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Commercial Law Reviewer - Sundiang Summary - Edward Arriba
Commercial Law Reviewer - Sundiang Summary - Edward Arriba
SUNDIANG REVIEWER
NEGOTIABLE INSTRUMENTS
- A written contract for the payment of money which is intended as a substitute foe money and
passes from one person to another as money. It must comply with the requisites of Section 1.
HOLDER - A payee or undersea of a bill or note who is in possession of it or the bearer thereof.
6. Trade Acceptance - Used in contracts of sale where the seller as drawer orders the buyer to
pay the some to the same seller.
7. Banker’s Acceptance - A time draft accords the face of which the drawee has written word
ACCEPTED.
8. Check - Bill of exchange on a bank payable on demand
Not drawn on a deposit. It is not necessary that It is necessary that a check is drawn on a deposit.
a drawer of BOE should have funds in the Or else there is fraud
hands of drawee
Death of the drawer of BOE with knowledge of Death of drawer with the knowledge of the bank
the bank does not revoke the authority of revokes the authority of the banker to pay.
banker to pay
May be presented for payment within a May be presented for payment within a
reasonable period of time after its last reasonable time after its issue.
negotiation
- Cash disbursement of money is non negotiable because it is nothing more than receipt
evidencing the payment
- Aval is non negotiable for it is a guarantee for the payment of drafts
- Electronic messages received by banks from its investor clients as instructions in managing the
client’s peso and foreign currency accounts are not negotiable instruments.
- They are also not acceptances because they did not constitute the written and signed
manifestation of bank to drawer’s order to pay money
PERSONS INVOLVED
1. Maker - made the PN
2. Drawer - made the BOE
3. Drawee - person whom the order to pay is addressed in BOE. ACCEPTANCE IS NEEDED FOR
HIM TO BE PRIMARILY LIABLE
4. Payee - person to receive the payment
5. Acceptor - Drawee who accepted
6. Holder - Person who is in possession of a bearer instrument or an indorsee of an order
instrument who is in possession thereof. He is a person who can enforce payment of the
instrument
7. Referee in case of need - a person who may be designated in the instrument as the person
who may be resorted to by the parties in case of dispute
- Only negotiable instruments are governed - Non negotiable - may only be applied by
by NIL. analogy
Transferee may be considered as holder in due Transferee can never be a holder in due course
course if all the requirements are complied but remains to be an assignee
- Person who takes it by negotiation takes it - One who takes an instrument by assignment
free from personal defenses available takes the instrument subject to defenses
among parties obtaining among the original parties
REQUISITES OF NEGOTIABILITY
1. In writing and signed by the Drawer or maker
2. Unconditional promise or order to pay a sum certain in money
3. Payable on demand or at a fixed or determinable future time
4. Payable to order or bearer
5. If addressed to drawer, he must be named or otherwise indicated with reasonable certainty.
Particular fund indicated is not the direct Particular fund is the direct source.
source of payment
- As soon as his means permit - CONDITIONAL IN NIL but is it condition with a period in NCC
- Treasury warrant - payment out of particular fund - non negotiable.
- Acceleration clauses - Upon default of any installment or of interest, the whole amount shall
be due. It does not affect the negotiability
INSECURITY CLAUSES - Provisions in the contract which allow the holder to accelerate payment if
he deems himself insecure. - NON NEGOTIABLE
EXTENSION CLAUSES - Subject to the extension at the option of the holder or to extension to a
further definite time at the option of the maker or acceptor or automatically upon or after
specified event. - STILL NEGOTIABLE.
4. Payable to a name of the payee that does not purport to be the name of any person (Pay
to cash)
- A bill may be addressed to more than one drawee jointly whether they are partners or not but
not to two or more draws in alternative or in succession.
- NON NEGOTIABLE: Juan dela Cruz or Pedro Santos
- Date may be inserted by the holder when date is necessary in order to determine the maturity
of the said instrument
- When payable at a fixed period but is undated
- When payable at sight but is undated.
- Where the instrument or acceptance or any indorsement is DATED, such date is prima-facie
evidence to be the true date
- Absence of the year of maturity affects the negotiability. The evident intent is to make the
instrument payable on a fixed date but year was omitted. Hence, the time for payment is not
determinable in this case.
3. Waives the benefit of any law intended for the advantage or protection of obligor
4. Gives the holder an election to require something to be done in lieu of the payment of
money
TRANSFER OF INSTRUMENTS:
1. IF NEGOTIABLE
1. Negotiation
2. Assignment
2. NON NEGOTIABLE
1. Assignment only
- If merely assigned, the transferee does not become a holder and he merely steps into the
shoes of the transferor.
- Any defense available to the transferor is also available against the transferee
ISSUE - The first delivery of the instrument complete in form to a person who takes it as a holder.
DELIVERY - Transfer of possession of instrument by the maker or drawer with the intention to
transfer title to the payee and recognize him as a holder.
WAYS TO NEGOTIATE:
1. Bearer - Delivery
2. Order - Indorsement & Delivery
INDORSEMENT
- By signing usually at the back
- It may be placed on the instrument itself or separate piece of paper attached to the
instrument called ALLONGE
KINDS OF INDORSEMENT
1. Blank - No indorsee is specified and done only by affixing the SIGNATURE
2. Special - Designates the indorsee.
- EX: Pay to Edward
- The holder may convert a blank indorsement into a special indorsement by writing over
the signature of the indorser in blank any contract consistent with the character of indorsement.
3. Qualified - Adding words like “Without recourse” or any words of similar import.
- It does not impair the negotiability of the instrument
- Constitutes the indorser as a mere assignor of the title to the instrument.
- SANS RECOURSE - Without recourse (He will not be liable for insolvency)
4. Conditional
- The party required to pay may disregard the condition and make payment to the
indorsee or his transferee whether the condition has been fulfilled or not.
5. Restrictive
1. Prohibits further negotiation of instrument (Pay only to Edward)
2. Constitutes the indorsee the agent of indorser (Pay to Edward for collection)
3. Vest the title in the indorsee in trust for or to the use of some other persons (Pay to
Edward in trust for Violet)
- LALAKE - ORDER
- BAKLA - BEARER
- When an instrument is negotiated back to a prior party, such party may reissue and further
negotiate the same. But he is not entitled to enforce the payment against any intervening
party to whom he was personally liable.
- He may strike out the intervening endorsements
- A TO B. B TO C. C TO D. D TO B.
- B may strike out C and D.
- Joint indorsement is allowed. But all of them must sign. or else there is only partial indorsement,
HOLDER
- The payee or indorsee of a bill or note who is in possession of it of the bearer thereof. (Sec 191)
ORDER INSTRUMENT - Payee or indorsee
BEARER INSTRUMENT - Payee or bearer
- A holder NOT in due course may sue in his own name and payment to him in due course
discharges the instrument
- The only disadvantage is that the instrument is subject to defenses as if it were NON
NEGOTIABLE.
SHELTER RULE - A holder can acquire the right of HDC if he was not a party to any fraud or
irregularity in serving the instrument.
- A payee can be a holder in due course. Section 191 defines HOLDER as payee or indorsee.
Hence the word holder in the first clause of Section 52 may be replaced by definition in
section 191 so as to read a HDC is a payee or an indorsee in possession.
- This applies even to crossed checks where the payee was not involved in the transaction
- A holder is a Holder for value only to the extent that the consideration agreed upon has been
paid, delivered or performed.
- Non performance of the obligation will give rise to partial or full defense of failure of
consideration as the case may be.
- Where the transferee receives notice of any infirmity in the instrument or defect in the title of
the person negotiating the same before he has paid the full amount, he will be deemed a
holder in due course only to the extent of the amount paid by him
- Lack of notice of the infirmity in the instrument does not apply to accommodation party.
RIGHTS OF HDC
1. Free from personal defenses
2. Not free from real defenses
Prescription Mistake
- The law does not impose on a holder the obligation to inquire into the infirmity in the
instrument or defect of the title of the person negotiating the same.
- Except when circumstance indicate defect. EX: Crossed checks
- L to E but only to the extent of PHP 1,000. E wrote PHP 5,000. E to J who has knowledge of
the infirmity. J to Devi who has no knowledge. D to B who has knowledge.
- Baby may enforce the note against Larry. Although he is not a HDC but she has the rights
of a HDC because she took the instrument from a person who is a HDC
REAL OR ABSOLUTE DEFENSE - Attached to the instrument and are available against ALL HOLDERS
whether in due course or not but only by the party entitled to raise them.
PERSONAL OR EQUITABLE DEFENSE - Available only against the holder who stands in privity with
the party who is entitled to set up or those who are not or do not have the rights of HDC.
EFFECTS OF FORGERY
- It is wholly inoperative and no right to retain the instrument or to give discharge therefor or to
enforce payment thereof against any party thereto unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.
- EXCEPTION: ESTOPPEL
- Only the forged signature is wholly inoperative NOT THE INSTRUMENT nor the GENUINE
SIGNATURES.
- In case of forgery of indorsement of an instrument payable to order, it is not only the person
whose signature was forged who would NOT BE LIABLE but also the PARTIES PRIOR to such
person.
GR: In case of forgery of indorsement of the payee of the check, the drawee bank cannot debit
the drawer’s account and that loss shall be borne by the drawee bank. The depositary or
collecting bank is liable to the drawee in case of forged indorsement because it guarantees all
prior indorsements.
GR: ASSOCIATED BANK VS CA - Drawer was also liable because there was also fraud on the part
of the drawer. They were issuing checks in the name of their retired employees.
- EXCEPTION: In a case, It was the trusted secretary who forged the instrument. SC: Negligent.
Not allowed to recover. (ILLUSORIO CASE)
- The forger shall be deemed as the principal debtor and in effect the maker of the instrument
- Where the instrument is wanting in any material particular the person in possession thereof, is
prima facie presumed authorized to complete it
- A signature on blank delivered by the person making the signature in order that it may be
converted into a negotiable instrument operates a prima-facie authority to fill it up as such
for any amount
- The instrument must be filled up strictly in accordance with the authority given and within
reasonable time in order that it may be enforced against any person who became a party
thereto prior to its completion. Persons negotiating after its completion are liable because
of their warranties
- A HDC may enforce the instrument as if it had been filled up strictly in accordance with the
authority given and within a reasonable time
- A party may invoke against a person not HDC the defense that the check was not completed
strictly under the authority given or it has exceeded the authority to fill up and use the checks
- Delivery must be coupled with the intention of transferring title to the instrument
- Defense of want of delivery or conditional delivery or delivery for special purpose of a
complete instrument are only personal defenses
- Non delivery of an INCOMPLETE instrument is a REAL DEFENSE
- If incomplete instrument has not been delivered, it will not, if completed and negotiated
without authority be a valid contract against any holder, even a HDC
- In case of ambiguity, Words will prevail vs figure.
- Written will prevail over printed in case of ambiguity.
- Assumed name is equal to the real name. If Vice ganda signed as Vice ganda - ALLOWED.
UNDATED INSTRUMENT
- The insertion of a wrong date will not avoid the instrument in the hands of a subsequent holder
in due course. But as to him, the date so inserted is to be regarded as the true date.
- If an incomplete instrument after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands and he may enforce it as if it had been filled up
strictly in accordance with the authority given within reasonable time.
MATERIAL ALTERATIONS - Any alteration which changes the DATE, SUM PAYABLE, TIME OR PLACE
OF PAYMENT, NUMBER OR RELATION OF PARTIES, MEDIUM OR CURRENCY OF PAYMENT, or ADDS A
PLACE OF PAYMENT here none is specified or which alters the effect of the instrument in any
respect.
Effect: It avoids the instrument, except as against the party who made, authorized, or assented
to the alteration and subsequent indorsers. HDC can enforce it according to its original tenor.
- Alteration of the serial number of a check is NOT MATERIAL ALTERATION for it does not alter the
effect of the instrument, nor does it modify in any respect the obligation of a party.
FRAUD
FRAUD IN FACTUM (Fraud in execution or Fraud in Esse Contractus) - a person is induced to sign
an instrument NOT KNOWING ITS CHARACTER as a note or bill.
- Not intended to issue such negotiable instrument.
= REAL DEFENSE
FRAUD IN INDUCEMENT - Person who signs the instrument intends to sign the same as a
negotiable instrument but was induced to do so only through fraud, his consent to issue a
negotiable instrument was VITIATED BY FRAUD
= PERSONAL DEFENSE
PRESCRIPTION
- Real defense
- The prescriptive period for filing of a claim based on Negotiable instrument is 10 YEARS from
the time the cause of action occurred
- SC ruled however that the contractual obligation remains even if the check is not presented
for payment
PERSONS LIABLE:
1. MAKER - Primarily liable
1. Engages to pay according to the tenor of the instrument
2. Admits the existence of the payee and his capacity to indorse
2. Acceptor (and drawee who pays without accepting the instrument) - Primarily liable:
1. Engages to pay according to the tenor of his acceptance
2. Admits the existence of the drawer the genuineness of his signature and his capacity and
authority to draw the instrument
3. Admits the existence of the payee and his capacity to indorse.
WARRANTIES
1. Qualified Endorser and persons negotiating by delivery
1. Instrument is genuine and in all respects what it purports to be, that he has a good title to
it.
2. All prior parties had capacity to contract
3. He has no knowledge of any fact which would impair the validity of the instrument
- The warranty of persons negotiating by mere delivery extends to the immediate transferee
only.
- General indorser also engages that on due presentment, it shall be accepted or paid or both
according to its tenor.
ACCOMMODATION PARTY - one who has signed the instrument as maker, drawer, acceptor or
indorser without receiving value therefor and for the purpose of lending his name to some other
person.
- He is liable to holder for value notwithstanding the knowledge that he is only an
accommodation party
- Lack of notice in the infirmity or defer WILL NOT APPLY IN THIS CASE
- A corporation cannot act as an accommodation party. It is ultra vires act. (CRISOLOGO VS
CA)
- If a corporation acted as an accommodation party, the corporation shall not be liable. It is
the President, VP or officers who signed are liable in their personal capacities.
- Accommodation party acts like the surety of the principal
- The one liable is the accommodation party WHO SIGNED in the instrument. The
accommodation party is only subject to the reimbursement from the accommodated party.
ENFORCEMENT OF LIABILITY
1. Primarily Liable
1. Maker/Drawer
2. Drawee the moment he accepts such order
2. Secondarily liable
- The party who presented the defect cannot go after the INNOCENT PARTIES.
RULES ON PRESENTMENT
- Presentment is not necessary to charge persons primarily liable
- It is only required to charge secondarily liable EXCEPT:
1. As to drawer where he has no right to expect or require that the drawee or acceptor will
pay the instrument (Applies only to negotiable instrument)
2. As to indorser where the instrument was made or accepted for his accommodation and
he has no reason to expect that the instrument will be paid if presented
3. When dispensed where after the exercise of reasonable diligence, presentment cannot
be made. or where the drawee is a fictitious person and waiver of presentment
SC: Check becomes STALE after more than 6 months or 180 days
- If the check becomes stale, the drawer is already discharged from secondary liability
because presentment and notice was made after an unreasonable length of time.
