Professional Documents
Culture Documents
I. NEGOTIABLE INSTRUMENTS
LAW (NIL)
NEGOTIABLE INSTRUMENT (NI)- it is a written contract for the payment of money which by its form and on its face is intended as a substitute for money and passes from hand to hand as money, so as to give the holder in due course (HDC) the right to hold the instrument free from defenses available to prior parties.
4. prior parties do not warrant payment but merely the legality of his title
CLASSES OF NI: 1. PROMISSORY NOTE (PN)unconditional promise in writing by one person to another signed by the maker engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to order or to bearer. (Sec. 184, NIL) 2. BILL OF EXCHANGE (BE)an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer (Sec. 126, NIL); and 3. CHECK- a bill of exchange drawn on a bank payable on demand (Sec. 185, NIL).
DISTINCTIONS:
Negotiable Instruments 1. The subject is money 2. Is itself the property with value Negotiable Documents of Title 1. The subject is goods 2. The document is a mere evidence of title the things of value being the goods mentioned in the documents 3. Does not have these requisites 4. Intermediate parties are not secondarily liable if the document is dishonored
DISTINCTIONS:
NEGOTIABLE 1. must contain all requisites of sec. 1 2. transferable by negotiation and assignment. 3. HDC can have rights better than his transferor NONNEGOTIABLE 1. does not contain all requisites of sec.1 2. transferable by assignment not negotiation 3. a transferee acquires no better rights than his transferor 3. Has all the requisites of Sec 1 of NIL 4. A holder of NI may run after the secondary parties for payment if dishonored by the party primarily liable 5. A holder, if HDC, may acquire rights over the instrument better than his predecessor
5. A holder can never acquire rights to the document better than his predecessors
Page 1 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
DISTINCTIONS: PROMISSORY NOTE 1. unconditional promise 2. involves 2 parties 3. maker primarily liable 4. only one presentment: for payment
4. Drafts, which are bills of exchange drawn by one bank upon another BILL OF EXCHANGE 1. unconditional order 2. involves 3 parties 3. drawer is only secondarily liable 4. two presentments: for acceptance and for payment LEGAL TENDER
DISTINCTIONS: BILL OF EXCHANGE 1. Not necessarily drawn on a deposit. It is not necessary that a drawer of a BOE should have funds in the hands of the drawee.
CHECK 1. It is necessary that a check is drawn on a deposit. Otherwise, there would be fraud.
2. Death of a drawer of a BOE with the knowledge of the bank, does not revoke the author of the banker to pay. 3. May be presented for payment within a reasonable time after its last negotiation because it may be further negotiated.
2. Death of the drawer of a check, with the knowledge by the bank, revokes the authority of the banker to pay. 3. Must be presented for payment within a reasonable time after its issue.
ASSIGNMENT VS. NEGOTIATION 1. Assignment pertains to contracts in general; Negotiation pertains to negotiable instruments. 2. One who takes an instrument by assignment takes the instrument subject to the defenses obtaining among the original parties; whereas a person who takes the instrument by negotiation, who is a HDC, takes it free from personal defenses available among the parties. OTHER FORMS OF NEGOTIABLE INSTRUMENTS: 1. Certificate of deposit issued by banks, payable to the depositor or his order, or to bearer 2. Trade acceptance 3. Bonds, which are in the nature of promissory notes
Page 2 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
DISTINCTIONS:
Fund for Reimbursement 1. Drawee pays the payee from his own funds; afterwards, the drawee pays himself from the particular fund indicated. 2. Particular fund indicated is NOT the direct source of payment but only the source of reimbursement. 3. Indication in the instrument does not affect the unconditional nature of the promise or order. Particular Fund for Payment 1. There is only one act- the drawee pays directly from the particular fund indicated. Payment is subject to the condition that the fund is sufficient. 2. Particular fund indicated is the direct source of payment.
An instrument is payable at a determinable future time when payable: a) At a fixed period after date or sight; b) On or before a fixed or determinable future time specified therein; or c) On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain.
PAYABLE TO ORDER (Sec. 8, NIL)
REAL DEFENSE- those that attach to the instrument and are available against all holders, whether in due course or not. PERSONAL DEFENSE- or equitable defenses are available only against the holder not in due course who stands in privity with the party who is entitled to set it up or those who are not or do not have the rights of a holder in due course. EXAMPLES DEFENSES:
1. 2. 3.
OF
PERSONAL
Absence or failure of consideration, partial or total. Want of delivery of complete instrument. Insertion of wrong date in an instrument, where it is payable at a
Page 3 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4.
14. 15.
16.
fixed period after date and it is issued undated or where it is payable at a fixed period after sight and the acceptance is undated. Filling up of blank contrary to authority given or not within reasonable time, where the instrument is delivered. Fraud in inducement. Acquisition of instrument by force, duress, or fear. Acquisition of the instrument by unlawful means. Acquisition of the instrument for an illegal consideration. Negotiation in breach of faith. Negotiation under circumstances that amount to fraud. Mistake. Intoxication according to better authority. Ultra vires acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authorized for the particular purpose for which it was issued. Want of authority of agent where he has apparent authority. Insanity where there is no notice of insanity on the part of the one contracting with the insane person. Illegality of contract where form or consideration is illegal.
DRAWER 1. engages that on due presentment, the instrument will be accepted, or paid, or both according to its tenor; 2.admits the existence of the payee;
ACCEPTOR 1.engages that he will pay according to the tenor of his acceptance;
2. admits the existence of the drawer, the genuineness of his signature, and his capacity & authority to draw the instrument; 3. admits the existence of the payee and his capacity to indorse.
if completed and delivered without authority, not a valid contract against a person who has signed before delivery of the contract even in the hands of HDC but subsequent indorsers are liable.
C. EFFECTS OF COMPLETE BUT UNDELIVERED NI (SEC. 16, NIL):
9. 10. 11.
12.
1. Between immediate parties and remote parties not a HDC, must be an authorized delivery. 2. As to HDC, all prior deliveries are conclusively presumed valid; and 3. If instrument is not in the hands of drawer/maker, valid and intentional delivery is presumed.
EFFECTS OF DEFENSES
A. EFFECTS OF INCOMPLETE BUT DELIVERED NI (SEC. 14, NIL): 1. Holder has prima facie authority to fill up the instrument. 2. Completion within reasonable time and according to authority; and 3. HDC can enforce such despite deficiency.
Page 4 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
Section 14
incomplete complete
Section 15
Section 16
COMPLETENESS
undelivered Undelivered
a. b.
DELIVERY
delivered
Note: Delivery may be made for a conditional or for a special purpose only and not for the purpose of transferring the property in the instrument No authority to complete and / or negotiate instrument
a.
b.
prima facie authority to complete it by filling up the blanks therein signature operates as a prima facie authority to fill up it up as such for any amount
May negotiate if delivered to him by or under the authority of the party making, indorsing, drawing or accepting , as the case may be.
