisite documents to show such nationality or
neutrality and that it will not carry any documents which cast reasonable
suspicion thereon.”
a. Meaning of deviation
b. When proper
(a) When caused by circumstances over which neither the master nor
the owner of the ship has any control;
(c) When made in good faith, and upon reasonable grounds of belief in
its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or
relieving another vessel in distress.”
Sec. 126 of the Insurance Code states that: “An insurer is not liable
for any loss happening to the thing insured subsequent to an improper
deviation.”
H. Loss
1. Kinds of losses
a. Actual
Sec. 130 of the Insurance Code provides that: “An actual total loss is
cause by:
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for
the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.”
Sec. 132 of the Insurance Code states that: “An actual loss may be
presumed from the continued absence of a ship without being heard
of. The length of time which is sufficient to raise this presumption
depends on the circumstances of the case.”
b. Constructive
Sec. 135 of the Insurance Code states that: “Upon an actual total loss,
a person insured is entitled to payment without notice of abandonment.”
Sec. 137 of the Insurance Code states that: “An insurance confined in
terms to an actual loss does not cover a constructive total loss, but
covers any loss, which necessarily results in depriving the insured of the
possession, at the port of destination, of the entire thing insured.”
(b) If it is injured to such an extent as to reduce its value more than three-
fourths;
(c) 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 three-fourths the value of the thing abandoned or a risk which
a prudent man would not take under the circumstances; or
(d) If the thing insured, being 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 sub-
paragraph. But freightage cannot in any case be abandoned unless the
ship is also abandoned.”
Definition:
Formula:
Requisites:
*If the requisites are satisfied the insurance company cannot refuse to
accept the abandonment.
6. Average
a. Kinds of average:
i. Particular
ii. General
6. It must be necessary
The insurer of the vessel or cargo that are saved is liable for general
average contribution and not for particular average. Only the insurer of
the damaged cargo or vessel is liable for particular average if covered
by the policy.
Basis: Article 859 of the Code of Commerce; Article 812 of the Code
of Commerce
Reason: Equity
A: YES.
Basis: Sec. 157 of the Insurance Code provides that: “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.”
*There is a co-insurance when the property is insured for less than its value, the
insured is considered a co-insurer for the difference between the amount of
insurance and the value of the property.
Requisites:
1. The loss is partial
2. The amount of insurance is less than the value of the property insured.
Formula:
Loss
Value
Example:
A’s insurable interest = P500,000
Loss = P300,000
A: NO. Only 180,000 will be recovered and the balance of 120,000 will be suffered
by the insured as a co-insurer.
Computation:
300,000
500,000
If the loss is 500,000, the insured can recover the whole 300,000 because there is
a total loss and not partial loss.
FIRE INSURANCE:
Sec. 167 of the Insurance Code provides that: “As used in this Code, the
term "fire insurance" shall include insurance against loss 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.”
A: Direct losses are losses that pertain to the physical destruction of the
thing insured.
Hostile Fire – fire that escapes and burns in a place where it is not
supposed to be.
Sec. 168 of the Insurance Code provides that: “An alteration in the use or
condition of a thing insured from that to which it is limited by the policy
made without the consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.”
Sec. 169 of the Insurance Code states that: “An alteration in the use or
condition of a thing insured from that to which it is limited by the policy,
which does not increase the risk, does not affect a contract of fire
insurance.”
Q: If the policy is silent as to the use or condition of the thing insured, are
there implied warranty in fire insurance?
A: General Rule: YES. The insured has the insurable interest in the thing
insured.
Exception: If the policy expressly provides for the use of condition of the
thing insured.
D. Measure of indemnity
Sec. 171 of the Insurance Code provides that: “If there is no valuation in
the policy, the measure of indemnity in an insurance against fire is the
expense it would be to the insured at the time of the commencement of the
MZVC - Commercial Law Review 297 of 335
fire to replace the thing lost or injured in the condition in which at the time of
the injury; but if there is a valuation in a policy of fire insurance, the effect
shall be the same as in a policy of marine insurance.”
1. Open Policy: only the expense necessary to replace the thing lost
or injured in the condition it was at the time of the injury.
E. Co-insurance clause
CASUALTY INSURANCE:
A. Concept
*Insurance against specified perils which may give rise to liability on the part
of the insured for claims for injuries to or damage to property of others.
- Liable for actual loss, the third party has no direct recourse with the insurer
but only to the insured. The insured has recourse to the insurer.
C. Insurable interest
*It is something that the insured did not foresee or though foreseen cannot
be avoided.
*The beneficiary is not designated, the proceeds will be given to the victims.
*The third party has direct recourse against the insurer. The insurer is purely
liable.
SURETYSHIP:
A. Definition
Sec. 176 of the Insurance Code provides that: “The liability of the surety or
sureties shall be joint and several with the obligor and shall be limited to the
amount of the bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the
obligee.”
LIFE INSURANCE:
A. Definition
MZVC - Commercial Law Review 300 of 335
Sec. 180 of the Insurance Code states that: “An insurance upon life may
be made payable on the death of the person, or on his surviving a specified
period, or otherwise contingently on the continuance or cessation of life.