- However, he may still be liable to the holder if the latter is her contracting party. Failure to
present the instrument on time does not totally wipe all the liability based on a contract.
Although she might not be liable for the check, she will still be liable for the contract.
2. Expressly stated
3. Payable elsewhere than at the residence or place of business of drawee
2. Where the drawee is dead or has absconded or is fictitious person or a person not having
capacity to contract any bill
3. Where after the exercise of reasonable diligence, presentment cannot be made
4. Where although presentment has been irregular, acceptance has been refused on some
other ground.
ACCEPTANCE
- It must be in writing and signed by the drawee
REQUISITES:
1. Must be in writing
2. Signed by the drawee
3. Drawee must assent to the promise to pay a sum certain in money and not by any other
means
- When an acceptance is written on a paper other than the bill itself, it does not bind the
acceptor EXCEPT in favor of a person to whim it is shown and who received it for value
- Constructive acceptance if DRAWEE destroys.
- 24 hours INACTION - Constructive acceptance
- If the MAKER destroys - DISCHARGE
- 24 HOURS CLEARING DOES NOT APPLY TO FORGERY. Period for forgery must be alleged within
10 years.
FUTURE BILL - An unconditional promise in writing to accept a bill before it is drawn is deemed an
actual acceptance in favor of every person who upon the faith thereof receives the bill for
value.
KINDS OF ACCEPTANCE:
1. Conditional - Dependent on the fulfillment of an obligation
2. Partial - Part only of the amount
3. Local - Acceptance only at a particular place
4. Qualified as to time
5. Acceptance of some, one or more but not all of the drawees.
ACCEPTANCE FOR HONOR - Undertaking by stranger to the bills after protest to pay the bill.
- HE MUST BE A STRANGER TO THE INSTRUMENT
NOTICE OF DISHONOR
- NO PRESCRIBED FORM
- If given by or on behalf of holder, it inures to the benefit of ALL SUBSEQUENT HOLDERS and Prior
parties who have a right of recourse against the party to whom it is given
- If given by the indorser, it inures to the benefit of the HOLDER and ALL PARTIES subsequent to
the party to whom notice is given
- M TO P TO A TO B TO C TO D.
- Notice to C inures to the benefit of all prior parties M,P,A,B,
- Upon valid notice of dishonor, immediate right of recourse against the indorser arises. It is as if
the indorser becomes primarily liable in the sense that the holder need not claim payment
form the person primarily liable
DISCHARGE:
1. Payment in due course
2. Intentional cancellation by holder
3. Any other act which will discharge an ordinary contract
4. When the principal debtor becomes the holder of the instrument or after maturity in his own
right
- If the instrument is discharged, parties are also discharged
- If the parties are discharged, the instrument is not discharged.
PAYMENT IN DUE COURSE - payment made at or after the maturity of the instrument to the
holder thereof in good faith and without notice that his title is defective.
-IT MUST BE ON THE MATURITY DATE.
KINDS OF CHECKS
1. Cashier’s check / Manager’s check - drawn by a bank upon itself and is accepted by
issuance.
2. Certified check - Drawn by a depositor upon funds to his credit in a bank which a proper
officer of the bank certifies will be paid when duly presented for payment
3. Crossed check - Done by writing 2 parallel lines diagonally on the left top portion of the
checks.
1. General - Words written between 2 parallel lines are and co. for payee’s account only
2. Special - the name of a bank or a business institution is written between 2 parallel lines.
- A crossed check may not be encased but only deposited in the bank
- Check may be negotiated only once to one who has an account with the bank
- Act of crossing serves as a warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to such purpose
4. Memorandum check - Ordinary check with the word memorandum written across its face.
5. Traveller’s Check - Instruments purchased from banks, express companies or the like which
can be used like cash upon second signature by the purchaser.
- The drawer has the right to order the drawee to stop payment of a check.
- If a bank pays a check after it has been notified to stop payment, it pays on its own
responsibility and will not be permitted to charge the account
- The drawer may countermand payment if he has valid defense against the holder of the
check.
INSURANCE
CONTRACT OF INSURANCE
- Agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown and contingent event.
CONTRACT OF SURETYSHIP
- An Agreement whereby a party called the surety guarantees the performance by another
called the principal or obligor of an obligation or undertaking in favor of a third party called
the obligor
- If made by a party doing insurance business - DEEMED INSURANCE CONTRACT
BANCASSURANCE
- Presentation and sale to bank customers by an insurance company of its insurance products.
Bank itself will not engage in insurance business because it is prohibited by law.
CHARACTERISTICS OF INSURANCE
1. Risk distributing
2. Contract of Adhesion or Fine Print Rule
- Most terms of the contract do not result from mutual negotiations between the parties
and that are prescribed by the insurer in printed form to which the insured may adhere if he
chooses but which he cannot change.
3. Aleatory
- Obligation arises only upon the happening of an event which is uncertain or which is to occur
at an indeterminate time
4. Contract of Indemnity
- Only entitled to recover the amount of actual loss sustained (For property insurance only)
ELEMENTS OF INSURANCE:
1. Existence of insurable interest
2. Risk of loss
3. Assumption of risk
4. Scheme to distribute losses
5. Payment of premiums
- Contracts of law firms with clients whereby in consideration of periodical payments, the law
firm promises to represent such clients in all suits for or against them are not insurance
contracts
- A contract by which a corporation in consideration of a stipulated amount agrees at its own
expense to defend a physician against all suits for damages for malpractice is an INSURANCE
CONTRACT and corporation will be deemed as engaged in the business of insurance
- Insurance may take the form of a provision in CBA whereby the employer agreed to assume
under a self insurance basis hospitalization fixed expenses for the dependents of the regular
employees.
- Insurance is a consensual contract and is perfected the moment there is meeting of minds
- What is being followed in insurance is the COGNITION THEORY
- The mere submission of the policy without approval does not result in perfection
- Delivery of the policy is not required for its perfection.
- Acceptance of an offer by letter does not bind the offerer except from the time it came to his
knowledge.
- Acceptance must be known by the other party in order for it to be come perfected.
- If not yet approved even though the party already paid premiums, it is not yet perfected.
COVER NOTES
- Protection before the perfection of the insurance contract. It shall be deemed as an
insurance contract
- It shall be issued or renewed only upon prior approval of Insurance Commissioner
- Valid and binding not more than 60 days from date of issuance
- No separate premiums is required
- May be cancelled by either party upon prior notice to the other of at least 7 days
- Policy should be issued within 60 days after the issuance of the cover note
- 60 day period may be extended upon written approval of the insurance commissioner (IC)
- Written approval of the IC is dispensed with upon the certification of the president, VP,
General manager of the insurer.
POLICY
- Written instrument where the terms and conditions of the contract of insurance are set forth
- It is not necessary for the perfection of the insurance
- No insurance policy shall be issued or delivered unless in the form previously approved by the
IC
RIDER
- An attachment that modifies the conditions of the policy by expanding or restricting its
benefits or excluding certain conditions from the coverage
- Not binding unless the descriptive title or name thereof is mentioned and written on the blank
spaces provided in the policy
- When complied, it is considered part of the policy. Rider containing Automatic increase
clause is not a separate contract.
GROUNDS:
1. Non payment of premium
2. Conviction of a crime out of acts increasing the hazard insured against
3. Fraud or material misrepresentation
4. Willful and reckless acts or omissions increasing the risk insured against
5. Physical changes in the property insured making it uninsurable
6. Discovery of other insurance coverage that makes the total insurance in excess of the value
of the property insured
7. Determination by the IC
- Right to reinstate policy is not an absolute right. It is discretionary on the part of the insurer.
- Group life insurance policy must contain a provision that if the group policy terminates or is
amended so as to terminate the insurance of any class of insured persons, every person
insured shall be entitled to have issued him by the insurer an individual policy of life insurance
- EXCEPT: That the group policy may provide that the amount of such individual policy shall
not exceed the amount of the person’s life insurance protection ceasing.
- Insurance life shall not be more than 500 times that of the current statutory minimum wage in
city of manila.
MICROINSURANCE - Financial product that meets the risk protection needs of the poor where
the amount of contributions computed on a daily basis does not exceed 7.5% of the current
daily minimum wage rate for non agricultural workers in metro manila.
- The maximum sum of guaranteed benefits is not more than 1000 times the current daily
minimum wage of metro manila
INSURER
- May be partnerships, associations or corporations who are duly authorized by IC to engage in
insurance business
- Individuals cannot become an insurer
- Cooperatives may be an insurer
- Certificate of authority is required before they may engage in Insurance business. It is good for
3 years.
INSURED
- Person with capacity to contract and having an insurable interest in the life or property of the
insured.
- Public enemy cannot be insured.
- Public enemy is the country including its citizens where the PH is at war.
- The property insurance entered before war automatically loses its binding effect the
moment the insurer becomes a public enemy
- Minors cannot enter into insurance contract. It is voidable
- Consent of the spouse is not necessary for the validity of an insurance policy taken out by a
married person or his or her children
- All rights and interest in the policy of insurance taken out by an original owner on the life or
health of person insured shall automatically vest in the latter upon the death of the original
owner unless provided otherwise in the policy
- Any person may be designated as beneficiary regardless whether he or she has an insurable
interest.
- EXCEPT
1. Those guilty of adultery or concubinage at the time (CONVICTION IS NOT REQUIRED)
2. Made between persons found guilty of the same criminal offense in consideration thereof
3. Public officer or his wife, descendants or ascendants by reason of his office
- The designation is void but the policy is binding. The estate will get the proceeds.
- Father or mother of minor who is insured or is a beneficiary may exercise in behalf of the said
minor any right under the policy without necessity of court authority or giving of bond, where
the interest does not exceed 500K or in such reasonable amount as may be determined by IC
- In the absence of parents: Grandparent, eldest brother or sister who are at least 18 or any
relative who has actual custody of the minor
- Rights included: Obtaining a policy loan, surrendering the policy, receiving the proceeds.
INSURABLE INTEREST
LIFE INSURANCE
1. Himself, spouse and of his children
2. Any person whom he depends wholly or in part for education or support or in whom he has
pecuniary interest
3. Any person under legal obligation to him for the payment of money, or respecting property
or services of which death or illness might delay or prevent the performance
4. Any person upon whose life any estate or interest vested in him depends.
- Interest of the creditor over the life of debtor ceases upon full payment
- Friendship alone is not the insurable interest contemplated in life insurance
- Parent may insure his child even after attaining the age of majority
- In life insurance, Insurable interest must be present at the time the insurance policy is obtained.
- Legal separation does not remove the insurable interest of a spouse over the other.
- In property insurance it is necessary that the insurable interest exists when the insurance takes
effect AND when the loss occurs but need not to exist in the meantime
Necessary that the insurable interest exists Exists at the time the policy takes effect and need
when the insurance takes effect and when the not exist at the time of the loss
loss occurs but need not exist in the
meantime.
MORTGAGOR
- Has an insurable interest to the extent of the WHOLE VALUE of the property
MORTGAGEE
- To the extent of the debt secured and such interest continues until the mortgage debt is
extinguished.
STANDARD OR UNION MORTGAGE CLAUSE - Subsequent acts of the mortgagor cannot affect the
rights of the mortgagee.
OPEN OR LOSS PAYABLE MORTGAGE CLAUSE - The mortgagor does not cease to be a party to
the contract.
- The mortgage is only a beneficiary under the contract and recognized as such by the insurer
but not made a party to the contract itself.
- The insurance procured by a mortgagee will not inure to the benefit of the other or vice versa.
- Where a mortgagor of property effects insurance in his own name providing that the loss shall
be payable to the mortgagee or assigns a policy to a mortgagee, the insurance is deemed to
be upon the interest of the mortgagor who does not cease to be a party to the original
contract
- When mortgagor takes out an insurance over the mortgaged property and endorsed the
same to the mortgagee, The insurance proceeds of the endorsed policy shall be applied
EXCLUSIVELY to the proper interest of the person for whose benefit it was made (MORTGAGEE)
INSURABLE INTEREST:
1. PROPERTY INSURANCE
- The beneficiary and assignee must have insurable interest.
- Consent of the insurer must be secured before the assignment
2. LIFE INSURANCE
- If on his own life - he can designate anybody who does not have insurable interest
- 3rd person takes policy - Beneficiary must have insurable interest
- In Assignment - assignee need not to have insurable interest.
- Automatic assignment of policy to a person under the provision in a lease contract is void
being contrary to law or public policy
- An owner of a business can insure against a contingency which may cause loss of profits
resulting from the cessation or interruption of his business.
EXCEPTION:
1. In life, health and accident insurance
2. Change of interest in the thing insured AFTER the occurrence of injury
3. Change of interest in one or more of several distinct things separately insured
- When there is an express prohibition against the alienation of the policy, in case of alienation,
contract of insurance is not merely suspended but AVOIDED.
GR: A future event is the only event that can be covered by an insurance
EXC: A past event may be covered by a marine insurance if the loss of the vessel in the past
could not have been known by ordinary means of communication
PREMIUM - Consideration paid to an insurer for undertaking to indemnify the insured against a
specified peril.
GR: No insurance policy issued or renewed is valid and binding until actual payment of the
premium. Any agreement to the contrary is void.
EXCEPTIONS:
1. In case of life and industrial life whenever the grace period provision applies
2. Where there is an acknowledgement in the policy of insurance that the premium had
already been paid.
3. If parties have agreed to the payment of premium in installments and partial payment has
been made at the time of loss.
4. Where a credit term is agreed upon where the insurer granted a 60-90 day credit term for the
payment of the premium despite full awareness of Section 77
5. Barred by estoppel
- Employees of the republic of the PH may pay insurance premiums through salary deductions
- Insurer may contract and accept payments in addition to regular premiums
- A PERSON INSURED is not entitled to return if policy is annulled, rescinded or if claim is denied
by reason of FRAUD
RESTATEMENT
- At any time within 3 years from the date of default of premium payment unless the cash
surrender value has been duly paid to the insurer or the extension period has expired.
- Policy may be transferred even without the consent of the insurer in LIFE INSURANCE
- But not in Property Insurance. CONSENT OF THE INSURER is required.
- If no consent, The insurance policy is suspended and will not be applied until the interest
in the thing and the interest in the insurance are vested in the same person.
CONCEALMENT
- It must be material
- Materiality is determined not by the event but solely by the probable and reasonable
influence of the facts
- It vitiates the contract and entitles the insurer to rescind even if the death or loss is due to a
cause not related to the concealed matter.
- Good faith is not a defense in concealment. Whether intentional or unintentional, it entitles the
injured party to rescind the policy
- Insurer may be deemed estopped from raising concealment if it accepts the premium
payments and issued the policy even if the insured already supplied the insurer such facts or
information which could hardly be overlooked in the application form considering its
prominence and its materiality
- Insurer is not estopped if there was connivance between the insured and the soliciting
insurance agent as well as the medical examiner.
- Even if the agent is aware that the insured has a heart pacemaker, the insured can still be
considered to have concealed his heart condition. The duty not to conceal is imposed on the
insured.
- The fact that the insured has no medical knowledge will not excuse her concealment.