WHEN ENFORCEABLE
Real
If filled up strictly in accordance with authority given and within a reasonable time
Not enforceable
When delivery is made by or under authority of the party making, indorsing, drawing or accepting , as the case may be. Personal
KIND OF DEFENSE
Personal
RIGHTS OF HOLDER
If holder in due course, he can enforce the instrument as completed against parties prior or subsequent to the completion
If not a holder in due course, he can enforce the instrument as completed only against parties subsequent to the completion but not against those prior thereto.
None in the hands of the holder. However, the invalidity of the above instrument is only with reference to parties whose signatures appear on the instrument prior to delivery because as to parties whose signatures appear on the instrument after delivery, the instrument is valid.
Can enforce the instrument. Note: Where the instrument is in the hands of a holder in due course , a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery to him is presumed until the contrary is proved.
Page 5 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
person to whom instrument thus executed is subsequently negotiated has a right of recourse
against the accommodation party inspite of the formers knowledge that no consideration passed between the accommodation and accommodated parties. NOTE: A corporation cannot act as an accommodation party. The issue or indorsement of negotiable instrument by a corporation without consideration and for the accommodation of another is ultra vires. (Crisologo vs. CA, 117 SCRA 594).
OF
1. AP is generally regarded as SURETY for the party accomodated 2. When AP make payment to holder of the note, they have the right to sue the accomodated party for reimbursement
LIABILITY OF ACCOMODATION PARTY liable on the instrument to a holder for value notwithstanding such holder at the time of the taking of the instrument knew him to be only an accomodation party RIGHTS OF ACCOMODATION PARTY AGAINST EACH OTHER demand from principal debtor reimbursement of the amount which he had paid on the promissory note demand contribution from his coaccomodation maker without first directing his action against the principal debtor provided: 1. he made the payment by virtue of judicial demand 2. the principal debtor is insolvent F. MATERIAL ALTERATION any alteration which changes the date, sum payable, time or place of payment, number or relation of parties, or medium or currency of payment, or adds a place of payment where none is specified or which alters the effect of the instrument in any respect. (PNB vs. CA)
EFFECTS OF MATERIAL ALTERATION (SECS. 124 & 125, NIL):
Persons precluded from setting up forgery: 1. those who warrant or admit the genuineness of the signature in question. This includes indorsers, persons negotiating by delivery and acceptors. 2. Those who by their acts, silence, or negligence, are estopped from setting up the defense of forgery. VALUABLE CONSIDERATION In general, it is said to consist either in some right, interest, profit or benefit, accruing to the party who makes the contract, or some forebearance, detriment, loss, responsibility, act , labor, or service on the other side. ACCOMMODATION
- legal arrangement under which a person called the accommodation party, lends his name and credit to another called the accommodated party without any consideration.
avoids the instrument except as against the party who made, authorized, or assented to the alteration and subsequent indorsers. HDC can enforce it accordingly to its original tenor.
(iii)
LIABILITIES OF PARTIES
1. PARTIES PRIMARILY LIABLE a. MAKER (Sec. 60, NIL) (i) engages to pay according to the tenor of the instrument; and (ii) admits the existence of the payee and his capacity to indorse. b. ACCEPTOR OR DRAWEE (Sec. 62, NIL) (i) engages to pay according to the tenor of his acceptance; (ii) admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument; and (iii) admits the existence of the payee and his capacity to indorse. 2. PARTIES SECONDARILY LIABLE a. DRAWER (Sec. 61, NIL) (i) Admits the existence of the payee and his capacity to indorse. (ii) Engages that the instrument will be accepted or paid by the party primarily liable; and (iii) Engages that if the instrument is dishonored and proper proceedings are brought, he will pay to the party entitled to be paid. b. GENERAL INDORSER (Sec. 66, NIL) (i) warrants --(1) genuineness of the instrument; (2) his good title to it; (3) capacity to contract of prior parties; and (4) instrument is valid and subsisting. (ii) engages that the instrument will be accepted or paid by the party primarily liable; and (iii) engages that if the instrument is dishonored and proper proceedings are taken he will pay to the party entitled to be paid. c. IRREGULAR INDORSER one who affixes his signature in blank on an instrument before delivery (Sec. 64, NIL). (i) instrument payable to the order rd of a 3 person -liable to payee and subsequent parties (ii) instrument payable to maker or drawer -liable to all parties subsequent to the maker or drawer.
for
-liable to all parties subsequent to payee. 3. PARTIES WITH LIMITED LIABILITY (Sec. 65, NIL; METROPOL FINANCING VS. SAMBOK, 120 SCRA 864). a. QUALIFIED INDORSER- warrants that (i) instrument is genuine and in all respects what it purports to be; (ii) he has good title to it; (iii) all prior parties had capacity to contract; (iv) he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. PERSONS NEGOTIATING BY DELIVERY (i) (ii) warranties same as those of qualified indorsers; and warranties extend to immediate transferee only.
b.
KINDS OF INDORSEMENT
A. SPECIAL - specifies the person to whom or to whose order the instrument is to be payable (Section 34) B. BLANK - specifies no indorsee; 1. may be negotiated by delivery 2. may be converted to special indorsement by writing over the signature of indorser in blank any contract consistent with character of indorsement (Sections 34 and 35) C. ABSOLUTE - one by which indorser binds himself to pay:
Page 7 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
1. upon no other condition than failure of prior parties to do so 2. upon due notice to him of such failure
D. CONDITIONAL - indorsement subject to the happening of a contingent event (Section 39) E. RESTRICTIVE 1. when it PROHIBITS further negotiation of the instrument; 2. when it CONSTITUTES the indorsee the agent of the indorser 3. when it VESTS the title in the indorsee in trust for or to the use of other persons (Section 36) F. QUALIFIED - made by adding to the indoser's signature words like "sans recourse", "without recourse", "indorser not holden", "at the indorser's own risk", etc. G. JOINT - indorsement payable to 2 or more persons (Section 38) H. SUCCESSIVE I. IRREGULAR J. FACULTATIVE
b) constitutes the indorsee the agent of the indorser; or c) vests the title in the indorsee in trust for or to the use of some other person. But mere absence of words implying power to negotiate does not make an indorsement restrictive.
DISTINCTIONS:
Negotiating by Mere delivery or by Qualified Indorsement 1. he has good title to it; General Indorser
1. he has good title to it; 2. all prior parties had capacity to contract; 4. the instrument is, at the time of his indorseme nt valid and subsisting.
NEGOTIATION- transfer of instrument from one person to another to constitute the transferee as holder thereof (Sec. 30, NIL). CONDITIONAL INDORSEMENT- right of the
indorsee is made to depend on the happening of a contingent event. Party required to pay may disregard the conditions (Sec. 39, NIL).
3. he has no know- ledge of any fact which would impair the validity of the instrument or render it valueless.