Sec. 180-A of the Insurance Code states that: “The insurer in a life
insurance contract shall be liable in case of suicides only when it is
committed after the policy has been in force for a period of two years from
the date of its issue or of its last reinstatement, unless the policy provides a
shorter period: Provided, however, That suicide committed in the state of
insanity shall be compensable regardless of the date of commission.”
*In case of suicide, the insured may recover only after two years from the
date the policy was issued or last reinstatement.
Sec. 181 of the Insurance Code states that: “A policy of insurance upon life
or health may pass by transfer, will or succession to any person, whether he
has an insurable interest or not, and such person may recover upon it
whatever the insured might have recovered. “
E. Measure of indemnity
Sec. 183 of the Insurance Code states that: “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. 374 of the Insurance Code states that: “It shall be unlawful for any
land transportation operator or owner of a motor vehicle to operate the same
in the public highways unless there is in force in relation thereto a policy of
insurance or guaranty in cash or surety bond issued in accordance with the
provisions of this chapter to indemnify the death, bodily injury, and/or
damage to property of a third-party or passenger, as the case may be,
arising from the use thereof.”
Sec. 376 of the Insurance Code states that: “The Land Transportation
Commission shall not allow the registration or renewal of registration of any
motor vehicle without first requiring from the land transportation operator or
motor vehicle owner concerned the presentation and filing of a
substantiating documentation in a form approved by the Commissioner
evidencing that the policy of insurance or guaranty in cash or surety bond
required by this chapter is in effect.”
Sec. 377 of the Insurance Code provides that: “Every land transportation
operator and every owner of a motor vehicle shall, before applying for the
registration or renewal of registration of any motor vehicle, at his option,
either secure an insurance policy or surety bond issued by any insurance
company authorized by the Commissioner or make a cash deposit in such
amount as herein required as limit of liability for purposes specified in
section three hundred seventy-four.
amount not less than twelve thousand pesos per passenger or third party
and an amount, for each of such categories, in any one accident of not less
than that set forth in the following scale:
Provided, however, That such cash deposit made to, or surety bond posted
with, the Commissioner shall be resorted to by him in cases of accidents the
indemnities for which to third-parties and/or passengers are not settled
accordingly by the land transportation operator and, in that event, the said
cash deposit shall be replenished or such surety bond shall be restored with
sixty days after impairment or expiry, as the case may be, by such land
transportation operator, otherwise, he shall secure the insurance policy
required by this chapter. The aforesaid cash deposit may be invested by the
Commissioner in readily marketable government bonds and/or securities.
I. Private Cars
(b) Vehicles with an unladen weight of 2,600 kilos or less : Twenty thousand
pesos;
(c) Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos :
Thirty thousand pesos;
(d) Vehicles with an unladen weight over 3,930 kilos : Fifty thousand pesos.
Sec. 378 of the Insurance Code provides that: “Any claim for death or
injury to any passenger or third party pursuant to the provisions of this
chapter shall be paid without the necessity of proving fault or negligence of
any kind; Provided, That for purposes of this section:
(i) The total indemnity in respect of any person shall not exceed
fifteen thousand pesos;
(ii) The following proofs of loss, when submitted under oath, shall
be sufficient evidence to substantiate the claim: (a) Police report
of accident; and
(iii) Claim may be made against one motor vehicle only. In the case
of an occupant of a vehicle, claim shall lie against the insurer of
the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. 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.“
*No fault clause applies only to bodily physical injuries or death not to
property damage.
A: (a) In the case of an occupant of a vehicle, claim shall lie against the
insurer of the vehicle in which the occupant is riding, mounting or
dismounting from; (b) If not an occupant, claim shall lie against the insurer of
the directly offending vehicle; (c) 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.
Examples:
A: YES. Against the offending vehicle but this time he is required to prove
fault or negligence.
E. Notice of claim
Sec. 384 of the Insurance Code states that: “Any person having any claim
upon the policy issued pursuant to this Chapter shall, without any
unnecessary delay, present to the insurance company concerned a written
notice of claim setting forth the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim must be
filed within six months from date of accident, otherwise, the claim shall be
deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought, in proper cases, with the Commissioner or the Courts
within one year from denial of the claim, otherwise, the claimant's right of
action shall prescribe.”
CLAIMS SETTLEMENT:
Sec. 241 of the Insurance Code states that: “(1) No insurance company
doing business in the Philippines shall refuse, without just cause, to pay or
settle claims arising under coverages provided by its policies, nor shall any
such company engage in unfair claim settlement practices. Any of the
following acts by an insurance company, if committed without just cause
and performed with such frequency as to indicate a general business
practice, shall constitute unfair claim settlement practices:
(c) failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
(d) not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become reasonably
clear; or
Sec. 242 of the Insurance Code provides that: “The proceeds of a life
insurance policy shall be paid immediately upon maturity of the policy,
unless such proceeds are made payable in installments or as an annuity, in
which case the installments, or annuities shall be paid as they become due:
Provided, however, That in the case of a policy maturing by the death of the
insured, the proceeds thereof shall be paid within sixty days after
presentation of the claim and filing of the proof of the death of the insured.
Refusal or failure to pay the claim within the time prescribed herein will
entitle the beneficiary to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground
that the claim is fraudulent.
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The proceeds of the policy maturing by the death of the insured payable to
the beneficiary shall include the discounted value of all premiums paid in
advance of their due dates, but are not due and payable at maturity.”