WARRANTY REPRESENTATION
REPRESENTATION
1. AFFIRMATIVE - Affirmation of a fact when the contract begins
2. PROMISSORY - Promise to be performed after the policy is issued.
- If there is misrepresentation, the injured party is entitled to rescind from the time when the
representation becomes false.
- Acceptance of premium will not estop the insurer from rescinding the policy on the ground of
misrepresentation
WARRANY
KINDS:
1. Express
2. Implied - Only in marine insurance
3. Affirmative - asserts the existence of a fact or condition at the time it is made
4. Promissory - Stipulates that certain facts or conditions shall exist or thing shall be done or
omitted.
INCONTESTABILITY CLAUSE
- If the policy is in force for a period of 2 years, The insurer cannot prove anymore that the
policy is void or voidable by reason of the fraudulent concealment or misrepresentation of the
insured or his agent
REQUISITES:
1. Life insurance payable on the death of the insured
2. In force during the lifetime of the insured for at least 2 years from its date of issue or of its last
reinstatement.
- Period of 2 years may be shortened by it may not be extended beyond
DOUBLE INSURANCE
- Same person is insured by several insurers separately in respect to same subject and interest
- Not prohibited by law but may be prohibited by other insurance clause.
REQUISITES:
1. Person insured is the same
2. 2 or more insurers insuring separately
3. Subject matter is the same
4. Risk or peril insured is the same
- The insured may claim payment from the insurers in such order as he may select up to the
amount for which the insurers are severally liable under their respective contracts
Insured in the first contract is a party in Original insured has no interest in the reinsurance
interest in the second contract contract
REINSURANCE - A contract through which the insurer procures third person to insure him against
loss or liability by reason of such original insurance
- The original insurance and the reinsurance are separate and distinct contract from each other
and covered by separate policies.
- The original insured has no interest in the contract of reinsurance
- The original insured cannot file an action to recover from the reinsurer.
- EXCEPT: The original insured may be allowed to directly sue the reinsurer if the reinsurance
policy contains a stipulation POUR AUTRUI in favor of the original insured.
- Motor insurance policy covering the insured’s liability for accidental injury caused by his
negligence even though GROSS and attended by criminal consequences such as homicide
through reckless imprudence, it will not avoid the policy
- Notice of loss should be given without unnecessary delay in fire insurance otherwise insurer is
exonerated.
- A stipulation in a policy requiring that the consent of the insurer must first be obtained before
any payment by the person responsible for the loss in the settlement of claim against the
insured is valid.
CLAIMS SETTLEMENT
1. Life insurance
- The proceeds shall be paid immediately upon the maturity of the policy if there is such
maturity date
- If the policy matures by the death of the insured, within 60 days after the presentation of the
claim and filing of the proof of the death of the insured.
2. Property insurance
-Proceeds shall be paid within 30 days after proof of loss is received
- If no ascertainment is made within 60 days after receipt of proof, the loss shall be paid within
90 days from the receipt of proof
1. Interest for the duration of the delay at the rate twice the legal interest
2. Attorney’s fees and other litigation expenses
3. Appropriate damages under civil code
COLLATERAL SOURCE RULE - If an injured person received compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not be deducted from the
damages which he would otherwise collect from the tortfeasor.
- Not applied in NO FAULT INSURANCES
- Hence a no fault insurer cannot be obliged to pay the hospitalization of the insured
which already had been paid by separate health insurance providers.
PERIOD OF PRESCRIPTION
- In absence of stipulation, 10 YEARS
- PARTIES MAY AGREE: But not shorter than 1 year
- The cause of action accrues from the final rejection of the claim and not from the loss
- IN CMVLI - Claim must be filed within 6 months from the date of accident the claim shall be
deemed waived.
- Action or suit must be filed in proper courts within 1 year from the denial of the claim
otherwise it shall prescribe
RIGHT OF SUBROGATION
- It inures to the insurer without any formal assignment or any express stipulation to that effect.
- Insurer can only recover from the third person what the insured could have recovered.
- Thus there can be no recovery when the insurer voluntarily paid the insured even though
such peril is exempted in the policy
- The insured can no longer recover from the offending party what was paid to him by the
insurer but he can recover any DEFICIENCY.
- The insurer must present the policy as evidence to determine the extent of its coverage
MARINE INSURANCE
- Includes ship, cargo, freightage, profits, inland marine insurance
- In cargo, There is always an implied warranty of seaworthiness.
3. CHARTERER
- Over the vessel up to the extent of the amount he is liable to the shipowner
- Over his expected profits
- Over his cargo or client’s cargo
- In the absence of any stipulation, the risks insured against are only perils of the sea
- In all risk policy all risks are covered unless expressly excepted.
BARRATRY - Willful misconduct on the part of the master or crew in pursuance of some unlawful
or fraudulent purpose without the consent of the owners and to the prejudice of the owners. This
may be expressly covered but there should be proof of willful and intentional act.
CONCEALMENT
- Belief and expectation of third person in reference to a material fact is material and must be
disclosed in marine insurance
- Matters concealed need not be the cause of the loss.
GENERAL AVERAGE - Loss or damages deliberately caused by the MASTER of the vessel in order
to save the vessel, her cargo or both from a real or known risk. It must be borne equally by all
interests concerned in the venture.
REQUISITES:
1. Common danger to vessel or cargo
2. Part of vessel was sacrificed deliberately
3. Sacrifice must be for the common safety or for the benefit of all
4. Made by master or upon his authority
5. Vessel or cargo was successfully saved
6. Necessary
PARTICULAR AVERAGE - Damage or loss which have not inured to the common benefit and
profit of all persons interested in the vessel.
COINSURANCE - where the property is insured for less than its value, the insured is considered a
coinsurer for the difference between the amount of insurance and the value of the property
1. Partial loss
2. Amount of insurance is less than the value of the property
SEAWORTHINESS - When reasonably fit to perform the service and to encounter the ordinary
perils of the voyage.
- There should be due consideration to the nature of the ship and service to be performed.
- It extends not only to the structure of the ship but also to the competent masters and officers
in the ship.
Perils of navigation include only those Loss which in ordinary course of events results
casualties due to the unusual violence or from the ordinary, natural, and inevitable action of
extraordinary causes connected with the sea.
navigation.
Those arising from some overwhelming power Ordinary wear and tear of the ship or from the
which cannot be guarded against by ordinary negligent failure of the ship’s owner to provide the
exertion of human skill or prudence vessel with the proper equipment
- When the ship was seaworthy at the commencement of the voyage but becomes
unseaworthy during the voyage, an unreasonable delay in repairing the defect exonerates
the insurer on ship or shipowner’s interest from liability from any loss arising therefrom.
- The fact that the unseaworthiness was unknown to the insured is immaterial and may not be
used by him as a defense in order to recover on the marine insurance policy
- If a vessel is unseaworthy and the owner of cage was not aware of it, The insurer cannot be
held liable because of implied warranty of seaworthiness.
- Payment made by an insurer to the insured for the latter’s lost cargo operates as a waiver of
the insurer’s right to enforce an implied warranty of seaworthiness.
- This only extends in favor of the insured. There is no waiver in favor of the carrier that
transported the cargo. The insurer may still claim payment against the carrier for breach of
contract
- Relying on the information of Pagasa is proper deviation provided that the master acted in
good faith
2. CONSTRUCTIVE LOSS
1. Actual loss of MORE THAN 3/4 of the value
2. Damage reducing the value by MORE THAN 3/4
3. Expenses of shipment EXCEEDS 3/4 of value of cargo
- In constructive total loss, Owner must abandon to the insurer the vessel or cargo
- If only partial actual loss, no need to abandon
ABANDONMENT
REQUISITES:
1. Actual relinquishment by the person insured
2. Constructive total loss
3. Total and absolute abandonment
4. Made within reasonable time after receipt of information of loss
5. Factual
6. Made by giving notice to the insurer orally or in writing
7. Explicit and must specify the particular cause of the abandonment
FIRE INSURANCE
- May include loss by lightning, windstorm, tornado, or earthquake when COVERED by
extension to fire insurance
EXTENT IN OPEN POLICY: Actual loss at the time but it shall not exceed the total value of the
policy
ALTERATION
REQUISITES:
1. Use or condition of the thing insured is specially limited or stipulated in the policy
FRIENDLY FIRE - Fire that burns in a place where it is supposed to burn. (Gas stove)
HOSTILE FIRE - Fire that escapes and burns in a place where it is not supposed to be. It may also
refer to fire that started as a friendly fire nut escapes and becomes out of control
CASUALTY INSURANCE
- Insurance covering loss or liability excepting intentional injuries inflicted by the insured or any
other person implies the exercise of the reasoning faculties, consciousness and volition.
- Liabilities arising out of acts of negligence which are also criminal are also insurable on the
ground that such acts are accidental. But liability consequences of deliberate criminal acts
are not insurable.
- If the policy provides for indemnity against third party liability, the insurer can be sued directly
by a third person.
- If the policy provides for reimbursement after actual payment by the insured or for indemnity
against loss, a third person has no cause of action against the insurer.
- In a third party liability insurance, the insurer assumes the obligation of paying the insured to
whom the insured is liable. Such interest may be garnished just like any other credit.
EXTENT OF LIABILITY
1. COVERAGE: PHP 100,000 PLUS ADDITIONAL 100K IF PUBLIC UTILITY
2. DEATH INDEMNITY: 70k Plus 30K funeral expenses (100K TOTAL)
- The limit now is PER PERSON/INJURY under the LTFRB mandated insurance.
- If insured was the driver, he need not prove that he has driver’s license at the time of the
accident.
- There is a presumption that the driver’s license is genuine.
- A driver other than the insured who holds an expired license is NOT AN AUTHORIZED DRIVER
THEFT CLAUSE
- If there is a stipulation in the policy, authorized driver clause will not apply when the vehicle
was unlawfully taken.
- It applies where the vehicle is taken with intent to gain without the consent of the insured-
owner even if it was returned, or was stolen by the driver of the insured.
SURETYSHIP
- Agreement whereby the surety guarantees the performance of another of an undertaking or
an obligation in favor of a third party.
FIDELITY GUARANTY INSURANCE - One for a consideration agrees to indemnify the assured
against loss arising from the want of integrity, fidelity or honesty of employees or other persons
holding positions of trust.
ANNUITY - Every contract or undertaking for the payment of annuities including contracts for the
payment of lump sums under a retirement program
VARIABLE CONTRACT - Any policy on either group or individual basis issued by an insurance
company providing for benefits or other contractual payments or values to vary so as to reflect
investment results of any segregated portfolio
BUSINESS ORGANIZATIONS
BASIC TYPES OF BUSINESS ORGANIZATIONS:
1. Sole proprietorship
2. Partnership
3. Joint Account or Cuentas en participación
4. Business trust
5. Joint venture
6. Cooperative
7. Corporation
- A sole proprietorship does not possess a juridical personality and has no legal personality to file
or defend an action in court.
MERCHANTS REQUISITES:
1. At least 18 years of age
2. Must have free disposition of his properties
3. Habitually engaged in commerce.
HABITUALITY - Repetition and continuation of commercial acts in such manner that they re
related to each other.
BUSINESS TRUST - A legal relation whereby one person called the trustor conveys a property to
another for the benefit of beneficiary
QUASI BANKS - Entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relenting or
purchasing receivables and other obligations.
DEPOSIT SUBSTITUTES - alternative forms of obtaining funds from the public other than deposits
through the issuance of debt instruments for borrower’s own account for the purpose of
relenting or purchasing or receivables and other obligations.
- Banking and quasi banking cannot be incorporated with the authority from BSP
- Articles of incorporation shall be accompanied by Favorable recommendation of the BSP
otherwise it shall not be accepted or approved.
- Certificate of authority from BSP is required.
2. Commercial bank - Power to accept drafts, issue letters of credits, discounting, negotiating of
negotiable instruments, evidence of debt, accept and create demand deposits and the like.
3. Rural bank - Created to make needed credit available and readily accessible in rural areas
for the purpose of promoting comprehensive rural development.
4. Thrift Bank - Savings, mortgage banks, private development banks, and stock savings and loan
associations
5. Cooperative banks - Provide financial and banking services to cooperative organizations and
their members.
6. Islamic Banks
- Only universal and commercial bank may issue demand deposits without separate authority
from MB
- Only Universal and Commercial may engage in quasi banking
- Public officers may be directors only in RURAL BANKS
- Cooperatives and corporations may be incorporators of RURAL BANKS
- A rural bank must be wholly owned by Filipinos
- 100% of outstanding capital of other banks may be acquired by foreign banks
- Public offering is necessary for Universal banks
- Outsourcing functions are generally prohibited. A bank cannot hire another corporation to
receive deposits on their behalf.
DEPOSIT FUNCTION
- Simple loan relationship
- Third party who may have a right to money deposited cannot hold the bank responsible
UNLESS there is a court order or garnishment.
- Officers of the bank cannot be held liable for ESTAFA
- Bank has the right of compensation. It may set off the deposits with the indebtedness that are
due and demandable.
KINDS OF DEPOSITS:
1. Demand deposits
2. Savings account
3. Negotiable order of withdrawal accounts (NOW) - Interest bearing deposit accounts that
combine the payable on demand feature of checks and investment feature of savings
account. (CHECK + SAVINGS)
PROHIBITED ACTS:
- Bank deposits may not be examined by any person, government official, bureau or office
- Non disclosure of an official or employee of banking institution
- Camera inspection of bank deposit records is not allowed. It is in the nature of examination.
- In written waiver, mere silence is not sufficient and failure to object during the proceedings
where a bank deposit is invalid does not amount to waiver.
- If Subject matter of litigation, the money deposited in the account itself must be the subject of
the action
- AMLC may inquire into deposits upon the order of the court when there is probable cause
that deposits are related to a crime of unlawful activities defined in RA 9160
- Bank accounts may be garnished by creditors of the depositors upon proper order of the
court.
DEPOSIT INSURANCE
= Insured by PDIC
Deposit - unpaid balance of money or its equivalent received by a bank in the usual course of
business.
- Includes commercial, Savings, time, thrift accounts.
- Interbranch deposits are not covered. They will be counted as one. Aggregate amount
SPLITTING OF DEPOSITS - Deposit account with balance of more than 500K under the name of
person is broken down and transferred to two or more accounts in the name of persons who
have no beneficial ownership WITHIN 120 DAYS immediately preceding or during a bank
declared bank holiday or immediately preceding a closure order.
- It is a criminal act.
- Proceeds shall be paid within 6 months to the depositor counted from the filing of the claim
- The claim must be filed within 2 years from actual takeover of the receiver
- The insurance coverage may be terminated if a bank does not comply with the cease and
desist order issued within 30 days from receipt thereof.
UNCLAIMED BALANCES
- Deposits that have become dormant for a period of 10 years may be escheated in favor of
the government.
- There should be notice to the depositor for the unclaimed balance
- The bank is required to report to the Treasurer of the PH the existence of dormant deposits.
- Treasurer will inform the SOLGEN who will then initiate the proper escheat proceedings.
- Publication of list of unclaimed balances is also required.