RESTRICTIVE INDORSEMENT- limits the right of indorsee by restricting further negotiation; giving the indorsee lesser right than those under a general indorsement when an instrument negotiable by delivery is indorsed to holder --- becomes liable as indorsee (Sec. 3637, NIL). An indorsement is restrictive, which either:
a) prohibits further instrument; or negotiation of the
SHOULD
BE
Page 8 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2. Bill of exchange payable on demand: within reasonable time after its last negotiation 3. Instrument payable on a specified date: on the date it falls due.
accommodation and he has no reason to expect that the instrument will be paid if presented.
A SUFFICIENT
1. made by the holder or any person authorized to receive payment on his behalf; 2. at a reasonable hour on a business day; 3. at a proper place; 4. to the person primarily liable or if he is absent or inaccessible, to any person found at the place where the presentment is made.
When instrument is dishonored by nonpayment, there is an immediate right of recourse by the holder against persons secondarily liable. However, notice of dishonor is generally required.
REQUISITES COURSE:
OF
PAYMENT
IN
DUE
Instrument payable at a bank must be made during banking hours unless there are no funds to meet it at any time during the day, presentment at any hour before the bank is closed on that day is sufficient. If the person liable is dead, presentment may be made to his personal representative. PRESENTMENT FOR PAYMENT IS NOT REQUIRED:
1. in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument; 2. in order to charge an indorser when the instrument was made or accepted for his
1. Payment must be made at or after maturity. 2. Payment must be made to the holder. 3. Payment must be made in good faith and without notice that the holders title is defective. Good faith refers to the maker or acceptor and not to the holder.
NOTICE OF DISHONOR- notice given by holder or his agent to party or parties secondarily liable that instrument was dishonored by nonacceptance by drawee of a bill, or by nonpayment by acceptor of a bill or by non-payment by maker of a note. (Sec. 89, NIL).
Page 9 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
would have a right to reimbursement from the party to whom the notice is given.
PROTEST- is the formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken. Where protest is waived, presentment and notice of dishonor are also deemed waived. But where the notice of dishonor is waived, presentment is not waived.
Page 10 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
DISCHARGE OF NEGOTIABLE INSTRUMENT (Section 119, NIL): Discharge of an instrument- means a release of all parties, whether primary or secondary, from the obligations arising thereunder. It renders the instrument without
Page 11 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
Acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. It is the act by which the drawee manifests his consent to comply with the request contained in the bill of exchange directed to him and it contemplated an engagement or promise to pay. WHEN PRESENTMENT ACCEPTANCE IS REQUIRED: FOR
1. where the bill is payable after sight, or when it is necessary in order to fix the maturity of the instrument; 2. where the bill expressly stipulates that it shall be presented for acceptance; 3. where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. NOTE: In all the above cases, the holder must either present the bill for acceptance or negotiate it within a reasonable time; otherwise, the drawer and all indorsers are discharged.
EFFECT OF ALTERATION:
1. Alteration by a party material alteration by the holder is to discharge the instrument and all prior parties thereto who did not give their consent to such alteration. NOTE: Since no distinction is made, it does not matter whether it is favorable or unfavorable to the party making the alteration. The intent of the law is to preserve the integrity of the negotiable instruments. 2. Alteration by a stranger it is called spoliation. 3. The right of holder in due course A material alteration avoids the instrument in the hands of one who is not a holder in due course as against any prior party who has not assented to the alteration. If an altered instrument is negotiated to a HIDC, he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent.
FOR
must be made by or no behalf of the holder; at a reasonable hour or a business day; before the bill is overdue; and to the drawee or some person authorized to accept or refuse to accept on his behalf.
If bill is duly presented for acceptance and it is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers.
Page 12 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
When a bill is dishonored by nonacceptance, an immediate right of recourse against the drawers and indorsers accrues to the holder and no presentment for payment is necessary. There is implied acceptance if after 24 hours, the drawee fails to return the instrument. He is also deemed to have accepted the instrument when he destroys the same. KINDS OF ACCEPTANCE:
1. GENERAL- assents without qualification to the order of the drawer. 2. QUALIFIED- which in express terms varies the effect of the bills as drawn. a) Conditional- makes payment by the acceptor dependent on the fulfillment of a condition therein stated. b) Partial- an acceptance to pay part only of the amount for which the bill is drawn. c) Local- an acceptance to pay only at a particular place. d) Qualified as to time e) The acceptance of some one or more of the drawees but not of all.
Acceptance for honor- is an undertaking by a stranger to a bill after protest for the benefit of any party liable thereon or for the honor of the person for whose account the bill is drawn which acceptance inures also to the benefit of all parties subsequent to the persons for whose honor it is accepted, and conditioned to pay the bill when it becomes due if the original drawee does not pay it. REQUISITES HONOR: OF ACCEPTANCE FOR
1. the bill must have been protested for dishonor by non-acceptance or for better security; 2. the acceptor for honor must be a stranger and not a party already liable on the instrument; 3. bill must not be overdue;
4. acceptance for honor must be with the consent of the holder of the instrument.
FORMAL REQUISITES:
1. must be in writing; 2. must indicate that it is an acceptance for honor; 3. signed by the acceptor for honor; 4. must contain an express or implied promise to pay money; 5. the accepted bill for honor must be delivered to the holder.
Protest for better security- is one made by the holder of a bill after it has been accepted but before it matures, against the drawer and indorsers, where the acceptor has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of the creditors.
Page 13 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
5. the notarial act must be based on the declaration made by the payee for honor or his agent of his intention to pay the bill for honor and for whose honor he pays. NOTE: If the above formalities are no complied with, payment will operate as a mere voluntary payment and the payer will acquire no right to full reimbursement against the party for whose honor he pays.
Philippines for all debts, both public and private. PROVIDED, however, That, unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less. R.A. 8183 (Repealed R.A. 529, the Uniform Currency Act- Foreign currency as mode of payment) SECTION 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.
In payment for honor, the payee cannot refuse payment. If he refuses, he cannot recover from the parties who would have been discharged had he accepted the same. In acceptance for honor, the holders consent is necessary. The payer for honor is given the right to receive both the bill and the protest obviously to enable him to enforce his rights against the parties who are liable to him.
Purpose: Are usually availed of in cases where a bill had to be sent to a distant place through some conveyance. If each part is sent by different means of conveyances, the chance that at least one part of the set would reach its destination would be greater. Rights of holders where parts are negotiated separately: 1. if both are HIDC, the holder whose title first accrues is considered the true owner of the bill. 2. But the person who accepts or pays in due course shall not be prejudiced. Obligations of holder who indorses 2 or more parts of the bill in set:
1. the person shall be liable on every such part; 2. every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills.
2. vested in the individuals who compose the corporation and is essential to a corporation de jure. 3. it cannot be sold or transferred because it is inseparable from the corporation itself.
3. It may be sold or transferred; sue or be sued; subject to sale on execution, subject to levy provided such sale is decreed or ordered in judgment and is effective only when sale is confirmed by court often due notice.
ATTRIBUTES OF A CORPORATION:
1. 2. 3. 4. It is an artificial being. It is created by operation of law. It enjoys the right of succession. It has the powers, attribute and properties expressly authorized by law or incident to its existence.