Sec. 243 of the Insurance Code states that: “The amount of any loss or
damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof loss is received
by the insurer and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within
ninety days after such receipt. Refusal or failure to pay the loss or damage
within the time prescribed herein will entitle the assured to collect interest on
the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal
to pay is based on the ground that the claim is fraudulent.”
Sec. 244 of the Insurance Code provides that: “In case of any litigation for
the enforcement of any policy or contract of insurance, it shall be the duty of
the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case, the insurance company shall
be adjudged to pay damages which shall consist of attorney's fees and
other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the
ceiling prescribed by the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in section two hundred
forty-two or in section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any such claim within
the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment.
Banking Law
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Sec. 3 of the General Banking Law provides that: "Banks" shall refer to entities
engaged in the lending of funds obtained in the form of deposits.”
Sec. 8 of the General Banking Law provides that: “The Monetary Board may
authorize the organization of a bank or quasi-bank subject to the following
conditions:
8.2 That its funds are obtained from the public, which shall mean twenty (20) or
more persons; and
8.3 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied.
No new commercial bank shall be established within three (3) years from the
effectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
incorporate an assessment of the bank’s ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected
financial condition and capital base.”
*Banks must obtain funds from the public. Minimum number of depositor is 20
persons.
Nature of Business:
Sec. 2 of the General Banking Law states that: “The State recognizes the vital
role of banks providing an environment conducive to the sustained development of
the national economy and the fiduciary nature of banking that requires high
standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is
globally competitive, dynamic and responsive to the demands of a developing
economy.”
Consequences:
1. Sec. 9 of the General Banking Law provides that: “The Monetary Board
may prescribe rules and regulations on the types of stock a bank may issue,
including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure
of banks; Provided, That banks shall issue par value stocks only.”
3. The word “bank” cannot be used if such person or entity is not engaged in
banking business.
6. Sec. 22 of the General Banking Law states that: “The banking industry is
hereby declared as indispensable to the national interest and,
notwithstanding the provisions of any law to the contrary, any strike or
lockout involving banks, if unsettled after seven (7) calendar days shall be
reported by the Bangko Sentral to the Secretary of Labor who may assume
jurisdiction over the dispute or decide it or certify the same to the National
Labor Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and assume
jurisdiction over such labor dispute in order to settle or terminate the same.”
*In DBP v CA, the SC held that while an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history of the mortgagor’s title, in
case of a banking institution, it must exercise due diligence before entering into
said contract, and cannot rely upon on what is or is not annotated on the title.
Sec. 14 of the General Banking Law states that: “The Securities and Exchange
Commission shall not register the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under its seal. Such certificate shall not be issued unless the
Monetary Board is satisfied from the evidence submitted to it:
14.1. That all requirements of existing laws and regulations to engage in the
business for which the applicant is proposed to be incorporated have been
complied with;
14.2. That the public interest and economic conditions, both general and local,
justify the authorization; and
14.3. That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits and the public interest.
The Securities and Exchange Commission shall not register the by-laws of any
bank, or any amendment thereto, unless accompanied by a certificate of authority
from the Bangko Sentral.”
Sec. 6 of the General Banking Law provides that: “No person or entity shall
engage in banking operations or quasi-banking functions without authority from
the Bangko Sentral: Provided, however, That an entity authorized by the Bangko
Sentral to perform universal or commercial banking functions shall likewise have
the authority to engage in quasi-banking functions.
Monetary Board. To resolve such issue, the Monetary Board may; through the
appropriate supervising and examining department of the Bangko Sentral,
examine, inspect or investigate the books and records of such person or entity.
Upon issuance of this authority, such person or entity may commence to engage in
banking operations or quasi-banking function and shall continue to do so unless
such authority is sooner surrendered, revoked, suspended or annulled by the
Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and
examining department are hereby authorized to administer oaths to any such
person, employee, officer, or director of any such entity and to compel the
presentation or production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true functions and
operations of such person or entity. Failure or refusal to comply with the required
presentation or production of such books, documents, papers or records within a
reasonable time shall subject the persons responsible therefore to the penal
sanctions provided under the New Central Bank Act.
Classification of banks:
Sec. 3.2 of the General Banking Law provides that: “Banks shall be classified
into:
(iii) Private development banks, as defined in the Republic Act No. 7906
(hereafter the “Thrift Banks Act”);
(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural
Banks Act");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as
the “Charter of Al Amanah Islamic Investment Bank of the Philippines”; and
c. As to Powers or Functions: There are functions and powers that are not
exercised by one that are exercised by others. Some banks may exercise
certain powers only upon prior approval of the Monetary Board.
*Universal banks can engage into non-allied enterprises. It can also act as
an investment house, thus, it can enter into underwriting commitments and
do underwriting securities.
1. Deposit Functions
2. Loan Functions
Deposit Function:
*The relationship created is one of creditor-debtor relation.
*The bank can appropriate the deposits without the consent of the depositor.
*Legal compensation can take place because they are mutually creditor-debtor of
each other.
Depositors:
1. Minors:
- They can open bank accounts in their own right provided that they are at
least 7 years of age; they are able to read and write and have sufficient
discretion; they are not otherwise disqualified by any other incapacity; and it
should only be savings or time deposits.