- Unclaimed balances shall be deposited with the Treasure of the PH
DOSRI ACCOUNT
- Restriction and not total prohibition are imposed on borrowings and security arrangement by
DIRECTORS, OFFICERS, STOCKHOLDERS OF BANK DIRECTORS AND THEIR RELATED INTERESTS.
REQUISITES:
1. Borrower is a director, Officer, stockholder of a bank and related interest.
2. Contracts a loan or any form of financial accommodation
3. The loan or financial accommodation is from his bank, subsidiary or a bank which a
controlling portion of the shares is owned by the same interest that owns a controlling portion
of the shares of his bank.
4. The loan or financial accommodation is in excess of 5% of the capital surplus of the lending
bank or in the maximum amount permitted by law.
- Before DOSRI accounts be approved, there should be a written approval of the majority of all
the directors of the lending bank excluding the vote of director concerned.
ARMS LENGTH RULE - The account should be won the terms not less favorable to the bank than
those offered to others
COLLATERALS OF LOANS
- Loans shall not exceed 75% of the appraised value of the real property plus 60% of the
appraised value of the improvement or 75% of the appraised value of the chattel
REDEMPTION PERIOD
1. Natural person - 1 year after the sale of the real estate counted from the date of registration
2. Juridical person on extrajudicial foreclosure - Before the registration of the certificate of
foreclosure sale which shall in no case be more than 3 months after foreclosure.
- Redemption may be exercised by paying the amount due with interest and all costs
- The purchaser at the action sale whether judicial or extrajudicial shall have the right to
immediately take possession after the date of confirmation of the auction sale.
- FOR BANKS ONLY
- Any petition to enjoin or restrain the conduct of foreclosure proceedings shall be given due
course only upon the filing of a bond
- Foreign individuals and non bank corporations may own or control up to 40% of the voting
stock of domestic bank
- FOREIGN BANKS may acquire 100% of voting stocks of a domestic bank
- The percentage of foreign owned voting stocks in a bank shall be determined by the
citizenship of INDIVIDUAL STOCKHOLDERS in that bank
- The citizenship of the corporation shall follow the citizenship of the controlling stockholders of
the corporation
- Law does not prohibit ownership of the stock by members of the same family or related
interest
FIT AND PROPER RULE - The monetary board is authorized to pass rules providing for the
qualifications and disqualifications of individuals elected or appointed bank directors or officers
- Integrity, experience, education, training and competence may be the basis.
- Any bank may acquire real estate as shall be necessary for its own use in the conduct of
business.
- The Total investment in such real estate including bank equipment shall not exceed 50% of
combined capital accounts
- Any real property held by bank in the course of its dealings shall be disposed within 5 years or
as may be prescribed by the Monetary Board
- The BSP may extend loans and advances to banking institutions without collateral for a period
of not more than 7 days for the purpose of liquidity
- BSP may also grant emergency loans in the amount not exceeding 50% of its total deposits
and deposit substitutes.
CONSERVATORSHIP
- Conservator shall be appointed if MB finds that a BANK OR QUASI BANK is in the state of
continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of the depositors and creditors.
- Shall not exceed 1 year
POWERS OF CONSERVATORS:
1. Take charge of the assets, liabilities and management
2. Reorganize the management
3. Collect all monies and debts due
4. Exercise all powers necessary
JUDICIAL REVIEW
- Actions of MB regarding receivership or conservatorship shall be final and executory
- It can only be set aside by Certiorari: GRAVE ABUSE OF DISCRETION
- Petition for Certiorari may only be filed by the stockholders of record representing the majority
of the capital stock within 10 days from the receipt of the board of directors of the institution of
order directing receivership and conservatorship
FUNCTIONS:
- Maintain price stability conducive to a balanced and sustainable growth of the economy
- Promote and maintain monetary stability and convertibility of the peso.
- Supervision over the operations of banks
- Regulatory powers over the operations of finance companies and non bank financial
institutions performing quasi banking functions.
- Sole power to issue currency in PH
- Banker of the gov
SUPERVISION includes:
1. Issuance of rules of conduct or standard operations
2. Conduct of examination of the bank and its whole owned or controlled enterprise.
- Decisions by the Governor of BSP on matters regarding the application or enforcement of laws
pertaining to banks may be reversed or modified by the MB.
PDIC
- Examination of banks by PDIC requires consent of the MB
- EXCEPT: If there is an impending bank closure
MONEY LAUNDERING - A crime committed by any person who knowing that any monetary
instrument or property represents, involves or relates to the proceeds of an unlawful activity
COVERED ENTITIES:
1. Banks, non banks, quasi banks, foreign exchange dealers, pawnshops, money changers,
remittance and transfer companies and other similar entities and all other persons and their
subsidiaries and affiliates supervised or regulated by BSP
2. Jewelry dealers in precious metals and stones who as a business trade in precious metals and
stones for transaction IN EXCESS OF 1M
- Lawyers and accountants acting as independent legal professionals are not covered with
respect to privilege information covered by confidentiality and attorney-client relationship.
- AMLC may inquire and examine banks with or without court order in exceptional
circumstances.
NO COURT ORDER:
1. Kidnapping for ransom
2. Comprehensive dangerous drugs
3. Hijacking
4. Terrorism and conspiracy to commit terrorism
Document of title to goods - Includes any bill of lading, dock warrant, quedan, or warehouse
receipt or order for the delivery of goods or any other document used in the ordinary course of
business in the sale or transfer of goods as proof of possession or control of the goods or
authorizing or purporting to authorize the possessor of the document to transfer or receive either
by indorsement or delivery
Dock warrant - given by the dock owners to the owner of the merchandise imported and
warehoused on the dock
- A warehouse receipt in which it stated that the goods received will be delivered to order or to
bearer or to any person named in such receipt is NEGOTIABLE.
- Any insertion stating that it is non negotiable shall be VOID.
NEGOTIATION:
1. Delivery only if:
1. To bearer
2. To the order of a specified person and such person or subsequent indorsee of receipt has
indorsed it in blank
- A bearer instrument is not always a bearer instrument. A special enforcement has the effect of
converting it into order instrument.
- The transfer of title to the purchaser for value is not affected by the rights of the vendor.
- No seller’s lien or right of stoppage in transitu may defeat the rights of any purchaser for
value and in good faith to whom such receipt is negotiated.
- A pledgee is in the same footing as a vendee except that the former is under obligation of
surrendering his title upon the payment of debt
- Even a thief or one who defrauds another may negotiate a receipt but it should be in such a
form that he need not to forge any signature
- Forged indorsement - inoperative
- The transferor is not a guarantor to the performance of the obligation of the warehousemen
as the case may be. The indorser will not be liable upon the failure of warehouseman to
deliver.
- The transferee has the right to notify the warehouseman of the transfer to him
- Prior such notification, the title of the transferee and the right to acquire the obligation may
be defeated by levy or attachment or execution upon the goods by a creditor of the
transferor or by a notification to the warehouseman by the transferor or a subsequent
purchaser.
- If there is levy before the transferee notified the warehouseman, WAREHOUSEMAN SHOULD
RESPECT THE LEVY. IT DEFEATED THE TRANSFER OF NON NEGOTIABLE INSTRUMENT
- If the warehouseman withholds delivery of goods without any valid reason, he is liable for the
loss of the goods and liability cannot be eliminated by proof of exercise of due diligence
WAREHOUSEMAN’S LIEN
1. All lawful charges for storage and preservation of the goods
2. All lawful claims for money advanced, interest, insurance, transportation, labor, or other
charges and expenses
3. All reasonable charges and expenses for notice and advertisement of the sale and for sale
of goods where default had been made in satisfying the warehouseman’s lien
- Such charges must be stated and are present at the time of the issuance of the receipt
LOSS OF LIEN:
1. Surrendering the thing
2. Refusing to deliver the goods when demand is made with which he is bound to comply
LETTERS OF CREDIT
LETTERS OF CREDIT (LC)
- An engagement by a bank or other person made at the request of a customer that the issuer
will honor drafts or other demands for payment upon compliance with the conditions
specified in the credit.
PARTIES IN LC
1. BUYER - One who procures the letters of credit and obliges himself to reimburse the issuing
bank upon receipt of the documents of title
2. ISSUING BANK - Undertakes to pay the seller upon receipt of the draft and proper documents
of title and to surrender the documents to the buyer upon reimbursement
3. SELLER - one who ships the goods and delivers the documents of title and draft to the issuing
bank to recover payment
OTHER PARTIES:
1. ADVISING BANK - Convey to the seller the existence of credit
2. CONFIRMING BANK - Directly liable to pay the seller
3. PAYING BANK - encase the drafts drawn by exporter or seller
4. NEGOTIATING BANK -Discounting the drafts issued
INDEPENDENT CONTRACTS:
1. Contract of sale between buyer and seller
2. Contract of the buyer and issuing bank
3. Contract of the issuing bank and the seller (LC proper)
Entrustee - Person having or taking possession of goods, documents, or instruments under a trust
receipt transaction
Entruster (Bank) - Person holding title over the goods, documents, or instruments subject of a trust
receipt transaction.
Goods - Include chattels and personal property other than money, things in action or things so
affixed to land as to become party thereof
- Sale of goods, documents, instruments by person in the business of selling goods, documents
or instruments for profit who at the outset of the transaction has as against the buyer general
property rights in such goods who sells the same to the buyer on credit retaining title as
security of the payment of the purchase price does not constitute trust receipt.
- Entruster usually releases the goods to entrustee so that the latter may sell.
- Entrustee may be held liable under TRL even if goods where released by virtue of trust receipt
but were not resold but used as spare parts for machineries.
OBLIGATION OF ENTRUSTER: To release the possession of the goods to entrustee upon the latter’s
execution of the TR
OBLIGATIONS OF ENTRUSTEE:
1. Bind himself to hold the goods in trust for the entrusted
2. Sell or otherwise dispose of the goods and turn over to the entruster the amount still owing
3. Return the goods if unsold.
- Entrustee is still liable to pay the entruster even if he returned the goods
REMEDIES OF ENTRUSTER
1. Proceeds not remitted:
1. Estafa
2. Collection case
- The obligation of the entrustee is not extinguished in case of repossession and sale of the
goods. The entrustee is entitled to any surplus and entruster is entitled for the deficiency
- No agency in TRL
- Breach of TRL - Estafa
- Entruster (bank) merely acquires SECURITY INTEREST over the goods.
- Entrustee shall bear the loss of goods after delivery to him
- Entrustee cannot mortgage the property because he does not have the free disposal of the
property to be mortgaged
- Security interest of the entruster prevails as against all creditors of the entrustee for the
duration of the TR Agreement
- Novation of agreement extinguishes the obligation under the TRL.
- In this case, principal conditions are incompatible with the Trust agreement.
INDIVIDUAL DEBTOR - Natural person who is a resident and citizen of the PH that has become
insolvent
GROUP OF DEBTORS - Corporations that are financially related to one another as parent
corporations, subsidiaries and affiliates , partnerships that are owned more than 50% by the
same person and single proprietorship that are owned by the same person
CREDITOR - Natural or juridical person which as a claim against the debtor that arose on or
before the commencement date.
COMMENCEMENT DATE - Date on which court issues the commencement order which shall be
retroactive to the date of filing of the petition.
VOLUNTARY REHABILITATION
INVOLUNTARY REHABILITATION
SOLE PROPRIETORSHIP/ PARTNERSHIP/ CORPORATION Creditors or group of creditors with a claim of or aggregate of
whose claim is at least 1 MILLION or at least 25% of the
subscribed capital stock or partner’s contributions which ever
is HIGHER
SOLE PROPRIETORSHIP/ PARTNERSHIP/ The insolvent debtor and the rehabilitation plan is endorsed
CORPORATION and approved by creditors holding at least 2/3 of the total
liabilities of the debtor INCLUDING secured creditors
holding more than 50% of the total secured claim and
unsecured creditors holding more than 50% of unsecured
(C) EDWARD VANGE ARRIBA claims 57 of 122
COMMERCIAL LAW
SUNDIANG REVIEWER
- Group of debtors may JOINTLY FILE a petition for voluntary rehabilitation when one or more of
its members foresee the impossibility of meeting debts when they respectively fall due and the
financial distress would likely adversely affect the financial condition and or operations of the
other members of the group
VOLUNTARY LIQUIDATION
INVOLUNTARY LIQUIDATION
SUSPENSION OF PAYMENT
VOLUNTARY LIQUIDATION
INVOLUNTARY LIQUIDATION
EXCLUDED DEBTORS:
1. Banks
2. Pre need companies
3. Insurance companies
4. National and local government agencies
2. INVOLUNTARY REHABILITATION
- May be filed if:
1. There is no genuine issue of fact or law on the claim of the petitioner and that the due and
demandable payments thereon have not been made for at least 60 days of that the debtor
has failed generally to meet its liabilities when they fall due.
2. A creditor other than the petitioner has initiated foreclosure proceedings against the debtor
that will prevent the debtor from paying its debts as they become due or will render it
insolvent
VOLUNTARY INVOLUNTARY
Individual debtor files the petition A creditor or group of creditors files the petition
Debtor is not absent as he files the petition May be filed even in the absence of the debtor
REHABILITATION PLAN - A plan by which the financial well being and viability of an insolvent
debtor can be restored using various means.
CRAM DOWN RULE -Rehabilitation plans confirmed by the court shall be binding upon the
debtors and all persons who may be affected by it including creditors, whether or not such
persons have participated in the proceedings, opposed the plan or whether or not their claims
have been scheduled.
- Commencement order and Stay order shall be effective for the entire duration of the
rehabilitation.
SUSPENDED CLAIMS:
CLAIM - All claims or demand of whatever nature or character against the debtor or its property.
- Claims of passengers against common carrier for missing luggages is a money claim that
requires to be suspended pending the rehabilitation proceedings
- Employees’ claims are covered by the suspension
- Cases for revocation of a contract of sale and restitution of the price filed before the HLURB is
covered by the suspension
- Stay order covers all creditors, secured or unsecured. The preferred status over the unsecured
creditors relative to the mortgage liens is retained but the enforcement of such preference is
suspended.
1. Actual or eminent danger or dissipation, loss, wastage or destruction of the debtor’s assets or
properties.
2. Paralyzation of the business operations of the debtor
3. Gross mismanagement of the debtor or fraud or other wrongful conduct on the part of or
gross or willful violation of the FRIA by existing management of the debtor owner, partner,
director, officer or representative.
- Cram down rule applies upon PUBLICATION of the notice of the out of court approved
rehabilitation plan.
SUSPENSION OF PAYMENTS
- Only an INDIVIDUAL DEBTOR may file
REQUISITES:
1. Debtor has sufficient properties to cover all his debts but he forces the impossibility of
meeting his debts when they respectively fall due
Applies only to individual debtors Covers juridical persons and individual debtors
PROHIBITED ACTS
1. Individual debtor is prohibited from selling, transferring except those used in the ordinary
operations of commerce or of industry in which the petitioning individual debtor is engaged.