FRANCHISES OF CORPORATION
1. PRIMARY FRANCHISE the franchise to exist as a corporation. 2. SECONDARY FRANCHISE right or privilege conferred upon existing corporation, such as to use the streets of a municipality to lay pipes or tracks, or operate a messenger and express delivery service.
CLASSES OF CORPORATION:
1. AS TO ORGANIZERS a. public by State only; and b. private by private persons alone or with the State. 2. AS TO FUNCTIONS a. public governmental and other functions; and b. private usually for profit-making functions 3. AS TO GOVERNING LAW a. public Special Laws; and b. private Law on Private Corporations 4. AS TO LEGAL STATUS a. de jure corporation corporation organized in accordance with requirements of law b. de facto corporation a corporation where there exists a flaw in its incorporation (Sec. 20). Its existence cannot be inquired collaterally. Such inquiry may be made by the Solicitor General in a quo warranto proceeding (Sec. 20).
DISTINCTIONS :
PRIMARY 1. refers to the franchise of being or existing as a corporation, i. e., possessing a unity and continuity of existence SECONDARY 1. refers to the exercise of rights as for example, the right of eminent domain or the partial appropriation of public property
Page 15 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
b. Affiliates company which is subject to common control of a mother holding company and operated as part of the system. c. parent and subsidiary corporation separate entities with power to contract with each other. The board of directors of the parent company determines its representatives to attend and vote in the stockholders meeting of its subsidiary. The stockholders of the parent company demand representation in the board meetings of its subsidiary. The board of directors of the parent or holding company has the prerogative to choose its nominees in the board of directors or its subsidiary. 7. AS TO PLACE OF INCORPORATION a. Domestic corporationcorporation formed, organized or existing under laws b. Foreign Corporation a corporation formed , organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporation to do business in its own country or state (Section 123). 8. OTHER CORPORATIONS a. Close Corporation b. Special Corporation 1. educational corporation 2. religious corporation a. corporation sole b. religious societies
Page 16 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
INSTRUMENTALITY RULE- Where one corporation is so organized and controlled and its affairs are conducted so that it is in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not mere majority or even complete stock control but such domination of finances, policies, practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is, but a conduit for its principal. 3. Equity cases when piercing the corporate fiction is necessary to achieve justice or equity COMPONENTS OF A CORPORATION:
1. 2. 3. 4. 5. incorporators; corporators; stockholders and members; promoter; board of directors;
INCORPORATORS-
They are those mentioned in the articles of incorporation as originally forming and composing the corporation, having signed the articles and acknowledged the same before a notary public. They have no powers beyond those vested in them by the statute.
DISTINCTIONS :
INCORPORATORS 1. signatory to articles CORPORATORS 1. stockholder of stock corporation or member of non-stock corporation 2. cease to be such if they are no longer stockholders
Page 17 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
BY-LAWS
1. It is more of a rule for the internal government of the corporation but has the force of a contract between the corporation and the stockholders/ members, and between the stockholders and members; 2. It is usually executed after the incorporation although Sec. 46 allows simultaneous filling of the two; 3.It is a condition subsequent;
3.It is a condition precedent in the acquisition of corporate existence; 4. It is amended by a majority of the directors/ trustees and stockholders representing 2/3 of the outstanding capital stock, or 2/3 of the members in case of non-stock corporations
4. It may be amended by a majority vote of the BOD and majority vote of outstanding capital stock or a majority of the member in nonstock corporation
5. Power to amend/repeal articles cannot be delegated by the stockholders/ members to the board of directors/ trustees.
5. Power to amend or repeal by-laws or adopt new bylaws may be delegated by the 2/3 of the outstanding capital stock or 2/3 of the members in the case of nonstock corporation.
Page 18 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
enactments concerned.
so
far
as
third
persons
are
POWERS OF A CORPORATION
KINDS: 1. Express Powers granted by law , Corporation Code and its Articles of Incorporation or Charter 2. Inherent / Incidental Powers not expressly stated but are deemed to be within the capacity of corporate entities 3. Implied / Necessary exists as a necessary consequence of the exercise of the express powers of the corporation or the pursuit of its purposes as provided for in the Charter
THEORY
OF
SPECIAL
CAPACITY
corporation cannot exercise powers except those expressly or impliedly given (everything is prohibited except when allowed).
Page 19 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
i. directors; ii. trustees; iii. officers; iv.employees. 11. Other powers essential or necessary to carry out its purposes RESTRICTIONS ON THE POWER TO MAKE DONATIONS: 1. The donation must be reasonable, otherwise it would be tantamount to a conversion of corporate funds; 2. That it must not be in aid of any political party or candidate; 3. That it must not be for purposes of partisan political activity.
B. SPECIAL POWERS
1. Power to extend or shorten corporate term 2. Increase / Decrease Corporate Stock 3. Incur, Create Bonded Indebtedness 4. Sell, Dispose. Lease, Encumber all or substantially all of corporate assets 5. Purchase or acquire own shares provided:
WASTING ASSET DOCTRINE- It permits corporations solely or principally engaged in the exploitation of wasting assets to distribute the net proceeds derived from exploitation of their holdings such as mines, oil wells, patents and leaseholds, without allowance or deduction for depletion. The justification of such rule is that as the business of wasting asset corporation is to exploit and exhaust its assets, no one can expect that its capital would be kept intact. Hence that dividends cannot be paid out of the capital but only from the profits must not be applied as a rule. NOTE: RELATION TO THE TRUST FUND DOCTRINE Under the Doctrine, no dividends can be declared out of capital except only in two instances: (1) liquidating dividends and (2) dividends from investments in wasting asset corporation.
there is an unrestricted retained earnings (ii) for legitimate purpose 6. Invest corporate funds in another corporation or business for other purpose other than primary purpose 7. Power to declare dividends out of unrestricted retained earnings 8. Enter into management contract.
(i)
MANAGEMENT CONTRACT one entered into between two corporations whereby one corporation undertakes to manage all or substantially all of the business of the other corporation for certain period of time, whether such be a service contract, operating agreement or otherwise. ULTRA VIRES ACT AND ILLEGAL ACTS An ultra vires act is not necessary illegal
although an illegal act is always ultra vires.
Page 20 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2.
3.
4. 5. 6.
director. For non-stock corporation, only members of the corporation can be elected to seat in the board of trustees (Sec. 23). A majority of the directors/ trustees must be residents of the Philippines (Sec. 23). He must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years or a violation of the Corporation Code, committed within five years from the date of his election (Sec. 27). He must not have a substantial interest in a competing corporation. Only natural persons can be elected directors/trustees. Other qualifications as may be prescribed in the by-laws of the corporation.
INHERENT POWER OF AMOTION - It is the power to remove directors, officer and trustees prior to the expiration of their term. DOCTRINE OF CORPORATE OPPORTUNITY if there is presented to a
corporate officer or director a business opportunity which: 1. corporation is financially able to undertake; 2. from its nature, is in line with corporations business and is of practical advantage to it; and 3. one in which the corporation has an interest or a reasonable expectancy.