2. Married Women:
- They are allowed to open bank accounts without the assistance of their
husbands.
*The law requires that necessary measures are undertaken by the bank to record
and establish the true identity of the depositor.
*Joint accounts may be the subject of survivorship agreement whereby the co-
depositors agree to permit either of them to withdraw the whole deposit during
their lifetime and transferring the balance to the survivor upon the death of one of
them.
*What is prohibited under the Family Code is donation inter vivos and not donation
mortis causa.
Peso deposits:
General Rule: Sec. 2 of Republic Act No. 1405 provides that: “All deposits of
whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any
person, governmental official, bureau or office.”
Exceptions:
2. Impeachment cases;
4. Upon the order of a competent court in cases where the money deposited or
invested is the subject of litigation;
*In case the taxpayer compromised his tax liability by reason of financial
incapacity.
*Escheat proceedings
Under the Foreign Currency Deposit Act, there is only one exception and that is:
When there is a written consent of depositor.
General Rule: The Anti-Money Laundering Council may inquire into deposits upon
order of the court when there is probable cause that the deposits are related to the
crime of unlawful activities defined in Sec. 3(1) and Sec. 4 of R.A. 9160 as
amended by R.A. 9194.
Exception: A court order is not even necessary when the offense or unlawful
activity involved is any of the following: 1. Kidnapping for ransom under Article 267
of the Revised Penal Code; 2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15, and 16 of
the Comprehensive Dangerous Drugs Act of 2002; and Hi-jacking and other
violations under R.A. 6235; destructive arson and murder, as defined under the
Revised Penal Code, as amended, including those perpetrated by terrorists
against non-combatant persons and similar targets.
Garnishment:
General Rule: Bank accounts may be garnished by the creditors of the depositor.
Reason: Not deposits for investment, thus, law on secrecy is not applicable.
Exceptions:
*In Salvacion v Central Bank of the Philippines, the SC held that foreign
currency deposits of an American tourist who was found guilty of repeatedly
raping a twelve years old child is subject to garnishment.
2. Those exempt under the Rules of Civil Procedure like provision for the family
for four months
Deposit Insurance:
*Insured deposit under the law means the net amount due to any depositor for
deposits in an insured bank but should not exceed P250,000. If the depositor has
two or more accounts with the same bank, the maximum coverage of P250,000
pertains to the sum of all such accounts maintained in the same right and capacity.
*A joint account held by a juridical person or entity jointly with natural person/s
shall be presumed to belong to the juridical person.
*A bank shall grant loans and other credit accommodations only in amounts and
for the periods of time essential for the effective completion of the operations to be
financed.
Sec. 35.1 of the General Banking Law provides that: “Except as the Monetary
Board may otherwise prescribe for reasons of national interest, the total
amount of loans, credit accommodations and guarantees as may be defined by
the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed
twenty-five percent (25%) of the net worth of such bank. The basis for
determining compliance with single borrower limit is the total credit
commitment of the bank to the borrower.
Sec. 35.2 of the General Banking Law states that: “Unless the Monetary Board
prescribes otherwise, the total amount of loans, credit accommodations and
guarantees prescribed in the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of such bank provided the additional
liabilities of any borrower are adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable goods which must
be fully covered by insurance.”
DOSRI ACCOUNTS:
Sec. 36 of the General Banking Law states that: “No director or officer of any
bank shall, directly or indirectly, for himself or as the representative or agent
of others, borrow from such bank nor shall he become a guarantor, endorser or
surety for loans from such bank to others, or in any manner be an obligor or incur
any contractual liability to the bank except with the written approval of the majority
of all the directors of the bank, excluding the director concerned: Provided,
That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan
approved by the Bangko Sentral. The required approval shall be entered upon
the records of the bank and a copy of such entry shall be transmitted
forthwith to the appropriate supervising and examining department of the Bangko
Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their
related interests shall be upon terms not less favorable to the bank than those
offered to others.
After due notice to the board of directors of the bank, the office of any bank
director or officer who violates the provisions of this Section may be declared
vacant and the director or officer shall be
The Monetary Board may regulate the amount of loans, credit accommodations
and guarantees that may be extended, directly or indirectly, by a bank to its
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Purpose: To protect the general public from the abuse of the directors, officers,
stockholders and related interests of the bank.
Requisites:
1. The borrower is a director, officer or any stockholder of a bank;
Examples:
1. If there is interlocking directors – subject to DOSRI restrictions
3. Stranger applied for a loan and a property was collateral: a. if the property is
owned by stranger alone – not subject to DOSRI restrictions; b. if the
property is co-owned by a director, officer, stockholder or related interest of
the bank – subject to DOSRI restrictions
Restrictions:
1. Procedural requirement: The account should be upon written approval of
all the director of the lending bank excluding the director concerned.
2. Arms Length Rule: The account should be upon terms not less favorable to
the bank than those offered to others.
Foreclosure of Mortgage
Sec. 47 of the General Banking Law provides that: “In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property
has been sold for the full or partial payment of his obligation shall have the
right within one year after the sale of the real estate, to redeem the property
by paying the amount due under the mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the income
derived there from. However, the purchaser at the auction sale concerned whether
in a judicial or extra-judicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation
of the auction sale and administer the same in accordance with law. Any
petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the
filing by the petitioner of a bond in an amount fixed by the court conditioned that
he will pay all the damages which the bank may suffer by the enjoining or
the restraint of the foreclosure proceeding.