2. Making any payment outside the necessary or legitimate expenses of his business or industry
2. Majority vote to at least 3/5 of the total liabilities of the debtor mentioned in the petition.
- If no approval from the creditors, suspension shall be terminated and creditors shall have the
liberty to enforce their rights to the debtor
- Liquidation order shall not affect the right of the secured debtor to enforce his lien
- Secured creditor may waive his right or maintain his right
- Even if a secured creditor will maintain his right over the security or lien, the right is subject to
temporary stay of foreclosure proceedings for a period of 180 days from the issuance by the
court of the Liquidation order.
- The assets of the insolvent debtor shall be divided among the creditors in accordance with
the liquidation plan.
- The rules on the concurrence or preference of credits shall be observed in the liquidation plan
- There is preference with respect to taxes ONLY under Art 2241 and 2242
- As to all other claims or liens, there is no order of preference
- The excess of the specific property if any after the payment of the credits which enjoy
preference shall be added to the free property which the debtor may have for the payment
of the other credits
- BIR cannot require that a tax clearance is first secured before the distribution is made
- The trust fund of the insolvent Pre need company is not part of the estate of the said insolvent.
TRANSPORTATION LAW:
COMMON CARRIER (CC)- Persons, corporations, firms or associations engaged in the business of
carrying or transporting goods or passengers or both by land, water or air for compensation
offering their service to the public.
Persons, corporations, firms or associations Undertaking is a single transaction, not part of the
engaged in the business of carrying or transporting general business or occupation although involving
goods or passengers or both by land, water or air the carriage of goods for a fee - ONLY PC
for compensation offering their service to the
public.
Available to all persons who chose to employ Agrees in some special case with some private
him, ready to carry for hire individual
Cannot stipulate that it is exempt from liability May validly enter such stipulation
for the negligence of agents or employees
(VOID - AGAINST PUBLIC POLICY)
TRUE TEST: Whether the undertaking is part of the activity engaged in by the carrier that he has
held out to the general public as his business or occupation.
- Pipeline operators are common carriers. Business of transporting oil can be considered CC
- Motor vehicle is not required to be CC
- It is not required that there is a known route
- BAREBOAT OR DEMISE charter transforms CC to Private carrier.
- Contract of affreightment like voyage and time charter does not transform it to Private carrier.
- A customs broker who offers services to select parties to transfer goods to warehouse is CC.
- You may be a CC even when you have a limited clientele
- If the principal business of the petitioner is that of lighterage and drayage and it offers its
barges to public for transporting by water for compensation - CC
- Whether it is done on an irregular basis or scheduled manner, May still be considered as CC
- School bus operators are CC
- Civil code does makes no distinction whether the business activity must be principal or merely
ancillary. Hence it may be either provided that they comply with the requisites of CC
GOVERNING LAWS:
1. Coastwise shipping: NCC and Code of commerce
2. By sea from Foreign to PH: NCC, COC Cogsa
3. By sea from PH to foreign: Law of the country to which the goods are to be transported
4. Overland transportation: NCC and COC
5. Air transportation: NCC and COC. For international - WARSAW CONVENTION
- Hijacking of carrier does not fall among the exceptions. Thus, common carrier is presumed to
be at fault or have acted negligently unless there is proof of extraordinary diligence on the
part of the common carrier.
- In a case, CC was not held liable where the goods were lost as a result of robbery attended
by grave irresistible threat, violence or force.
- Also a CC was not held liable for its failure to install grills on its buses to protect passengers from
injuries caused by rocks hurled at the bus by lawless elements
DURATION OF LIABILITY
1. Goods (Extraordinary diligence only is required)
- Starts from the time the goods are unconditionally placed in the possession of and received
by the carrier UNTIL delivered actually or constructively by the carrier to the consignee or to
the person who has the right to receive.
- Remains in full force even them temporarily unloaded or stored in transit.
- UNLESS: RIGHT TO STOPPAGE IN TRANSITU IS INVOKED. (CC is only a bailee)
TERMINATION: Until the passenger after reaching his destination safely alighted from the carrier’s
conveyance or has reasonable opportunity to leave the premises.
- A person after alighting from the train who walks along the station platform is STILL considered
passenger.
- The passenger should be given reasonable time to leave the premises.
- In a case, the husband was still getting the baggage to the truck, the child followed and the
child died - STILL PASSENGER. CC IS LIABLE
- If he is still in the premises and received a call that his brother was shot in the bus, he
immediately returned in the bus. - STILL A PASSENGER PROTECTED BY LAW.
- Passenger was waiting to retrieve her baggage - still passenger
STRANGERS/PASSENGERS:
- CC is liable for the injuries suffered by a passenger on account of willful acts or negligence of
other passengers if the CC through the exercise of DOAGFOAF could have prevented such
act.
REDUCTION OF DILIGENCE:
- Parties cannot stipulate TOTAL EXEMPTION of the carrier from exercising degree of diligence or
be it less than DOAGFOAF.
- May only stipulate LESS THAN EXTRAORDINARY DILIGENCE BUT NOT LESS THAN DOAGFOAF
REQUISITES FOR REDUCTION:
1. In writing signed by both parties
2. Valuable consideration other than the service rendered
3. Stipulation is reasonable and not contrary to law.
2. CC’s liability shall be limited to the value of the goods appearing in the bill of lading
3. Contract fixing the sum to be recovered as long as it is freely agreed upon
4. When passenger is carried GRATUITOUSLY, a stipulation limiting LIABILITY for negligence is valid
but not for willful acts or gross negligence. MERELY REDUCING THE FARE IS NOT SUFFICIENT.
REGISTERED OWNER RULE: The person who is the registered owner of a vehicle is liable for any
damage caused by the negligent operation of vehicle although it was already sold or
conveyed to another person at the time of the accident.
EXCEPTION: When the vehicle is taken from his garage without the consent or knowledge = NOT
LIABLE
KABIT SYSTEM - Arrangement whereby a person who has been granted with the certificate of
public convenience allows other persons to operate under his license or name.
- Not outrightly penalized by law but is VOID because it is contrary to public policy
- REGISTERED OWNER RULE IS STILL APPLICABLE
- A jeepney under kabit system may still be levied upon by the creditors of the registered owner.
The registered owner is still the owner of the vehicle.
CAUSE OF ACTION
1. Driver - Quasi delict
- In culpa contractual, the registered owner is only liable because the driver is only an
employee.
- If the negligence of third persons concurs with the breach, the liability of the their person who
was driving the vehicle is based on QUASI DELICT. The third person alone may be held
criminally liable.
- In case of negligence of driver and third person concurs, the liability is JOINT AND SEVERAL.
- The legal relationship of Arrastre operator and consignee = DEPOSITOR AND WAREHOUSEMAN
- Consignee and Common carrier - Similar as above
- The duty of the arrastre operator is to take care of the goods that are in its custody and deliver
them in good condition to the consignee.
- Arrastre and common carrier may be held SOLIDARILY LIABLE
- In maritime law, the second carrier shall assume obligation of the first carrier but the second
carrier has cause of action against the first if the latter is directly responsible for the fault.
- An airline ticket providing that carriage of successive air carriers is to be regarded a SINGLE
OPERATION. The issuer-carrier shall be liable. A printed provision in the ticket shall not be
enough to rebut liability
MARITIME LAW
MARITIME LAW - System of laws which particularly relates to the affairs and business of the sea to
ships, crews and navigation and to marine conveyance of persons and property
Ship - Any kind, class or type of craft or artificial contrivance capable of floating in water,
designed to be used or capable of being used as a means of water transport for the carriage of
passengers or cargo.
REAL AND HYPOTHECARY RULE - Obligations are secured or hypothecated by the vessel. The
security is real because the obligation follows the verse NO VESSEL. NO LIABILITY. THUS, There is
limitation of the liability to the actual value of the vessel and freight money (LIMITED LIABILITY
RULE)
- The total destruction of the vessel extinguishes maritime lien, as there is no longer any res to
which it can attach
IT APPLIES:
1. Civil liability for indemnities in favor of third persons which arise from the conduct of the
captain in the care of the goods which the vessel carried
2. Civil liability arising from collisions
3. Unpaid wages of captain and crew.
IT IS NOT APPLICABLE:
1. When the injury or the death of a passenger is due either to the fault of the ship owner or to
concurring negligence of the ship owner and captain
2. Vessel is insured but only to the extent of the insurance proceeds
3. Workmen’s compensation claims
- Limited liability rule does not apply if the carrier failed to overcome the presumption of
negligence
- Ship owner may be except from liability by abandoning the vessel with all her equipment and
freight
- It is the SHIPOWNER who can invoke the limited liability rule.
- Charterer cannot invite the limited liability rule as a defense especially against shipowner.
- No claimant shall be given preference over the others by the simple expedience of having
filed or completed its action earlier than the rest
- A foreign vessel that is undertaking co-loading and cabotage is not considered a common
carrier. Carriage shall be governed by COGSA
MARITIME PROTEST - Written statement by the master of the vessel or any authorized officer
attested by proper officer or a notary to the effect that damages has been suffered
IT IS REQUIRED IN:
1. Arrival under stress
2. Shipwreck
3. Where vessel has gone through hurricane or captain believes that the cargo has suffered
damages
4. Collision
COLLISION
DOCTRINE OF INSCRUTABLE FAULT -Where the fault is established but it cannot be determined
which of the two vessels were at fault, both shall be deemed to have been at fault.
- If collision was due to fault of a party, he shall be liable for loss or damage
- If both vessels are at fault - each vessel shall suffer its own losses but the owners of the vessels
shall be SOLIDARILY liable for the cargoes
- If the cause is a Fortuitous event - EACH SHALL BEAR ITS OWN DAMAGE
- By reason of third vessel - Third vessel will be liable
- A vessel which is properly anchored and by reason of storm caused damage - vessel shall
suffer own expense.
ARRIVAL UNDER STRESS - Arrival to the nearest and most convenient port if during the voyage,
the vessel cannot continue the trip to the port of destination because of:
1. Lack of provisions
2. Well founded fear of seizure, privateers or pirates
3. Any accident of the sea disabling it to navigate
SHIP AGENT - Entrusted with the provisioning and representing the vessel in the port in which it
may be found.
His liability is the same as the shipowner. He is solidarily liable with the owner.
ROLES OF CAPTAIN/MASTER
1. General agent of shipowner
2. Commander and technical director
3. Government representative of the country under whose flags navigates
2. Robbert or theft
3. Habitual drunkenness
4. Damage caused to the vessel through malice or manifest negligence
SUPERCARGOES - Person who discharges administrative duties assigned to him by ship agent or
shippers keeping an account and record of transaction as required in the accounting
DESERTION -A seaman deserts and abandons a ship or vessel before the expiration of his term or
duty.
CHARTER PARTY - A contract by which with the entire ship or some principal part thereof is let by
the owner to another person for a specified period of time or use.
TYPES:
1. Demise or Bareboat - Let to the charterer which transfers to him ITS ENTIRE COMMAND and
possession and consequent control over its navigation including the master and crew.
- OWNER PRO HAC VICE. It becomes a PRIVATE CARRIER
2. Contract of Affreightment - Involves the use of shipping space leased by the owner in part or
as a whole to carry goods for others.
KINDS OF AFFREIGHTMENT
1. Time Charter - for a fixed period of time
2. Voyage Charter - For a single voyage
- Consignee and shipper who accepts a bill of lading even without signing are bound by the
terms and conditions thereof.
- Obligation of carrier is also terminated if the goods are delivered even if the bill of lading was
not surrendered.
- Surrender of BOL is not necessary for discharge
- Acceptance is implied if he claims reimbursement for missing goods and files.
2. Respondentia - Loan secured by the owner of the CARGO payable upon safe arrival of
cargo at destination. The shipowner, ship agent or captain cannot secure this loan
Right to recover from the debtor is not Right to recover is extinguished if the thing put up
extinguished if thing put up as security is lost as security is lost or destroyed.
or destroyed.
- In COGSA, Prescription of 1 year will start after the DELIVERY of goods or the date the goods
should have been delivered.
- It does not apply with conversions or misdelivery. In such case, it starts from the delivery to
arrester operator
- A stipulation reducing 1 year period is NULL AND VOID.
- A written stipulation to SUSPEND is valid.
- Rule of prescription applies with collision but it starts when the goods should have been
delivered had the cargoes been saved.
- Prescription period is not suspended by EXTRAJUDICIAL DEMAND.
- The insurer who is exercising its right of subrogation shall also be bound by the prescriptive
period.
- The period does not apply to claim against the insurer for insurance proceeds. It shall be
bound by the policy or it expires for 10 years if no stipulation
- Period shall NOT APPLY to damage arising from delay or late delivery. Applicable period is 10
years.
MARITIME LIEN - Akin to a mortgage lien that in spite of the transfer of ownership the lien is not
extinguished.
SALVAGE - Where a person or persons picks up and conveys to a safe place a vessel or its cargo
which are beyond the control of the crew or shall have been abandoned by them
REQUISITES:
1. Marine peril
2. Vessel is shipwrecked beyond the control of the crew or shall been abandoned
3. Service of picking up and conveying the vessel is voluntary rendered
4. Service must have been successful in whole or in part
WARSAW CONVENTION
- Applies to international transportation BY AIR.
CARRIER’S LIABILITY
1. Passenger - If injury took place on board or in the course of any operations of embarking or in
the course of disembarking or when there was or because of delay
LIMIT OF LIABILITY
1. PASSENGERS: $100,000 FOR THE DEATH
Except: By special contract the carrier and passenger agrees higher limit
- Complaint for quasi delict can still be filed even if the filing is beyond the prescriptive period as
stated in the convention as long as it is within the prescriptive period of 4 years under NCC
JURISDICTION:
1. Court where the carrier is domiciled
2. Court where the carrier has its principal place of business
3. Carrier has establishment by which the contract has been made
- Allegations of tortious conduct committed against an airline passenger during the course of
international carriage do not bring the case outside the ambit of warsaw convention.
NOTICE OF CLAIM
- Mandatory and condition precedent.
- It must be filed with the international carrier within:
1. Baggage - 3 days from receipt
2. Baggage - In case of delay of delivery, within 14 days from the time the bag was placed at
the disposal of the passenger
3. Goods: 7 days from delivery
PRESCRIPTION:
1. 2 years from receipt in case of Action for damage to passenger baggage
2. 4 years - Tort including humiliation at the hands of airline employees.
- Aircraft companies are authorized to open and investigate suspicious packages and cargoes
in the presence of the owner or shipper or authorized representatives.
- If the owner refuses, the airline is authorized to refuse the loading thereof.
- Every ticket shall contain such condition above
- No aircraft shall be eligible for registration unless it is owned by or leased to a citizen or citizens
of PH or corporations or associations organized under the laws of PH.
- Foreign owned or registered aircrafts may be registered if utilized by members of aero clubs
for recreation, sports or flying skills.
CERTIFICATE OF PUBLIC CONVENIENCE - Mere license of privilege but not a franchise nor a
contract. It confers no vested right
- It has value and may be levied upon
Authorization to operate public service issued Franchise is required by the legislative department
by Public service commission for which no
franchise is required by law
PRIOR OR OLD OPERATOR RULE - First licensee will be protected un his investment and will not be
subjected to ruinous competition
FRANCHISE - Includes not only authorizations issuing directly from congress but also those
granted by administrative agencies to which the power to grant franchises has been delegated
by congress.