By embracing the opportunity, the selfinterest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity.
BUSINESS JUDGMENT RULE.- The board of directors is the body usually entrusted with the general control and management of the business of the corporation having plenary power/ authority to transact all the ordinary business of the corporation within the scope of its charter power. The SEC, stockholders and the courts cannot overrule a pure business judgment.
SELF-DEALING DIRECTORS-
those who personally contract with the corporation in which they are directors. It is discouraged because there can be no real bargaining where the same is acting on both sides of the trade.
REMEDIES IN CASE OF MISMANAGEMENT: 1. receivership; 1. injunction, if the act has not yet been done; 2. dissolution if the abuse amounts to a ground for quo warranto but the Solicitor General refuses to act; and derivative suit or complaint filed with SEC. SPECIAL FACT DOCTRINE director takes
advantage of an information by virtue of his office to the disadvantage of the corporation.
Page 21 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
and indivisible whole contract. It cannot be divided into portions. (Sec. 64)
CAPITAL STOCK OR LEGAL STOCK OR STATED CAPITAL the amount fixed by the
corporate charter to be subscribed and paid in cash, kind or property at the organization of the corporation or afterwards and upon which the corporation is to conduct its operation.
CAPITAL actual property or estate of the corporation whether in money or property. AUTHORIZED CAPITAL STOCK total
amount in the charter, which may be raised by the corporation for its operations.
Page 22 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
sound judgment of the board of directors, subject to ratification by the stockholders. SHARES OF STOCK interest or right which owner has in the management of the corporation, and its surplus profits, and, on dissolution, in all of its assets remaining after the payment of its debt. WORKING CAPITAL excess of current assets over current liabilities. CIRCULATING CAPITAL refers to the total amount of current assets.
chattel mortgages over the shares of stock the status is the duty/promise in which the corporation has its principal place of business. c)For purposes of execution, it is the domicile of the corporation.
SHARES OF STOCK
- the interest or right which the stockholder has in the management of the corporation, and its surplus profits, and upon a dissolution, in all of its assets remaining after payment of corporate debts. Share of stock belongs to the individual stockholders and not to the company.
UNDERWRITING AGREEMENT- It is an
agreement between a corporation and a third person, termed the underwriter, by which the latter agrees, for a certain compensation, to take a stipulated amount of stocks or bonds, specified in the underwriting agreement, if such securities are not taken by those to whom they are first offered.
CERTIFICATE OF STOCK
1. Evidence of the holders ownership of the stock and of his right as a shareholder and of his extent specified therein. 2. It is concrete and tangible 3. It may be issued only if the subscription is fully paid. 4.The situs may be the place where it is located or at the domicile of the owner even though the domicile of the owner, except when corporation is dominated elsewhere.
2. it is an incorporeal or intangible property 3. it may be issued by the corporation even if the subscription is not fully paid. 4. Situs is generally the state where the corporation has its domicile a) For purposes of taxation, situs is inconsistent with an express provision of the statute or it is unjust. b)To register the
Page 23 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4. Savings and Loan Corporation to be fixed by the Monetary Board but not less than P100T. 5. Financing Companies Paid up: P2M for Metro Manila P1M for Cities P500T for others
back their investments which are instead, voluntarily given to the corporation. 4. 5. 6. 7. FOUNDERS SHARE (SEC. 7); NON-VOTING SHARES; VOTING SHARES COMMON SHARE is the basic class of stock ordinarily and usually issued without extraordinary rights and privileges and the owners thereof are entitled to a pro rata share in the profits of the corporation and in its assets upon dissolution and likewise in the management of its affairs without preference or advantage whatsoever. PROMOTERS SHARES are those issued by mining corporations to owners of mines who transferred their mining rights to such corporations or they are shares issued to promoters of a corporation. rd ESCROW STOCK deposited with 3 person to be delivered to S/H or his assign after complying with certain conditions, usually payment of full subscription price; OVER-ISSUED STOCK are those issued in excess of the authorized capital stock. WATERED STOCK issued as fully paid when in fact it is not (Sec.65);
AMOUNT OF CAPITAL STOCK TO BE SUBSCRIBED AND PAID FOR PURPOSES OF CORPORATION (SEC. 13): 25% of ACS must be subscribed at time of
incorporation; and 25% of total subscription must be paid upon subscription but must not be less than P5,000 8.
9.
10. 11.
WATER IN THE STOCK- It represents the difference between the fair market value at the time of the issuance of the stock and the par or issued value of said stock. Both par and no-par stocks can thus be watered stocks. 12. PAR VALUE SHARES- value in fixed in the articles of incorporation 13. NO PAR VALUE SHARES- shares having no par value but have issued value stated in the articles of incorporation or to be fixed by the Board LIMITATIONS ON THE ISSUANCE OF NO PAR VALUE SHARES: 1. No par value shares cannot have an issued price of less than P5.00 while the par value of a share can be as low as 1 cent. 2. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividends. 3. They cannot be issued as preferred stocks. 4. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loan association. 5. The articles of incorporation must state the fact that it issued no par value shares as well as the number of said shares. 6. Once issued, they are deemed fully paid and non-assessable.
IF
PURCHASED FROM THE STOCKHOLDERS the transaction in effect is a return to the stockholders of the value of their investment in the company and a reversion of the shares to the corporation. The corporation must have surplus profits with which to buy the shares so that the transaction will not cause an impairment of the capital. BY DONATION FROM THE STOCKHOLDERS the act would amount to a surrender of their stock without getting
IF
Page 24 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
14. DEBENTURE charged on the net earning and profit of the corporation; 15. DEFERRED SHARES are those which are entitled to dividends after the payment of holders of common share. 16. STOCK WARRANT security which entitle holder the right to subscribe to, or purchase from, the unissued capital stock of a corporation in the future; 17. SCRIP applied to certificates issued by trustee in a voting trust; 18. STREET CERTIFICATE stock certificate endorsed by the registered holder in blank and transferee can command its transfer to his name from the issuing corporation. The certificate may be transferred by mere delivery; and 19. CUMMULATIVE PREFERRED SHARES which entitle the holder thereof to payment of current dividends as well as dividends in arrears. 20. NON-CUMMULATIVE which entitle the holder thereof only to the payment of current and not past dividends. 21. PARTICIPATING which entitle the holder thereof to participate with the holders of common shares after their preferred rights has been satisfied. 22. NON-PARTICIPATING which entitle the holder to payment of the stipulated preferred dividends and no more. 23. CUMMULATIVE-PARTICIPATING which entitle the holder thereof to payment of dividends in arrears, and also after receiving his preferred shares of dividends, to participation with the holders of common stock in the remaining profits.
capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporation may not dissipate this and the creditors may sue stockholders directly for the unpaid subscription.