Sec. 55.2 of the General Banking Law states that: “No borrower of a bank shall -
(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the
purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a
loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.”
Ownership of Banks:
MZVC - Commercial Law Review 317 of 335
Sec. 11 of the General Banking Law provides that: “Foreign individuals and non-
bank corporations may own or control up to forty percent (40%) of the voting stock
of a domestic bank. This rule shall apply to Filipinos and domestic non-bank
corporations.
Examples:
X bank has 1M voting stocks: 600,000 owned by Filipinos and 400,000 owned by
foreigners. The bank complied with the 60% requirement.
*The 40% requirement is applicable not only to foreigners but also to individual
Filipino shareholders and domestic non-bank corporation.
*If the corporation acquiring is a bank the 40% threshold is not applicable.
Examples:
600,000 owned by Filipinos; 400,000 owned by foreigners
*A single Filipino stockholders can only own upto 40% of the voting stock of the
bank.
*A domestic non-bank corporation can only own upto 40% of the voting stock of
the bank.
Q: Is this allowed?
*The 40% threshold includes both direct and indirect ownership of shares of the
bank.
Sec. 2 of Republic Act No. 7721 provides that: “The Monetary Board may
authorize foreign banks to operate in the Philippine banking system through any of
the following modes of entry: (i) by acquiring, purchasing or owning up to sixty
percent (60%) of the voting stock of an existing bank; (ii) by investing in up to sixty
percent (60%) of the voting stock of a new banking subsidiary incorporated under
the laws of the Philippines; or (iii) by establishing branches with full banking
authority: Provided, That a foreign bank may avail itself of only one (1) mode of
entry: Provided, further, That a foreign bank or a Philippine corporation may own
up to a sixty percent (60%) of the voting stock of only one (1) domestic bank or
new banking subsidiary.”
Sec. 3 of Republic Act No. 7721 states that: “In approving entry applications of
foreign banks, the Monetary Board shall: (i) ensure geographic representation and
complementation; (ii) consider strategic trade and investment relationships
between the Philippines and the country of incorporation of the foreign bank; (iii)
study the demonstrated capacity, global reputation for financial innovations and
stability in a competitive environment of the applicant; (iv) see to it that reciprocity
rights are enjoyed by Philippine banks in the applicant's country; and (v) consider
willingness to fully share their technology.
Only those among the top one hundred fifty (150) foreign banks in the world or the
top five (5) banks in their country of origin as of the date of application shall be
allowed entry in accordance with Section 2 (ii) and (iii) hereof.
In the exercise of this authority, the Monetary Board shall adopt such measures as
may be necessary to: (i) ensure that at all times the control of seventy percent
(70%) of the resources or assets of the entire banking system is held by domestic
banks which are at least majority-owned by Filipinos; (ii) prevent a dominant
market position by one bank or the concentration of economic power in one or
more financial institutions, or in corporations, participations, partnerships, groups
or individuals with related interests; and (iii) secure the listing in the Philippine
Stock Exchange of the shares of stocks of banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That said banking corporations shall
establish stock option plans for their officers and employees as the resources or
assets of these corporations may allow in the best business judgment of their
respective boards of directors, pursuant to the Corporation Code of the
Philippines.
General Rule: Foreigners must own only upto 40% of the voting shares of a bank.
Exception: Foreign bank can own upto 60% of the voting shares of a bank.
Composition:
Sec. 15 of the General Banking Law states that: “The provisions of the
Corporation Code to the contrary notwithstanding, there shall be at least five (5),
and a maximum of fifteen (15) members of the board or directors of a bank, two (2)
of whom shall be independent directors. An "independent director" shall mean a
person other than an officer or employee of the bank, its subsidiaries or affiliates or
related interests.
Sec. 19 of the General Banking Law states that: “Except as otherwise provided
in the Rural Banks Act, no appointive or elective public official whether full-
time or part-time shall at the same time serve as officer of any private bank,
save in cases where such service is incident to financial assistance provided
by the government or a government owned or controlled corporation to the
bank or unless otherwise provided under existing laws.”
Sec. 16 of the General Banking Law provides that: “To maintain the quality of
bank management and afford better protection to depositors and the public in
general the Monetary Board shall prescribe, pass upon and review the
qualifications and disqualifications of individuals elected or appointed bank
directors or officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board
may disqualify, suspend or remove any bank director or officer who commits or
omits an act which render him unfit for the position.
1. Sec. 34 of the General Banking Law provides that: “The Monetary Board
shall prescribe the minimum ratio which the net worth of a bank must bear
to its total risk assets which may include contingent accounts.