PUBLIC UTILITY - business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation,
telephone or telegraph
- State has the right to prescribe rates but it shall be reasonable and just.
- Operating expenses may be considered.
- Income tax shall not be considered. It is not an operating expense.
- Administrative body that regulates public utility may grant provisional rate increase without
prior evidentiary hearing. EXAMPLE: LTFRB for jeepney fares.
- Constitution prohibits the issuance of franchise, cert or authorization that is EXCLUSIVE or for a
period longer than 50 years.
PROTECTION OF UNDISCLOSED INFORMATION - Natural and legal person shall have the possibility
of preventing information lawfully within their control from being disclosed to, acquired by, or
used by others without their consent in a manner contrary to honest commercial practices.
UTILITY MODEL - Models of implement or tools of any industrial product even if not possessed of
the quality of invention but which is of practical utility
INDUSTRIAL DESIGN - Any composition of lines or colors or any three dimensional form whether or
not associated with colors
COPYRIGHT - Right over literary and artistic works which are original intellectual creations in the
literary and artistic domain protected from the moment of creation
- Letters and other private communication in writing are owned by the person to whom they
are addressed and delivered but they cannot be published or disseminated without the
consent of the writer or HIS HEIRS.
- Rights are conferred from the moment of creation.
- The work is deemed created if something original is expressed in a FIXED MANNER.
-
WHO OWNS THE COPYRIGHT?
COPYRIGHT - Creator
PRODUCER/AUTHOR/COMPOSER/DIRECTOR/
PHOTOGRAPHER - For all other purposes
DURATION OF COPYRIGHT
1. Literary artistic works and derivative works - During the lifetime of the creator PLUS 50 years
after death
2. Joint creation - During the life of the LAST SURVIVING AUTHOR PLUS 50 years
3. Anonymous/Pseudonymous work - 50 years following the death of FIRST PUBLICATION
4. Work of applied art - 25 years from making
5. Photographic works - 50 years from publication of work or making if unpublished
6. Broadcast - 20 years from date of broadcast
COPYRIGHTABLE OBJECTS:
1. Books, pamphlets, articles and other writings
2. Periodicals and newspapers
3. Lectures, sermons, addresses, dissertations, prepared for oral delivery, whether or not
reduced in writing or other material form
4. Letters
5. Dramatic or dramatico musical compositions, choreographic works or entertainment in
dumb shows
6. Musical compositions with or without words
7. Works of drawing, painting, architecture, scripture, engraving, lithography or other works of
art
8. Original ornamental designs or models for articles of manufacture whether or not registrable
as an industrial design
9. Illustrations, maps, plans, sketches, charts and three dimensional works relative to geography,
topography, architecture or science
10. Drawings or plastic works of a scientific or technical character
11. Photographic works and cinematographic works and works produced by a process
analogous
12. Pictorial illustrations and advertisements
13. Computer programs
14. Other literary, scholarly, scientific and artistic works
15. Dramatizations, translations, adaptations, abridgement, arrangements and other alterations
of literary or artistic works
16. Collections of literary, scholarly or artistic works and compilations of data and other materials
which are original by reason of the selection or coordination arrangement of their contents.
- The author of speeches, lectures, sermons, addresses and dissertations shall have the exclusive
right of making a collection of his works
UNPROTECTED WORKS:
1. Any idea, procedure, system, method or operation, concept, principle, discovery or mere
date as such even if they are expressed, explained, illustrated or embodies in a world
2. Format of a television game show is not subject to copyright
3. News of the day and other miscellaneous facts
- However the WRITINGS in the column itself is copyrightable.
4. Any official text of legislative, administrative or legal nature as well as any official translation
5. Any work of the government
- Prior approval however is NECESSARY for exploitation for PROFIT
6. Trade name and container of a medicated cream is proper subject of TRADEMARK not
COPYRIGHT.
- Copyright gives no exclusive right to the art disclosed but only to the EXPRESSION.
- Copyright shall only be on the DRAWING and it cannot protect the design depicted in such
drawing.
RIGHTS OF AUTHORS
1. ECONOMIC RIGHTS
1. Reproduction of the work or substantial portion
2. Dramatization, translation, adaptation, abridgment, arrangement or other transformation
of the work
3. First public distribution of the original and each copy of the work
4. Rental of the original or a copy of an audio visual or cinematographic work
5. Public display of the original or a copy of the work
6. Public performance
2. MORAL RIGHTS
1. Attribution of proper authorship of his works
2. Make any alterations of his work or to withhold it from publication
3. Object any distortion, mutilation, or other modification of or other derogatory action
4. Restrain the use of his name with respect to any work not of his own creation
PUBLISHER’S RIGHTS
1. Right to publish granted by the author, his heirs or assigns
2. Copyright consisting merely of the right of REPRODUCTION of the typographical arrangement
of the published edition
3. If submitted to newspaper, magazine, the right to publish once materials sent by a writer,
photographer, artist to a periodical. But such artists or writers retains his copyright over it
PERFORMER’S RIGHTS
1. Right of authorizing the broadcasting and other communication to the public of their
performance and the fixation of their unfixed performance
2. Right of authorizing the direct and indirect reproduction of their performances fixed in sound
recordings or audiovisiual works.
3. Right of authorizing the first public distribution of the original and copies of their performance
through sale or rental or other means
4. Right of authorizing commercial rental
5. Right of authorizing the making available to public of their performances by wire or wireless
means.
5. Inclusion of a work in publication if for teaching purposes compatible with fair use and source
must be mentioned
6. Recording made in school of a work for the use of such school. Recorded must be deleted
within a reasonable period
10. Any use made of a work for the purpose of any judicial proceedings
11. Single copy reproduction of a published work by natural person EXCLUSIVELY for research
and private study even without the authorization of the owner.
12. Reproduction by non profit libraries of fragile works, isolated articles, brief portions or work, to
preserve or replace a copy that is lost, destroyed or rendered non usable
FAIR USE - A privilege to use the copyrighted material in a reasonable manner without the
consent of the copyright owner or as copying the theme or ideas rather than their expression.
- Fair use for criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research and similar purposes is not infringement
FACTORS TO CONSIDER:
1. Purpose or character
2. Nature of work
3. Amount and substantiality of portions used
4. Effect of the use upon the potential market
TRANSFORMATIVE TEST - Used in reviewing the purpose and character of the usage of
copyrighted work. Courts shall consider whether the copy of the work adds new expression,
meaning or message to transform it to something else.
META USE - The kind of use that does not necessarily transform the original work by adding
expression, meaning or message but only changes the purpose of the work.
- An exact reproduction of a copyrighted work compared to small portion of it can result in the
conclusion that it is not fair.
- A parody suing a substantial amount of copyrighted work may be PERMISSIBLE as fair use
- If the use will have a negative impact on the copyrighted work, then it is deemed unfair.
INFRINGEMENT
- When there is piracy or substantial reproduction.
ACTS OF INFRINGEMENT:
1. Directly commits infringement
2. Benefits from the infringing activity of another person who commits an infringement if the
person benefitting has been given NOTICE of the activity and has the right and ability to
control the activities of another person.
3. With knowledge of infringing activity, induces, causes or materially contributes to the
infringing conduct of another.
REMEDIES:
1. Injunction
2. Action for damages within 4 years
3. Criminal case
Re transmission
- A corporation that provides satellite television service is not infringing the broadcasting and
copyright of the TV Station if the provider merely carries or simultaneously transmits the signal
of TV Station.
MUST CARRY RULE - Satellite and cable television provide shall carry all local stations.
- Letters are protected works under copyright. Publication of letters is an infringement. Letters
may be in written or electronic form
TRADEMARKS - Any visible sign capable of distinguishing goods or services of an enterprise and
shall include a stamped or marked container of goods.
COLLECTIVE MARK - Any visible sign designated as such in the application for registration and
capable of distinguishing the origin or any other common characteristic.
- Registration is not important to protect the goodwill that identifies in the mind of the public the
goods he manufactures or deals in.
- Registration of mark is not necessary for the purposes of filing a case for unfair competition or
false designation or origin.
- Subject to the rule on reciprocity, where the application is filed in the PH and same applicants
previously filed an application in countries covered by reciprocity rule, the application is
deemed filed as of the day the application was first filed in the foreign country.
- There will be no registration in PH until registered as such in the foreign country.
DOCTRINE OF SECONDARY MEANING - A generic or descriptive mark may later acquire the
characteristic of distinctiveness and can later be registered if it acquires a meaning which is
different from its ordinary connotation.
- There must be exclusive and continuous use for a period of at least 5 years.
- Although they cannot be registered by themselves, generic, descriptive marks, colors, shapes
may be part of a composite mark but there should be a disclaimer and the person who
registers them as part of mark will not acquire ownership thereto.
- Marks may be registered even if they are contractions or coined from generic and descriptive
terms
- Generic and descriptive terms may also be registered as ™ when they are used in an arbitrary
or fanciful manner.
ELEMENTS OF INFRINGEMENT IN ™:
1. Registered in IPO. However trade name need not be registered.
2. ™ is Reproduced, counterfeited, copied or colorably imitated.
3. Used in connection with the sale, offering, or advertising of any goods.
4. Use or application will likely cause confusion as to the goods and services or as to the source
or origin of such goods or services.
5. Without the consent of owner of ™
CONFUSION OF BUSINESS - The goods of the parties are different but the defendant’s product
can reasonably be assumed to originate from the plaintiff thus deceiving the public into
believing that there is some connection between the two.
2 TESTS
1. DOMINANCY TEST - Similarity of the PREVALENT FEATURES of the completing trademarks which
might cause confusion or deception.
- Duplication is not necessary
- Macjoy and Big Mack to Mcdo
- S of sketchers
- Papaboy vs Papa catsup.
2. HOLISTIC TEST - The entirety of the marks in question be considered in resolving confusingly
similarity.
AURAL EFFECTS/ IDEM SONANS RULE - In dominancy test, what are taken into account are signs,
color, design, shape or name of the brand that readily attracts and catches the attention of
ordinary consumer.
RELATED GOODS - Although not in actual competition, are related to each other that it can
reasonably be assumed that they originate from one manufacturer.
UNFAIR COMPETITION - Employing deception or any other means contrary to good faith by
which a person passes off his goods or business or services for those of one who has already
established goodwill thereto.
REQUISITES:
1. Confusing similarity in the general appearance of goods
2. Fraud or intent to deceive the public.
PATENTS
- Any technical solution of a problem in any field of human activity which is new, involves an
inventive step and is industrially applicable
REQUISITES:
1. Technical solution of a problem in any field of human activity
2. Inventive step
3. new
4. Industrially applicable
Prior act - Made available to public anywhere in the world before the filing date
PERSON ENTITLED:
1. Inventors, Heirs or assignees
FIRST TO FILE RULE - If two or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the person who FIRST FILED
an application
PREJUDICIAL DISCLOSURE
- If the inventor voluntarily discloses it, such as by offering it for sale, the world is free to copy
and use it with impunity. Ideas once disclosed to the public without the protection of valid
patent ares without significant restraint
INFRINGEMENT - Making, using, offering for sale, selling or importing patented product or a
product obtained directly or indirectly from a patented process without authorization
REQUISITES:
1. Literal infringement
2. If no literal infringement, Doctrine of equivalence shall be applied.
LITERAL INFRINGRMENT:
A. EXACTNESS RULE - The idea that is being sold is exactly the same
B. ADDITION RULE - All the elements of the patent claim of another plus other elements are
present.
DOCTRINE OF EQUIVALENCE
- Infringement also takes place when a device appropriates a print invention by incorporating
its innovative concept and although with some modification and change, performs
substantially SAME FUNCTION in substantially the same way.
- It cannot be applied when infringing invention is clearly beyond what is written in the claim
- When the language of claim is clear and distinct, the patentee may not claim anything
beyond them
GROUNDS:
1. National emergency
2. Public interest in National security, nutrition, health, or development of vital sectors
3. Judicial or administrative body has determined that it is Anti competitive
4. Non commercial use of the patent by the patentee without reason
5. If patented invention is not being worked in PH without reason.
6. Demand is not being met as determined by DOH
MANDATORY PROVISIONS:
1. Applicable laws are PH laws and venue shall be in the place where the licensee has principal
office.
2. Continued access to improvements
3. If arbitration is provided for in the technology transfer arrangement, The applicable
procedure is:
1. Arbitration law of PH
2. UNCITRAL
3. ICC
and venue shall be the PH or any neutral country
4. Payment of philippine taxes by licensor
DIVISIONAL APPLICATIONS - When two or more inventions are claimed in single application but
are if such nature that a single patent may not be issued for them.
- The applicant is required to divide the claims.
TRADE SECRETS - A plan or process, toll, mechanism or compound known only to its owner and
those of his employees.
- May consist of formula, pattern, device or information.
- Still protected even if not patentable
- Owner cannot be compelled to disclose its trade secrets. GR: No injunction allowed.
- Ingredients of consumer products are not trade secrets. They shall be indicated in the label.
- Trade secrets protection is not covered by the constitutional right to information.
CORPORATION LAW
CORPORATION - An artificial being created by operation of law, having a right of succession
and the powers and attributes and properties expressly authorized by law or incident to its
existence.
LIMITED LIABILITY RULE - While as a general rule, SH may not be liable for obligations of the
corporation, He may be liable if he has not fully paid the subscription price.
PLACE OF INCORPORATION TEST - The corporation is considered a national of the country where
it was incorporated.
GRAND FATHER RULE - The method of attributing the shareholdings of a given corporate
shareholder to the second or even the subsequent tier of ownership to determine the ultimate
ownership in a corporation.
- In the case of multitiered corporation, the stock attribution rule must be allowed to run
continuously along the chain of ownership until it finally reaches the individual stockholders.
- The percentage of shares held by the second corporation in the first is multiplied by the lathers
own filipino equity and the product of these percentages is determined to be the ultimate
filipino ownership of the subsidiary corporation.
- GFR applies if:
1. The Filipino equity is less than 60% of the OCS that owns shares in a partly nationalized
enterprise.
- To determine nationalization, Beneficial ownership test and Voting control test shall BOTH be
applied.
- 60% Filipino ownership must be applied both to:
1. Voting stocks
2. Total number of OCS whether or not entitled to vote.
- Corporation can only act through its directors, officers and employees.
- If a crime is committed by Corp, The DIRECTORS, OFFICERS, EMPLOYEES responsible for the
offense shall be penalized.
- Corporation cannot be arrested. But fine may be imposed.
- GR: Corporation cannot claim for moral damages.
- EXC: He may if it was the victim of defamation
DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY - When the veil of corporate fiction is
used as a shield to perpetuate fraud, defeat public convenience, justify wrong or defend a
crime, the fiction shall be disregarded and the individuals composing it will be treated identically
- It cannot be used to shield blatant violations of prohibition against forum shopping
ELEMENTS:
1. CONTROL - Not mere stock control but complete domination not only on the finances but of
the policy and business practice
2. MERE INSTRUMENTALITY - Merely used to commit a fraud or wrong to perpetuate violation of a
statutory or other positive legal breach of duty.