RIGHTS OF STOCKHOLDERS:
1. DIRECT OR INDIRECT PARTICIPATION IN MANAGEMENT a. voting rights (Sec. 6); and b. right to remove directors (Sec. 28) 2. PROPRIETARY RIGHTS a. right to dividends; b. appraisal right (Sec. 81); c. rightr to issuance of stock certificate for fully paid shares (Sec.64); d. proportionate participation in the distribution of assets in liquidation (Sec.118-119); e. right to transfer of stocks in corporate books (Sec. 63); f. preemptive right (Sec. 39); g. right to inspect books and records (Sec. 74); h. right to be furnished of the most recent financial statement/ financial report (Sec. 74 and 75); i. right to recover stocks unlawfully sold for delinquent payment of subscription. 3. REMEDIAL RIGHTS a. individual suit; b. representative suit; and
c.
derivative suit - suit brought by S/H, for and in behalf of the corporation and against any person he be also a S/H, rd director, officer or 3 person. REQUISITES: i. the party bringing suit should be a shareholder as of the time of the act or transaction complained of; ii. he has exhausted intracorporate remedies; and iii. the cause of action actually devolves on the corporation, the wrongdoing or harm having been caused to the corporation and not to the particular stockholder bringing the suit.
DOCTRINE OF EQUALITY OF SHARESWhere the articles of incorporation do not provide for any distinction of the shares of stock, all shares issued by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities. TRUST FUND DOCTRINE the subscribed
Page 25 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
PREEMPTIVE RIGHT OF STOCKHOLDERS shareholders right to subscribe to all issues or dispositions of shares of any class in proportion to his present stockholdings, the purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus.
the happening of a certain event as contained in the agreement. (opinion) CUMULATIVE VOTING S/H, being entitled to that number of votes that his number of shares multiplied by the number of directors to be elected will bring, may give all said votes to one candidate or he may distribute them among as many candidates as he sees fit (Sec. 24). PROXIES S/H and members may vote in person of by proxy in all meetings of S/H or members (Sec. 58). FORM in writing, signed by the S/H or member and filed before the scheduled meeting with the corporate secretary. PERIOD OF VALIDITY unless otherwise provided in the proxy, it should be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a longer period than five years at any one time. Proxies are also considered as corporate devise for securing voting control of the corporation.
OBLIGATIONS OF A STOCKHOLDER:
1. Liability to the corporation for unpaid subscription (Sec. 67-70) 2. Liability to the corporation for interest on unpaid subscription if so required by the bylaws (Sec. 66) 3. Liability to the creditors of the corporation for unpaid subscription (Sec. 60) 4. Liability for watered stock (Sec. 65) 5. Liability for dividends unlawfully paid (Sec. 43) 6. Liability for failure to create corporation (Sec. 10) UNKNOWN STOCKHOLDER- They are owners of stock who cannot be located or identified. A trust relation is created between them and the corporation and their shares shall stand in the name of the corporation as a trustee. HOW IDENTIFIED:
INSTANCES WERE THE RIGHT TO VOTE BY PROXY ARE EXPLICITLY PROVIDED FOR:
1. election of the board of directors or trustees (Sec. 24). 2. voting in case of joint ownership of stock (Sec. 56). 3. voting by trustee under voting trust agreement (Sec. 59). 4. pledged or mortgaged share (Sec. 55). 5. as provided for in its by-laws (Sec. 47 (4).
PROXY
Page 26 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
assumes practically all the rights of a stockholder 4. Trustee acquires legal title to the shares of the transferring stockholder 5. The agreement must be notarized 6. The agreement is irrevocable 7. Trustee is not limited to act at any particular meeting 4.Proxy has no legal title to the shares of the principal 5. Proxy need not be notarized 6. Revocable anytime except one with interest 7.Proxy can only act at a specified stockholders meeting (if not continuing) 8.A proxy can only vote in the absence of the owners of the stock
APPRAISAL RIGHT right to withdraw from the corporation and demand payment of the fair value of his shares after dissenting from certain corporate acts involving fundamental changes in corporate structure (Sec.81) INSTANCES WHERE IT MAY BE EXERCISED: 1. extension of duration of corporate term; 2. change in the rights of S/H, authorize preferences superior to those S/H, or restrict the right of any S/H; 3. S/H authorized the board to invest corporate funds in another corporation; 4. S/H authorized board to engage in a purpose other than main purposes stated in the Articles; and 5. corporation decides to sell or dispose of all or substantially all assets of corporation. STOCK OPTION privilege granted to a party to subscribe to a certain portion of the unissued capital stock of a corporation within a certain period and under the terms and conditions of the grant exercisable by the grantee at any time within the period granted. The grant is not covered by any provision of the Code.
8. A trustee can vote and exercise all the rights of the stockholder even when the latter is present 9. An agreement must not exceed 5 years at any one time except when the same is made a condition of a loan. 10. The voting right is divorced from the ownership of stocks
9. A proxy is usually of shorter duration although under Sec. 58 it cannot exceed 5 years at any one time
OF
1. call delinquency and sale at auction of delinquent shares; 2. ordinary court actions (Sec. 70); and 3. collection from cash dividends and other amounts due to S/H, if allowed by the bylaws, or agreed by him.
10. The right to vote is inherent in or inseparable from the right to ownership of stock
SALE
OF
VOTING TRUST one or more S/H of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding 5 years at any one time. However, 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 (Sec. 59). DIVIDENDS unrestricted retained earnings set apart from the general mass of funds of the corporation and distributed among the S/H in proportion to their shares or interest in the corporation, in the form of cash, property or stocks.
1. Notice of call- Call by resolution demanding payment of the balance of the subscription. However, if the contract of subscription itself prescribes the date of payment of the unpaid subscription, no call is necessary. 2. The stockholders are given notice of the board resolution by the corporate secretary, either personally or by registered mail. Publication of notice of call is not required by law. If the stockholders concerned do not pay within (30) days from the date specified in the contract of subscription or in the call, all the stocks covered by the subscription shall be declared delinquent and shall be subject to sale under Sec. 68. 3. Notice of delinquency served on the subscribers either personally or registered mail AND publication in a newspaper of general circulation in the province or the city where principal office is located for once a week for two consecutive weeks. Notice shall state the amount due on each
Page 27 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
subscription plus accrued interest, and the date, time and place of the sale which shall not be less than 30 days not more than 60 days from the date the stocks become delinquent. (Sec. 67-70) EFFECT OF DELINQUENCY: No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders meeting, nor shall the holder thereof be entitled to any rights of the stockholder except right to dividends. (Sec. 71)
(i) (ii)
(iii)
plan of merger or consolidation for stock corporation, the number of shares outstanding; for non-stock, the number of members; as to each corporation, number of shares or members voting for and against such plan respectively
5. Four copies of the Articles of Merger or Consolidation shall be submitted to the SEC for approval. Banks, insurance companies, building and loan associations, trust companies, public utilities, educational institutions and other special corporations favorable recommendation of government agency concerned. GENERAL RULE when one corporation buys all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still maintaining their separate corporate entities, one will not answer for the debts of the other. Exceptions: 1. if there is an express assumption of liabilities; 2. there is a consolidation or merger; 3. if the purchase was in fraud of creditors; and 4. if the purchaser becomes a continuation of the seller. CORPORATE TERM 50 years which may be subject to extension for another 50 years by amendment of Articles (Sec.11).