For purposes of this Section, the Monetary Board may require such ratio be
determined on the basis of the net worth and risk assets of a bank and its
subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk
assets of banks and their subsidiaries: Provided, That in the exercise of this
authority, the Monetary Board shall, to the extent feasible conform to
internationally accepted standards, including those of the Bank for
International Settlements (BIS), relating to risk-based capital
requirements: Provided further, That it may alter or suspend compliance
with such ratio whenever necessary for a maximum period of one (1)
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year: Provided, finally, That such ratio shall be applied uniformly to banks
of the same category. In case a bank does not comply with the prescribed
minimum ratio, the Monetary Board may limit or prohibit the distribution of
net profits by such bank and may require that part or all of the net profits be
used to increase the capital accounts of the bank until the minimum
requirement has been met The Monetary Board may, furthermore, restrict
or prohibit the acquisition of major assets and the making of new
investments by the bank, with the exception of purchases of readily
marketable evidences of indebtedness of the Republic of the Philippines
and of the Bangko Sentral and any other evidences of indebtedness or
obligations the servicing and repayment of which are fully guaranteed
by the Republic of the Philippines, until the minimum required capital
ratio has been restored. In case of a bank merger or consolidation, or
when a bank is under rehabilitation under a program approved by the
Bangko Sentral, Monetary Board may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or corporations under
rehabilitation from full compliance with the required capital ratio under such
conditions as it may prescribe. Before the effectivity of rules which the
Monetary Board is authorized to prescribe under this provision, Section
22 of the General Banking Act, as amended, Section 9 of the Thrift Banks
Act, and all pertinent rules issued pursuant thereto, shall continue to be in
force.”
3. Sec. 36 of the General Banking Law states that: “No director or officer of
any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he
become a guarantor, endorser or surety for loans from such bank to others,
or in any manner be an obligor or incur any contractual liability to the bank
except with the written approval of the majority of all the directors of the
bank, excluding the director concerned: Provided, That such written
approval shall not be required for loans, other credit accommodations and
advances granted to officers under a fringe benefit plan approved by the
Bangko Sentral. The required approval shall be entered upon the records
of the bank and a copy of such entry shall be transmitted forthwith to
the appropriate supervising and examining department of the Bangko
Sentral.
After due notice to the board of directors of the bank, the office of any bank
director or officer who violates the provisions of this Section may be
declared vacant and the director or officer shall be subject to the penal
provisions of the New Central Bank Act.
5. Sec. 41 of the General Banking Law provides that: “The Monetary Board is
hereby authorized to issue such regulations as it may deem necessary with
respect to unsecured loans or other credit accommodations that may be
granted by banks.”
6. Sec. 43 of the General Banking Law provides that: “The Monetary Board,
may, similarly in accordance with the authority granted to it in Section 106 of
the New Central Bank Act, and taking into account the requirements of
the economy for the effective utilization of long-term funds, prescribe the
maturities, as well as related terms and conditions for various types of
bank loans and other credit accommodations. Any change by the
Board in the maximum maturities, as well as related terms and conditions
for various types of bank loans and other credit accommodations. Any
change by the Board in the maximum maturities shall apply only to loans
and other credit accommodations made after the date of such action. The
Monetary Board shall regulate the interest imposed on micro finance
borrowers by lending investors and similar lenders such as, but not limited
to, the unconscionable rates of interest collected on salary loans and
similar credit accommodations.”
7. Sec. 57 of the General Banking Law states that: “No bank or quasi-bank
shall declare dividends, if at the time of declaration:
57.3 It does not comply with the liquidity standards/ratios prescribed by the
Bangko Sentral for purposes of determining funds available for dividend
declaration; or
A. Emergency Loan
Sec. 84 of the New Central Bank Act states that: “In periods of national
and/or local emergency or of imminent financial panic which directly
threaten monetary and banking stability, the Monetary Board may, by a
vote of at least five (5) of its members, authorize the Bangko Sentral to
grant extraordinary loans or advances to banking institutions secured by
assets as defined hereunder: Provided, That while such loans or
advances are outstanding, the debtor institution shall not, except upon
prior authorization by the Monetary Board, expand the total volume of its
loans or investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko
Sentral to grant emergency loans or advances to banking institutions,
even during normal periods, for the purpose of assisting a bank in a
precarious financial condition or under serious financial pressures
brought by unforeseen events, or events which, though foreseeable,
could not be prevented by the bank concerned: Provided, however, That
the Monetary Board has ascertained that the bank is not insolvent and
has the assets defined hereunder to secure the advances: Provided,
further, That a concurrent vote of at least five (5) members of the
Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum
of fifty percent (50%) of total deposits and deposit substitutes of the
banking institution and shall be disbursed in two (2) or more tranches.
The amount of the first tranche shall be limited to twenty-five percent
(25%) of the total deposit and deposit substitutes of the institution and
shall be secured by government securities to the extent of their
applicable loan values and other unencumbered first class collaterals
which the Monetary Board may approve: Provided, That if as determined
by the Monetary Board, the circumstances surrounding the emergency
warrant a loan or advance greater than the amount provided hereinabove,
the amount of the first tranche may exceed twenty-five percent (25%) of
the bank's total deposit and deposit substitutes if the same is adequately
secured by applicable loan values of government securities and
unencumbered first class collaterals approved by the Monetary Board,
and the principal stockholders of the institution furnish an acceptable
undertaking to indemnify and hold harmless from suit a conservator
whose appointment the Monetary Board may find necessary at any time.