3. Said control and breach of duty must have proximately caused the injury
- Same manager, same customers, same office, merged business operations - MERE ALTER
EGO.
- The doctrine cannot be applied to make the corporation liable for PERSONAL OBLIGATIONS of
DOS (Director, officers, Shareholders).
- Doctrine is normally used to make DOS liable for the obligations of the CORPORATION.
- SC allowed the SH to file a complaint asking a bank to render accounting of the income of
the corporations to preclude multiplicity of suits.
- Primary franchise is vested in the individuals who compose the corporation and not in the
corporation itself.
- It cannot be transferred without the approval of the congress.
- Special franchise is vested in the CORPORATION and may be conveyed or mortgaged except
when they are charged for public use.
- It may be subject of levy, sale on execution
- Private corporations are generally created under the provisions of the Cooperation code.
- Public corporations are created through special laws EXCEPT: GOCC (Private corporation)
- Personality of corporation continues despite the change of SH, Members, BOD, Officers.
CLASSIFICATIONS OF CORPORATIONS:
1. Public
2. Private
3. De Jure - Corporation organized in accordance with the requirements of the law
4. De Facto - There exists a flaw in its incorporation.
REQUISITES OF DE FACTO:
1. Existence of valid law under which it may be incorporated
2. Attempt in good faith to incorporate
3. Use of corporate powers
5. Corporation by estoppel - Group of persons which holds itself out as a corporation and enters
into a contract with third person on the strength of such appearance cannot be permitted
to deny its existence in an action under said contract.
- Not a real corporation
- They shall be liable as general partners or up to their personal properties
- All those who derived benefit from the transaction despite knowledge of its legal defects MAY
BE HELD LIABLE for contracts they impliedly assented to or took advantage of.
6. Corporation by prescription - Not formally organized as such but has been duly recognized
by IMMEMORIAL USAGE
- EX: Roman Catholic Church
7. Stock Corporation - A corporation which capital stock is divided into share and is authorized
to distribute dividends.
- Even though there is a statement of capital stocks in the AOI, The corporation is still non stock if
it do not distribute dividends.
8. Non stock corporation - Does not issue stocks and does not distribute dividends
9. Domestic
10. Foreign
11. Closed
12. Special
13. Educational
14. Religious
1. Corporation Sole
2. Religious societies
CORPORATION GOING PUBLIC - When it decides to list its shares in stock exchange
CORPORATION GOING PRIVATE - When it would restrict the shareholders to a certain group.
REAL ESTATE INVESTMENT TRUST (REIT) - A stock corporation established in accordance with
Corporation code and rules and regulations by SEC principally for the purpose of owning
income generating real estate assets.
CORPORATION PARTNERSHIP
Corporate shares are freely transferable Cannot be transferred without the consent of the
without the consent of the SH other partners
DE JURE DE FACTO
One created in strict or substantial conformity Actually exists for all practical purposes as a
with the requirements of incorporation corporation but which has no legal right to
corporate existence
Right to exist cannot be successfully attacked Can be attacked in a direct proceeding by the
even in a direct proceeding by the state state through Quo warranto
- A corporation created by Special law. Such special law was declared invalid.
- Corporation is not a de facto. There is no valid law allowing its organization.
- Defense of being De facto corporation cannot be used when there is no attempt in good
faith to incorporate. Thus, when AOI is not yet passed, NOT DE FACTO
INCORPORATORS - Originally forming and composing the corporation having signed the AOI.
REQUISITES:
1. Must be a natural person
2. At least 5 but not more than 15
3. Legal Age
4. Majority must be residents of PH
5. Each must own or subscribe to at least one share
CORPORATORS - All SH and members of corporation including Incorporators who are still
stockholders.
STOCKHOLDERS - Stock
MEMBERS - non stock
DIRECTORS - Stock
Trustees - Non stock
CORPORATE OFFICERS - Officers who are identified as such in corp code, AOI and By laws
PROMOTER - Self constituted organized who finds an enterprise and helps to attract investors,
forms a corporation and launches it in business.
- Corporation is not bound by the contract entered into by the promoter before incorporation
unless ratified.
- Promoter is personally liable for contracts, agreements with third persons contracted in behalf
of future corporation if the corporation does not ratify the same or unless agreed expressly
- Promoter shall remit to the corporation profits.
FOREIGN STOCKHOLDERS
- All the stockholders in a corporation may be foreigners
- EXCEPT: Fully or partly nationalized corporation
2. UP TO 20%
- Private radio communications network
3. UP TO 25%
1. Private recruitment whether local or oversees
2. Construction and repair of locally funded works
3. Construction of defense related structures
4. UP TO 40%
1. Exploration, development of Natural resources.
2. Realty companies
3. Operation and management of Public Utilities
4. Culture, production, milling except retail of rice and corn
5. Adjustment companies
6. Sauna and steam bath houses and massage clinics
7. Domestic market enterprises with Paid up capital of $200,000
5. UP TO 60%
1. Financing companies
2. Investment houses
- Life of corporation commences from the issuance of the certificate of registration by the SEC
- Principal place of business as stated in AOI determines the venue of court actions.
- Must be SPECIFIC ADDRESS
TERM OF CORPO: 50 years and may be extended for a period not exceeding 50 years.
- No extension shall be made earlier than 5 YEARS PRIOR TO THE DATE OF EXPIRATION OF TERM.
- MAY EXTEND ON THE 46th year onwards.
SUBSCRIBED CAPITAL STOCK - Portion of ACS that is covered by subscription agreement whether
paid or not.
OUTSTANDING CAPITAL STOCK - Total shares of stock issued to subscribers or stock holders
whether or not fully or partially paid EXCEPT treasury shares
- Corporate name must contain the word Corporation, Corp, Incorporated or INC
- Number of shares must be stated in AOI. Not merely the amount
AMENDMENT OF AOI
1. Majority vote of directors and trustees & Written assent of the SH representing 2/3 of the OCS
or members
- It is effective upon the approval of SEC or if not acted within 6 months from the date of filing.
- Passage of statutes amending the cooperation code or special laws may result in the
amendment of AOI provided that there is no vested right impaired.
- Amendment of name does not result in extinguishment of corporation
ACCOMPLISHED FACT RULE - Entries in the AOI that cannot be amended because they are
accomplished facts. ex: Incorporators or original directors.
BY LAWS - Rules of action adopted by the corporation for its own government
REQUISITES:
1. Consistent with Corpo Code
2. Consistent with AOI
3. Must not disturb vested rights
2. AMENDMENT
1. Stockholders together with the board: Majority of board plus majority of OCS
2. Board only as delegated by the 2/3 of OCS
- By laws is binding not only upon the corporation but also on its stock holders, members and
those having direction, management and control of its affairs.
- It is not binding to third persons unless there is actual knowledge. Third person is not even
bound to know the by laws
ULTRA VIRES ACTS - One committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it by law.
Merely voidable which Void and cannot be Not ultra vires. The Not within the power of
may be enforced by validated contract to a third a particular officer
performance, person may be valid if
ratification or he is not familiar with
estoppel. the by laws
VOTES NEED:
1. Approval of the majority of the BOD AND Concurrence of the SH representing 2/3 of the
OCS:
1. Power to extend or shorten corporate term
2. Increase/decrease corporate stock
3. Incur or create bonded indebtedness
4. Deny preemptive right
5. Sell, dispose, lease, encumber all or substantially all of the corporate assets
6. Invest in another corporation business other than the primary purpose
7. Declare stock dividends
8. Enter into management contract
DIVIDENDS
UNRESTRICTED RETAINED EARNINGS - Shall only include accumulated profits and gains realized
out of the normal and continuous operations of the company after deducting distributions of
Ohs and transfer of capital stock or other accounts which is:
1. Not appropriated by BOD for corporate expansion
2. Not covered by a restriction for dividend declaration
3. Not required to be retained under special circumstances
- Gains on the sale of corporation’s real property can be considered as part of URE
- Retained earnings include not only earnings realized from the ordinary course of business but
also those arising from transactions which are incidental or necessary
- Treasury sales can ONLY BE DECLARED as Property Dividend. Not cash or stock because they
are not considered part of the earned or surplus profit.
- SH are entitled to dividends pro rata in accordance to the number of shares
- Dividends declared before the transfer of shares belong to the transferor and those declared
after the transfer belongs to the transferee.
- UNPAID SUBSCRIBERS ARE ENTITLED TO DIVIDENDS.
- Deemed sale of Substantially all if the corporation would be rendered incapable of continuing
business or accomplishing the purpose for which it is incorporated.
NELL DOCTRINE - Transferee/buyer of all or substantially all of the assets or even shares will not be
liable for the debts of the transferor
BUSINESS ENTERPRISE TRANSFER - The transferor transfers both its assets and business and
transferor is left with its juridical existence devoid of its industry or earning capacity.
NOT APPLICABLE IF:
1. Sale of the entire property and assets is necessary in the usual and regular course of business
2. Proceeds if the sale or other disposition of such property and assets will be appropriated for
conduct of the remaining business.
INCREASE/Decrease OF CAPITAL:
1. Increasing/Dec the number of shares and retaining the par value
2. Increasing/Dec the par value of existing shares without changing the number of shares
QUALIFICATIONS OF DIRECTORS:
1. Stock corporations
1. Must own one share. He must be a SH in his own right. It must be legal title not beneficial
title. SH Trustor in Voting stock agreement cannot be a director. Trustee may be elected.
2. Majority must be residents of PH
3. Not convicted by final judgment of an offense punishable by imprisonment for a period
EXCEEDING 6 YEARS or a violation of the corp code committed within 5 years before
date of election
4. Of legal age
5. Possesses qualifications as stated in AOI and By laws.
BUSINESS JUDGMENT RULE - Questions of policy or management are left solely to the honest
decision of officers and directors of a corporation and the courts are without authority to
substitute their judgment for the judgment of BOD. Orders of BOD in Good faith are not
reviewable by courts or SEC
- Directors, Officers, employees will be individually answerable for the crime if they corporation
commits a crime through their default or omission
METHODS OF VOTING:
1. Straight voting - May vote such number of shares for as many persons as there are directors.
2. Cumulative - Allowed to concentrate his votes and give one candidate as many votes as
the number of directors multiplied by the number of his shares
- The loss of right of directors is automatic upon the expiration of their term.
- If election is not held, Director whose term expired may continue to hold such position in HOLD
OVER CAPACITY
- If one of the Hold over director resigns, The remaining hold over directors cannot replace him
even if they constitute quorum
- Even if a director was invalidly removed, he cannot be ordered reinstated to his position if his
term already expired and a valid election of new directors was held.
- Obligations incurred by DTO acting as corporate agents are not theirs but the direct
accountabilities of the corporation.
SELF DEALING DIRECTORS - Those who personally contract with the corporation in which they are
directors
GR: VOIDABLE.
EXCEPTION (VALID IF PRESENT)
1. Presence of such director in the meeting approving the contract was not necessary for
constituting a quorum for such meeting
2. Vote of such direct was not necessary for the approval
3. Contract is fair and reasonable
4. Previous authorization by the board of directors
- The contract with SDD may be ratified by a vote of SH representing at least 2/3 of OCS if:
1. There is full disclosure of the adverse interest of the directors
2. Contract is fair and reasonable
MEETINGS OF BOARD
- 1 day notice prior to the scheduled regular or special meeting
- Quorum: Majority of BOD
- The quorum is the same even if there is a vacancy
- By laws may require more than the majority of BOD
1. Secretary must include in the notice an inquiry if director will attend physically or via
teleconferencing
2. Director must give notice
3. Recorded and recording shall be stored by corporate secretary
TRUST FUND DOCTRINE - The capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of the corporate creditors. The subscribed capital
stock is a trust fund for the payment of the debts of the corporation which the creditors have the
right to look up to satisfy their credits.
- The corporation may not dissipate this
- Money received for subscription of increase of authorized capital are not covered by the trust
fund doctrine prior to the approval of such increase.
SUBSCRIPTION CONTRACT - Any contract for the acquisition of unissued stock in an existing
corporation or a corporation to be formed.
CLASSIFICATION OF SHARES:
1. Common shares - No preference
2. Preferred shares - Par value shares which enjoy preference as to DIVIDENDS OR ASSETS upon
dissolution
1. Cumulative - Entitled to recover dividends in arrears.
2. Non Cumulative - Not entitled to arrears. Only to present dividends
3. Participating - Participates with common shares after receiving dividends at preferred
rate
4. Non participating - No participation
3. Redeemable shares - Those which permit the issuing corporation to redeem or purchase its
own shares.
- Redeemable shares may be issued only when provided in AOI
- Terms and conditions must be stated in AOI
- Redeemable shares MAY BE DEPRIVED OF VOTING RIGHTS
- Corporation is required to maintain a sinking fund to answer redemption price
- Deemed retired upon redemption
- URE is not necessary before shares can be redeemed but there must be sufficient assets
to pay the creditors and to answer for operations.
- Redemption cannot be made if it will result in insolvency
4. Treasury Shares - Earlier issued as fully paid and have been acquired by corporation by
purchase, donation, redemption or some lawful means.
5. Par value and No par value shares
PAR VALUE - Have nominal value
NO PAR VALUE - No nominal value
- Both have issued values.
- Issued value of no par value shares may be fixed by AOI
6. Founders Shares - Given certain rights and privileges.If the right is the exclusive right to vote
and be voted for director, it must be for a period NOT EXCEEDING 5 YEARS from approval of SEC
7. Escrow shares - Subjected to agreement by virtue of which the shares are deposited by the
grantor or his agent with a third person to be held by the latter until the performance of the
condition.
DOCTRINE OF EQUALITY OF SHARES - Where the AOI do not provide for distinction of shares, all
shares issued are presumed to be equal and enjoy the same rights and privileges
WATERED STOCKS - Issued not in exchange of its equivalent either in cash, property, share, stock
dividend, or services.
IT INCLUDES:
1. Issued without consideration (Bonus Shares)
2. Issued as fully paid when the corporation has received a lesser sum than its par or issued
value (Discounted shares)
3. Issued for consideration other than actual cash, the fair valuation of which is less than its par
or issued value
4. Issued a stock dividend where there are no sufficient retained earnings
TRANSFER OF SHARES
IF REPRESENTED BY CERTIFICATE OF STOCK
1. Delivery of certificate TO THE ASSIGNEE OR TRANSFEREE. Not the corporation
2. Indorsement by the owner or agent
3. Recorded in the books to be binding to third parties.
- The corporation whose shares of stocks are subject of transfer is not a party to the transaction.
- A stock holder may bring suit to compel corporate secretary to register valid transfer of stocks.
- Attachment or mortgage of shares need not be registered in the corporation’s stock and
books in as much as a chatter mortgage over shares does not involve TRANSFER.
- The Transfer books is the basis for ascertaining the persons entitled to the rights of SH
- Mandamus should not issue to compel the secretary of the corporation to make a transfer of
stock on the books unless it affirmatively appears that he has failed or refused to do so upon
demand either of the person in whose name for the purpose from the REGISTERED OWNER of
the stock.