MERGER
OR
1. Board of each corporation shall draw up a plan of merger or consolidation setting forth: a. names of the corporation involved b. terms and mode of carrying it c. statement of changes, if any, in the present articles of the surviving corporation or the articles of the new corporation to be formed in the case of consolidation.
2. Plan for merger or consolidation shall be approved by majority vote of each of the board of the concerned corporations at separate meetings, and approved by the majority vote of the 2/3 of the OCS or members for non-stock corporations. 3. Any amendment to the plan must be approved by the majority vote of the board members or trustees of the constituent corporations and affirmative vote of 2/3 of the OCS or members. 4. Articles of Merger or Articles of Consolidation shall be executed by EACH of the constituent corporations, signed by the President or VicePresident and certified by secretary or assistant secretary setting forth:
Page 28 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
subsequent expiry date unless warranted by a justifiable reason to be determined by the SEC- for evaluation purposes. 2) There can be no more extension after the expiration of the corporate term of existence because there is no more corporate life to extend and promote in such case. 3) It should be approved by 2/3 of the outstanding capital stock. DOCTRINE OF RELATION- Where the failure to issue a new charter before the expiration of the old one is due solely to the fault of the clerk to whom application therefore is reasonably made, the new charter, when issued will relate back, and will be treated as taking effect from the day the corporation was entitled to have the charter issued. (Also see article 1174 of the NCC on fortuitous events).
b. where creditors are affected (Sec 119); Procedure: 1) Petition signed by majority of BOD/trustees/officers verified by President/ Secretary/ Director 2) Claims and demands must be stated in the petition 3) Stockholders approval representing 2/3 OCS 4) SEC order setting date for objections 5) Publication of the order and Posting 6) Hearing 7) Appointment of Receiver (if necessary) c. by shortening corporate term (Sec. 120).
EFFECTS OF NON-USE OF CORPORATE CHARTER AND CONTINUOUS INOPERATION OF CORPORATION (SEC. 22):
1. NON-USER FOR 2 YEARS when the corporation does not fully organize and commence the transaction of its business or the construction of its works within 2 years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. Suspension or cancellation of corporate franchise is not automatic. 2. NON-USER FOR 5 YEARS when the corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least 5 years EXCEPT if reason for non-use or inoperation is beyond the control of the corporation.
Procedure: 1) Amendment of AOI 2) Publication 3) Oath undertaking by majority of SH or officers to personally answer for obligations 4) BIR clearance of tax liability 5) Listing of creditors and Consent to the shortening of the term 6) Affidavit of assumption of liability by SH 7) Latest audited financial statement of corporation d. expiration of corporate term 2. INVOLUNTARY DISSOLUTION (Sec. 121), Procedure: Verified Complaint Proper Notice and Hearing in SEC Grounds failure to organize and commence business within 2 years from incorporation;(Sec 22)
1) 2) 3) 4)
DISSOLUTION OF A CORPORATION extinguishment of the franchise of a corporation and the termination of its corporate existence.
5) Continuously inoperative for 5 years ( Sec 22) 6) may be dissolved by SEC on grounds provided by existing laws, rules and regulations: failure to file by-laws within 30 days from issue of certificate of incorporation. Continuance of business not feasible as found by Management Committee or Rehabilitation Receiver Fraud in procuring Certificate of Registration Serious Misrepresentation Failure to file required reports SEQUESTRATION- It means taking into custody or placing under the commissions control or possession any asset, fund or property as well as relevant records or documents, to prevent their concealment,
Page 29 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
destruction, impairment or dissipation pending determination of whether said asset, fund or property is ill-gotten wealth under EOs 1 and 2. FREEZE ORDER- It is an order intended to stop or prevent any act or transaction which may affect the title, possession, status, condition, integrity or value of the asset of property which is or which might be the object of any action or proceeding under EOs number 1 and 2.
2.
Foreign corporation not doing business in the Philippines, on isolated transaction may sue and be sued.
CLOSE CORPORATIONS
REQUIREMENTS FOR CLOSE CORPORATIONS (SEC. 96):
1. number of stockholders not to exceed 20; 2. restriction on the transfer ; preemption in favor of the stockholder or the corporation; 3. the stocks cannot be listed in the stock exchange nor should they be publicly offered.
LIQUIDATION:
Process by which all the assets of the corporation are converted into liquid assets (cash) in order to facilitate the payment of obligations to creditors, and the remaining balance if any is to be distributed to the SH or members. Three Modes of Liquidation: 1. By BOD / Trustee 2. Conveyance to a trustee made within three year period 3. By management committee or rehabilitation receiver
RESTRICTIONS ON TRANSFERS the restrictions in the transfer of the stocks must appear (Sec. 98):
1. in the articles; 2. in the by-laws; and 3. on the stock certificates.
CHARACTERISTICS CORPORATIONS:
OF
CLOSE
1. S/H act as directors without need of election and therefore are liable as directors; 2. Quorum may be greater than mere majority; 3. Transfers of stocks to others, which would increase the number of S/H to more than the maximum are invalid;
Page 30 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4. Corporate actuations may be binding even without a formal board meeting, if the S/H had knowledge or ratified the informal action of the others; 5. Preemptive right extends to all stock issues; 6. Deadlocks in board are settled by the SEC, on the written petition by any S/H; and 7. S/H may withdraw and avail of his right of appraisal.
1. CORPORATION SOLE special form of corporation, usually associated with the clergy and consists of one person only and his successors, who are incorporated by law to give some legal capacities and advantages; and 2. RELIGIOUS SOCIETIES non-stock corporation governed by a board but with religious purposes.
NON-STOCK CORPORATIONS
DEFINITION- corporation where no part of its
income is distributable as dividends to (Sec. 87): a. members; b. trustees; and c. officers. Except at dissolution.
ORIGINAL AND EXCLUSIVE JURISDICTION OF THE COURTS OF GENERAL JURISDICTION/ RTC (SEC. 5 PD 902-A IN RELATION TO SEC. 5.2 RA 8799):
1. fraudulent devices and schemes employed by directors detrimental to the public interest and to other firms; 2. intra-corporate dispute and with the state in relation to their franchise and right to exist as such; 3. controversies in election, appointment of directors or trustees; and 4. petition to be declared in state of suspension of payments. -SEC HAS JURISDICTION TO PETITIONS FILED AS OF JUNE 30, 2000.
RELIGIOUS CORPORATIONS
KINDS (SEC. 109):
Page 31 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4. promote development of capital market 5. protect investors 6. enhance full and fair disclosure about securities 7. minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices
13.
2. 3.
under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.
4. 5.
6.
7.
8.
9.
10.
11.