Prior to the release of the first tranche, the banking institution shall
submit to the Bangko Sentral a resolution of its board of directors
authorizing the Bangko Sentral to evaluate other assets of the banking
institution certified by its external auditor to be good and available for
collateral purposes should the release of the subsequent tranche be
thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members,
authorize the release of a subsequent tranche on condition that the
principal stockholders of the institution:
B. Appointment of Conservator
Sec. 29 of the New Central Bank Act states that: “Whenever, on the
basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a quasi-bank is in a
state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary to take charge of
the assets, liabilities, and the management thereof, reorganize the
management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall
report and be responsible to the Monetary Board and shall have the
power to overrule or revoke the actions of the previous management and
board of directors of the bank or quasi-bank.
Powers of Conservator:
1. To take charge of the assets, liabilities, and the management thereof;
C. Appointment of Receiver
Sec. 30 of the New Central Bank Act provides that: “Whenever, upon
report of the head of the supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary
course of business: Provided, That this shall not include inability to pay
caused by extraordinary demands induced by financial panic in the
banking community;
(d) has willfully violated a cease and desist order under Section 37 that
has become final, involving acts or transactions which amount to fraud or
a dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.
The receiver shall immediately gather and take charge of all the assets
and liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the
Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative
investments. The receiver shall determine as soon as possible, but not
later than ninety (90) days from takeover, whether the institution may be
rehabilitated or otherwise placed in such a condition so that it may be
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(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for assistance in
the liquidation of the institution pursuant to a liquidation plan adopted by
the Philippine Deposit Insurance Corporation for general application to all
closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court
shall, upon motion by the receiver after due notice, adjudicate disputed
claims against the institution, assist the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on other
issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the
institution.
(2) 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 of the Philippines and he may, in the name of
the institution, and with the assistance of counsel as he may retain,
institute such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the institution. The
assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver and shall, from the moment
the institution was placed under such receivership or liquidation, be
exempt from any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction.
The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship. The designation of a
conservator under Section 29 of this Act or the appointment of a receiver
under this section shall be vested exclusively with the Monetary Board.
Furthermore, the designation of a conservator is not a precondition to the
designation of a receiver.”
Sec. 29 of the New Central Bank Act states that: “Whenever, on the basis of a
report submitted by the appropriate supervising or examining department, the
Monetary Board finds that a bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem necessary to
take charge of the assets, liabilities, and the management thereof, reorganize the
management, collect all monies and debts due said institution, and exercise all
powers necessary to restore its viability. The conservator shall report and be
responsible to the Monetary Board and shall have the power to overrule or revoke
the actions of the previous management and board of directors of the bank or
quasi-bank.
The Monetary Board shall terminate the conservatorship when it is satisfied that
the institution can continue to operate on its own and the conservatorship is no
longer necessary. The conservatorship shall likewise be terminated should the
Monetary Board, on the basis of the report of the conservator or of its own
findings, determine that the continuance in business of the institution would
involve probable loss to its depositors or creditors, in which case the provisions of
Section 30 shall apply.”
*No prior hearing is necessary in appointing a receiver and in closing the bank. It is
enough that subsequent judicial review is provided for. Indeed, to require such
previous hearing would not only be impractical but would tend to defeat the very
purpose of the law when it invested the Monetary Board with such authority.
Reason: The government has responsibility to see to it that the person dealing
with the bank is protected.
3. Bank is not liable to pay interest on deposits during the period of suspension
of operation
*The bank can sue and be sued but any case should be initiated and
prosecuted through the liquidator.
Supervision of Banks:
Sec. 4 of the General Banking Law states that: “The operations and activities of
banks shall be subject to supervision of the Bangko Sentral. “ Supervision”
shall include the following:
Monetary Board;
4.3 Overseeing to ascertain that laws and regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the
last date of examination to determine whether an institution is conducting its
business on a safe or sound basis: Provided, That the deficiencies/
irregularities found by or discovered by an audit shall be immediately addressed;
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions
which under special laws are subject to Bangko Sentral supervision.
For the purposes of this Act, “ quasi-banks” shall refer to entities engaged
in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the “New Central Bank Act”) for purposes of re-
lending or purchasing of receivables and other obligations.”
Money Function:
Sec. 50 of the New Central Bank Act states that: “The Bangko Sentral shall have
the sole power and authority to issue currency, within the territory of the
Philippines. No other person or entity, public or private, may put into circulation
notes, coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of
Bangko Sentral notes without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in order
to prevent the circulation of foreign currency or of currency substitutes as well as
to prevent the reproduction of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests, conduct
searches and seizures in accordance with law, for the purpose of maintaining the
integrity of the currency.
Violation of this provision or any regulation issued by the Bangko Sentral pursuant
thereto shall constitute an offense punishable by imprisonment of not less than five
(5) years but not more than ten (10) years. In case the Revised Penal Code
provides for a greater penalty, then that penalty shall be imposed.”