- The action to enforce the right of registration of the transfer of shares does not accrue until
there has been a demand and a refusal concerning the transfer.
DERIVATIVE SUIT - Brought by one or more stockholders/Members in the name and on behalf of
the corporation to redress wrongs committed against it or protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue or the ones to be sued or has control of
the corporation
REQUISITES:
1. Stockholder at the time the acts or transactions subject of the action occurred and at the
time the action was filed.
2. SH exerted all reasonable efforts and alleges the same with particularity in the complaint to
exhaust all remedies available under the AOI, By laws, laws to obtain reliefs he desired.
3. No appraisal rights are available for the act or acts complained
4. Suit is not a nuance or harassment suit
5. Corporation is impleaded as a plaintiff
INDIVIDUAL ACTIONS - Brought by SH in his own name when a wrong is directly inflicted against
him
REPRESENTATIVE ACTIONS - Brought by SH in behalf of himself and all other SH similarly situated
when a wrong is committed against a group of SH.
PRE-EMPTIVE RIGHT - SH’s right to subscribe to all issues or disposition of shares of any class in
proportion to his present stockholdings.
1. As provided in by laws
2. In absence of provision - 2 weeks prior to meeting
2. Special meeting
1. As provided in by laws
2. If no provision, 1 week prior to the meeting
EXCEPTION: REMOVAL OF DIRECTORS - Corporate secretary makes the call upon order of the
president or majority of the OCS. Without call, REMOVAL IS VOID.
Place of meeting - City or municipality of principal office and if practicable principal place of
business.
PROXY - Allowed.
- It must be in writing signed by the SH and filed BEFORE THE SCHEDULED MEETING with Corp Sec
- Unless otherwise provided, it shall be valid only for such meeting.
- No proxy shall be valid and effective for a period longer than 5 years.
VOTING TRUST
- Period not exceeding 5 years
- Trustee can also be voted as director
- If the voting trust was a requirement for a loan agreement, period may exceed 5 years but
shall automatically expire upon full payment of the loan.
APPRAISAL RIGHT - Right to withdraw from the corporation and demand payment of the fair
value of his shares after dissenting from certain corporate acts.
- Upon demand, all rights accruing to the shares shall be suspended.
WHEN EXERCISED:
1. Extension or reduction of corporate term
2. Change in rights of SH, authorize preferences superior to those SH or restrict the right of any
SH
3. Corporation authorized the board to invent corporate funds in another business or purpose
4. Sell of all or substantially all of assets of the corporation
UNPAID SUBSCRIPTION
REMEDIES TO ENFORCE PAYMENT:
1. Extrajudicial sale at public auction - Upon failure to pay within the grace period of 30 days
from the date specified in contract or call by the BOD.
2. Judicial action
3. Collection from cash dividends and withholding of stock dividends
CALL - Declaration by the board of directors that the unpaid subscription are due and payable
to the corporation.
- A call is necessary if no time to make payment is stated .
- It is not necessary if the corporation becomes INSOLVENT
- Notice of call is necessary to bind the SHs
- If the SH does not pay within 30 days from the date specified in the call, all the stocks covered
shall be declared DELINQUENT and shall be subject to sale.
- Notice to SH is needed plus publication
- The highest bidder is the person offering to pay the full amount of the balance on the
subscription and other amount that are due for the SMALLEST NUMBER OF SHARES or fraction
of a share.
DELINQUENT SHARES
- No right to be voted for
- Not entitled to vote
- Not entitled to representation at meeting
- Not entitled to any rights of the SH but he is still entitled to receive DIVIDENDS.
- If delinquent SH is a DIRECTOR, he shall continue to be a director but HE CANNOT RUN FOR
REELECTION.
BOOKS
- The corporate secretary is the officer who is duly authorized to make entries on the stock and
transfer books. Entries made by the Chairman or president are invalid.
- The stock and transfer book is the best evidence of the transactions
DE FACTO MERGER - One corporation acquires all or substantially all of the properties of another
corporation in exchange of SHARES OF STOCK of the acquiring corporation.
- The acquiring corporation would end up with business enterprise of the target corporation
and target corporation would end up basically its only remaining assets being the Shares of
stock of the acquiring corporation
EFFECTS OF MERGER
- Constituent corporation becomes single corporation
- Separate existence of constituents shall cease EXCEPT that of the surviving corporation or
consolidated corp
- Surviving corp shall possess all rights, privileged, immunities, franchises of EACH CONSTITUENT
corporation and properties shall be deemed transferred to the surviving corp.
- All liabilities of the constituents SHALL PERTAIN TO SURVIVING OR CONSOLIDATED CORP.
- Employment contracts are AUTOMATICALLY ASSUMED by the surviving corp even in absence
of express stipulation in the merger plan.
- However IT DOES NOT IMPAIR the right of the employer to terminate the employment of the
absorbed employees for a lawful or authorized cause
PROCEDURE:
- Boards of each corporation shall draw up a plan of merger and consolidation
- Plan of MC shall be approved by the majority vote of each Board at SEPARATE MEETINGS and
approved by 2/3 of OCS or members
- Amendment must also be approved by Board and 2/3 of ohs
- Articles of MC shall be executed by each of the constituent corporations
- Signed by the president or VP and certified by Corp Sec or Assistant Corp Sec
- Articles of MC shall be submitted to SEC.
- MC of banks, insurance, building and loan associations, trust companies, public utilities,
educational institutions REQUIRES FAVORABLE RECOMMENDATION of Government agencies.
Modes:
1. Voluntary Dissolution
2. Involuntary dissolution
3. Shortening of term
4. Expiration of term
4. INVOLUNTARY DISSOLUTION.
- Filing of the verified complaint with SEC
GROUNDS:
1. Failure to organize and commence business within 2 years from incorporation
2. Continuously inoperative for 5 years
3. Failure to file by laws within 30 days from issue of certificate of incorporation
4. Continuance of business not feasible as found by management committee or rehabilitation
receiver
5. Fraud in procuring cert of reg
6. Serious misrepresentation
7. Failure to file required reports
EFFECTS OF DISSOLUTION
- Transfer of legal title of properties to the SH
- Corporation ceases as a body corporate to continue business
- SH are not prevented from creating new corpo
- Dissolved corporation cannot be revived. But they can reincorporate.
- Corporation continues a body corporate for three years for winding up or liquidation
- Upon expiration of three years winding up period, the corporation ceases to exist for all
purposes
LIQUIDATION - Process by which all the assets of the corporation are converted into cash in
order to facilitate the payment of obligations
MODES:
1. BOD
2. Trustee to whom the properties are conveyed by the corporation
3. Management committee or rehabilitation receiver appointed by court.
FOREIGN CORPORATION
- Has the power to sue and re sued.
- The foreign corporation TRANSACTING BUSINESS in PH without license to do business shall not
be permitted to intervene in any cation or proceeding in any court or admin agency
(intervene)
- DOCTRINE OF QUASI-ESTOPPEL BY ACCEPTANCE OF BENEFITS - FC Transacting business in PH
whether or not with license may be SUED AGAINST/BEFORE PH COURTS on any valid cause oaf
action recognized under PH laws. (Be sued)
SUBSTANCE TEST - Foreign corporation is doing business in country if it is continuing the body or
substance of the enterprise of business which it was organized
EFFECT OF ESTOPPEL:
- A party is estopped to challenge the personality of the corporation after having
acknowledged the same by entering into a contract with it.
- SC: No remedy could be afforded to parties one party is a corporation without a license.
- Subsequent compliance of securing a license will cure the lack of capacity to sue at the time
of the execution of the contract.
CLOSE COPORATIONS:
REQUISITES:
1. AOI must state that the number of the SH shall not exceed 20
2. AOI must contain restriction on the transfer of issued stock which must appear in AOI, By laws
and Certificate of stock
3. Stocks cannot be listed in stock exchange nor be publicly offered.
- Restriction on the transfer must not be more onerous than granting the existing SH or
corporation an option to purchase the shares
- Corporation is not a close corporation even if the shares belong to less than 20 if not all the
requisites are present.
- Coverts even those that are excluded by the corps code in Article 39
DEADLOCKS - In case of irreconcilable dispute among the directors and share holders, SEC may
be asked to intervene and SEC may issue:
1. Cancelling or altering provisions, resolutions or acts
2. Requiring the purchase at their fair value of shares of any SH either by the corporation
regardless of the availability of the URE
3. Appointing provisional directors
4. Dissolving the corporation
5. Other reliefs
- In Close corp, SH can directly manage the corporation and perform the functions of the
directors without election.
- When they manage - Liable as Director
- No need to call a meeting to elect directors
- SH are liable for tort
- Despite the presence of the requisites, Corporation shall not be deemed a close corp if at
least 2/3 of the voting stocks belong to a corporation which is not a close corp
SH can withdraw by compelling the close corp GR: SH cannot withdraw and compel the corp to
to purchase his shares purchase his share
Rules on deadlock No rules on deadlock
CONVERSION
- A non stock cannot be converted into a stock crop through mere amendment of AOI. This
would violate the prohibition to distribute dividends in non stock
- A non stock can be VALIDLY CONVERTED only if members dissolve it first and then organize
another stock corporation
- A stock corporation CAN BE CONVERTED into a non stock corporation by mere amendment of
AOI
Members Trustees
RELIGIOUS CORPORATION
CORPORATION SOLE - Special form of corporation usually associated with clergy and consists of
one person only and his successors who are incorporated by law to give some legal capacities
and advantages
RELIGIOUS SOCIETIES - Non stock corporation formed by religious society, group after getting the
2/3 approval of its members.
- By laws of religious corporation may provide that the member may be expelled or removed
WITHOUT PRIOR NOTICE
- Where any member of the religious corp is expelled from membership for espousing doctrines
and teachings contrary to that of his church, such is conclusive to the courts.
- Corporation sole in order to acquire land in PH: Members must constitute at least 60% Filipinos
- Corporation sole may be converted to corporation aggregate through the amendment of
AOI through concurrence of 2/3 of members
POWERS OF SEC
1. Jurisdiction over all corporations, partnerships or associations who are the grantees of primary
franchises and or a license or permit issued by government
2. Formulate policies and recommendations
3. Approve, reject, revoke or require amendments to registration of statements.
4. Impose sanctions for the violations of law and rules
5. Punish for contempt
6. Issue subpoena duces cecum and summons
7. Suspend, revoke after pro[er notice or hearing the franchise
VIOLATIONS OF SRC - All complaints for any violation should be filed with SEC. When the
complaint is criminal in nature, SEC may indorse the complaint to DOJ for PI and prosecution.
PROMOTER - Takes initiative in founding and organizing the business or enterprise of the issuer
UNDERWRITER - Person who guarantees on a firm commitment and or declared best effort basis
the distribution and sale of securities.
DEALING IN SECURITIES - Making or offering to make with any person or inducing or attempting
to induce any person to enter into or to offer to enter into any agreement.
INVESTMENT CONTRACT - Contract, transaction or scheme whereby a person invests his money in
a COMMON ENTERPRISE and is let to expect profits PRIMARILY from the efforts of others.
- ENGAGED IN DISTRIBUTION OF SECURITIES
- OPTIONS - Give the buyer the right to but not the obligation to buy or sell an underlying
security at a predetermined price called exercise or strike price.
- WARRANTS - Rights to subscribe or purchase new shares in a company on or before
predetermined date called the expiry date.
COMMODITY FUTURES CONTRACT - A contract providing for the making or taking delivery at a
prescribed time in the future of a specific quantity and quality
SRC requires the filing with and approval by SEC of a registration statement.
PROHIBITED IF NO REGISTRATION
1. Sale of securities
2. Offer to sell or distribute securities within PH
3. Disseminate of information relating to offering of securities
PUBLIC OFFERING - Any offering of securities to the public or to anyone whether solicited or
unsolicited.
- PRESUMPTION that it is public offering:
1. Publication in any newspaper or reading material distributed in PH
2. Presentation in any public place
3. Advertisement
4. Distribution of flyers
EXEMPT TRANSACTIONS
1. Judicial sale or sale by an executor, administrator, guardian or receiver or trustee
2. By or for the account of a pledge holder or mortgagee
3. Isolated transaction in which any security is sold, offered for sale by owner or his
representative
4. Distribution by a corporation actively engaged in business authorized by its AOI to its SH or
other security holders
5. Issuance of bonds or notes secured by mortgage upon real estate or tangible personal
property
6. Sale of securities by an issuer fewer than 20 in the PH during the 12 month period.
SHORT SALE - Any sale of a security which seller does not own.
NO ABSOLUTE PROHIBITION. BUT THESE ACTS ARE PROHIBITED:
1. Directors, officers or principal shareholders of corporation cannot make a short sale in such
corporation
INSIDER - An issuer, Director or officer of or a person controlling the issuer, person whose
relationship or former relationship to the issuer gives him access to material information about
the issuer that is not generally available to public
- It shall be unlawful for an insider to sell or buy security of the issuer while in the possession of
material information with respect to the issuer or the security that is not generally available to
the public
PRESUMPTION - A purchase or sale made by insider or such insider’s spouse or relative by affinity
or consanguinity within 2nd degree, legitimate or common law shall be PRESUMED to have been
in possession of material information not generally available to public.
- It shall be unlawful for any person OTHER THAN THE TENDER OFFEROR who is in possession of
material information relating to such tender offer to buy or sell.
SHORT SWING PROFITS - Any profit realized by any beneficial owner, director or officer from any
purchase and sale within any period of less than 6 months unless such security was acquired in
GF shall inure to and be recoverable by the issuer irrespective of intention of holding the security
purchased or of not repurchasing the security sold for a period exceeding 6 months.
TENDER OFFER - Publicly announced intention by a person acting alone or in concert to acquire
equity securities of a public company
WHEN MANDATORY:
1. Intends to acquire 15% OF EQUITY SECURITIES within 12 months
2. Any person or group of persons who intends to acquire 35% or more of the OUTSTANDING
VOTING SHARES that are sufficient to gain control of the board
3. If any acquisition of even less than 35% would result in ownership of over 51% of the total
outstanding equity securities of public company
NOT REQUIRED
1. If after the acquisition through the exchange trading system they fail to acquire their target
of 35% of the outstanding voting shares.
2. Any purchase of shares from the unissued capital stock provided that the acquisition will not
result to 50% or more ownership
3. Purchase from increase in authorized capital stock
4. Purchase in connection of privatization
5. Merger or consolidation
- These rules apply even if one will acquire the shares in the corporation that owns the shares of
a public company.
MARGIN TRADING - Customer purchases stocks by advancing only a portion of purchase price
with the broker extending credit or making loan for the balance due.
- Broker shall not extend credit in an amount that EXCEEDS 50% of the CMV
MANDATORY CLOSE OUT RULE - When there is an insufficiency of margin, a call for additional
margin shall be issued promptly by the broker dealer to customer.
- Parties may be considered in pari delicto if they violate the limitations on margin trading.
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Sorry for all the typographical errors. Good luck and God bless you! Kindly pass
this or pay it foward! In God's perfect timing I know you will be the person you
aspire to be.
- Edward Arriba