Sec. 4.1 of Republic Act 9160 states that: “Money laundering is a crime whereby
the proceeds of an unlawful activity AS HEREIN DEFINED are transacted, thereby
making them appear to have originated from legitimate sources. It is committed by
the following:
b) Any person knowing that any monetary instrument or property involves the
proceeds of any unlawful activity, performs or fails to perform any act as a result of
which he facilitates the offense of money laundering referred to in paragraph (a)
above.
c) Any person knowing that any monetary instrument or property is required under
this Act to be disclosed and filed with the Anti-Money Laundering
Definitions:
4. Taking into account all known circumstances, it may be perceived that the
client’s transaction is structured in order to avoid being the subject of
reporting requirements under the ACT;
Sec. 3.i. of Republic Act 9160 states that: “Unlawful activity" refers to any act or
omission or series or combination thereof involving or having relation, to the
following:
(A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as
the Revised Penal Code, as amended; (14) Kidnapping for ransom
(16) Causing any undue injury to any party, including the government, or giving any
private party any unwarranted benefits, advantage or preference in the discharge
of his official, administrative or judicial functions through manifest partiality, evident
bad faith or gross inexcusable negligence;
(19) Directly or indirectly becoming interested, for personal gain, or having material
interest in any transaction or act requiring the approval of a board, panel or group
of which he is a member, and which exercise of discretion in such approval, even if
he votes against the same or he does not participate in the action of the board,
committee, panel or group.
(E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of
the Revised Penal Code, as amended;
(F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No.
1602;
(29) Jueteng;
(30) Masiao.
(G) Piracy on the high seas under the Revised Penal Code, as amended and
Presidential Decree No. 532;
(H) Qualified theft under Article 310 of the Revised Penal Code, as amended;
(I) Swindling 'under Article 315 of the Revised Penal Code, as amended;
(39) Estafa by altering the quality, fineness or weight of anything pertaining to his
art or business;
(K) Violations under Republic Act No. 8792, otherwise known as the Electronic
Commerce Act of 2000;
(56) any access in order to corrupt, alter, steal, or destroy using a computer or
other similar information and communication devices, without the knowledge and
consent of the owner of the computer or information and communications system,
including
(57) the introduction of computer viruses and the like, resulting in the corruption,
destruction, alteration, theft or loss of electronic data messages or electronic
document;
K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or
pertinent laws through transactions covered by or using electronic data messages
or electronic documents:
(64) Sale of any consumer product that is not in conformity with standards under
the Consumer Act;
(65) Sale of any product that has been banned by a rule under the Consumer Act; ,
(68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other
identification device;
(70) Alteration or removal of the labeling of any drug or device held for sale;
(71) Sale of any drug or device not registered in accordance with the provisions of
the E-Commerce Act;
(72) Sale of any drug or device by any person not licensed in accordance with the
provisions of the E-Commerce Act;
(L) Hijacking and other violations under Republic Act No. 6235; destructive arson
and murder, as defined under the Revised Penal Code, as amended, including
those perpetrated by terrorists against non-combatant persons and similar targets;
(85) Hijacking;
(87) Murder;
(M) Fraudulent practices and other violations under Republic Act No. 8799,
otherwise known as the Securities Regulation Code of 2000;
(90) Sale or offer to the public of any pre-need plan not in accordance with the
rules and regulations which the SEC shall prescribe;
(98) Manipulation of security prices by effecting, alone or with others, any series of
transactions for the purchase and/or sale of any security traded in an Exchange for
the purpose of pegging, fixing or stabilizing the price of such security, unless
otherwise allowed by the Securities Regulation Code or by the rules of the SEC;
(99) Sale or purchase of any security using any manipulative deceptive device or
contrivance;
(100) Execution of short sales or stop-loss order in connection with the purchase
or sale of any security not in accordance with such rules and regulations as the
SEC may prescribe as necessary and appropriate in the public interest or the
protection of the investors;
(102) Obtaining money or property in connection with the purchase and sale of any
security by means of any untrue statement of a material fact or any omission to
state a material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading;
(103) Engaging in any act, transaction, practice or course of action in the sale and
purchase of any security which operates or would operate as a fraud or deceit
upon any person;
(105) Engaging in the business of buying and selling securities in the Philippines as
a broker or dealer, or acting as a salesman, or an associated person of any broker
or dealer without any registration from the Commission;
(108) Making use of the facility of a clearing agency which is not registered with the
SEC;
(111) Aiding and Abetting in any violations of the Securities Regulation Code;
(112) Hindering, obstructing or delaying the filing of any document required under
the Securities Regulation Code or the rules and regulations of the SEC;
(113) Violations of any of the provisions of the implementing rules and regulations
of the SEC;
(114) Any other violations of any of the provisions of the Securities Regulation
Code.
In determining whether or not a felony or offense punishable under the penal laws
of other countries, is "of a similar nature", as to constitute the same as an unlawful
activity under the AMLA, the nomenclature of said felony or offense need not be
identical to any of the predicate crimes listed under Rule 3.i.”
Sec. 9.3.e of Republic Act 9160 states that: “No administrative, criminal or civil
proceedings, shall lie against any person for having made a covered transaction
report or a suspicious transaction report in the regular performance of his duties
and in good faith, whether or not such reporting results in any criminal prosecution
under this Act or any other Philippine law.”
Sec. 4 of Republic Act No. 3765 states that: “Any creditor shall furnish to each
person to whom credit is extended, prior to the consummation of the transaction,
a clear statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the following
information:
(1) the cash price or delivered price of the property or service to be acquired;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension of
credit;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.”
*Failure to comply with the Truth in Lending Act, the contract of loan is still valid
however, the bank cannot recover finance charges.
Intellectual Property