Page 32 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
5. Sale of capital stock to stockholders where no commission is paid 6. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale. 7. Issuance of security in exchange of any security from same issuer pursuant to right of conversion. 8. Brokers transactions, executed upon customers orders on any registered Exchange or other trading market. 9. Pre-incorporation subscription. 10. Exchange of securities by issuer with securities holders exclusively 11. Sale to less than 20 persons during any 12 month period 12. Sale of securities to banks 13. Sale of securities to registered investment houses 14. Sale of securities to insurance company 15. Sale of securities to pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions 16. Sale of securities to investment company 17. Sale of securities to such other person as the Commission may rule determine as qualified buyers
3. The issuer or any underwriter has been convicted by a competent judicial or administrative body of an offense involving moral turpitude and/or fraud or is enjoined by the Commission or other competent judicial or administrative body for violations of securities, commodities and other related laws 4. Any issuer who refuses to permit the examination to be made by the Commissioner.
UNLAWFUL ACTS:
1. For any beneficial owner, director, or officer to sell any security if the seller or his principal does not own or does not deliver it within 20 days from sale. (Sec. 23.3) 2. Manipulation of security prices. (Sec. 24.1) 3. Employment of manipulative or deceptive device or contrivance in connection with purchase and sale of authorities. Short sale, stop loss order be effected only in accordance with rules of SEC. (Sec. 24.2) SHORT SALE when seller does not own or control the securities he is selling, and therefore, cannot himself supply the securities for delivery. STOP-LOSS ORDER an order to broker to sell or buy stock as soon as the market price reaches a designated figure. 4. For any member of Exchange directly or indirectly endorse or guarantee the performance of any put, call, straddle, option or privilege in relation to any security registered. (Sec. 25)
Page 33 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
prevailing market price of the stock at the time the put is purchased.
e.
A person who learns such information by a communication from any of the foregoing insiders. (SEC. 3.8)
CALL an option that in consideration of premium paid entitles buyer the right to compel seller to deliver to him a certain number of share of named stock within a given time at a stipulated price which is usually higher than the prevailing market price at the time the call is bought.
STRADDLE double privilege of a put and a call, and secures to holder the right to demand of seller at a certain price within a certain time a certain number of shares of specified stock, or to require him to take, at the price within the time, the same shares of stock.
7. For insider to communicate material nonpublic information about issuer or security. (SEC 27.3) MATERIAL NON-PUBLIC INFORMATION a. If It has not been generally disclosed to the public and would likely to affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or b. Would be considered by a reasonable person important under the circumstances in determining his course of action to buy, sell or hold security. (SEC 27.2) 8. Unlawful Tender Offer (Sec 27.4) 9. Use of Extensive Credit (Sec48.1)
WASH SALE- to effect any transaction in any security which involves no change in the beneficial ownership thereof.
SHORT SWING TRANSACTION one where a person buys securities and sells the same within a period of six months. 5. Fraudulent transactions (Sec.26); 6. insider trading (Sec. 27)
INSIDER TRADING it shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public unless: (a) The insider proves that the information was not gained from such relationship, or (b) If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: (i) that he disclosed the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in possession of the information. INSIDER means:
a. The issuer b. A director or officer (or person performing similar functions) of, or a person controlling the issuer c. A person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public d. A government employee, or director , or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public, or
Page 34 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
CORPORATE ACTS
NUMBER OF VOTES OF SHAREHOLDERS
Vote or written assent of 2/3 OCS SH or Members
CORPORATE ACT
Majority Vote
Non-voting can vote Appraisal right in certain cases Effective upon approval by SEC or date of filing if not acted upon within six months Must be for a legitimate purpose
Candidates with a highest number Cumulative voting: No. of shares x No. of directors to be elected Non-voting shares cannot vote
2/3 of OCS
Notice and stated purpose requirement Meeting called by the secretary on Presidents order or on written demand of OCS majority Non-voting shares cannot vote Removal without cause cannot be used to deprive minority stockholders of their right of representation
4. Ratification of a contract of self dealing directors where presence of Director necessary to constitute quorum or vote of Director necessary for approval of the contract (Sec 32)
The contract must be fair and reasonable under circumstances Full disclosure of adverse interest of directors or trustees involved
Page 35 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
5.
Majority vote
Non-voting can vote Appraisal Right available Notice requirement Meeting for the amendment of AOI
Majority vote of all the members of BOD 2/3 OCS or members Meeting required Non-voting can vote No appraisal right Notice requirement SEC approval Treasurers statement No decrease of capital stock if will prejudice right of creditors
Majority vote
Majority vote
Meeting required Non-voting can vote No appraisal right Notice required Registration of bonds with SEC Majority can vote Non-voting can vote Appraisal right available Notice required If sale is abandoned directors action is sufficient, no need for ratification by stockholders
9. Sale ,Lease, Exchange, Mortgage, Pledge, Dispose of all or substantially all of corporate assets (Sec 40 )
Majority Vote
Page 36 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
10. Investment of Corporate Funds to another Corporation or business for any other purpose other than primary purpose (Sec 42) 2/3 OCS or members
Majority Vote
Non-voting can vote Appraisal Right available Notice required Investment for secondary purpose Stockholders ratification not necessary if the investment is incidental to primary purpose
2/3 OCS
12. Management Contract ( Sec 44) Majority of OCS / members of both managing and managed corporation and in some cases 2/3 of OCS / members Majority of OCS / members Non-voting can vote
14. Amendment or repeal of By laws or Adoption of New By-Laws ( Sec 48) 2/3 OCS
Majority vote
Majority of OCS
15. Delegation of the Power to Amend, Repeal or Adopt New By Laws to BOD (Sec 48 ) Majority of OCS if BOD not authorized by AOI
16. Fixing the issued Price of No- Par Value shares (Sec 62, last paragraph)48)
Page 37 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
17. Merger or Consolidation (Sec 77 ) Non-voting can vote Appraisal right available but if plan is abandoned right is extinguished
Majority of BOD of constituent corporation 2/3 OCS / members Read Sections 117-122 Non-voting can vote
Majority Vote
2/3 OCS
21. Vacancies in BOD if not due to removal, expiration of the term or increase in number of directors 22. Power to acquire own shares 2/3 OCS approval
Provided that there is unrestricted retained earnings Only for legitimate purposes Only if AOI or amendment to AOI denies pre-emptive right Applies to shares issued in good faith in exchange for property needed for corporate purposes or in payment of previously contracted debts
Reasonable per diems By-Laws may provide for compensation May be fixed by majority OCS Limit: not more than 10% of the net income before tax
Page 38 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
a new contract for the parties where they themselves have employed clear and unambiguous words.
3. 4.
Page 40 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
NOTE: Applicable only to property insurance, except creditor insuring the life of his debtor.
INSURABLE INTEREST IN LIFE interest which a person has in his life, or interest which he may have in the lives of other persons (Sec. 10): 1. on whom he depends wholly or in part for education or support; 2. under legal obligation to him to pay money, to deliver property, or to render service; or 3. upon whose life any estate or interest vested in him depends. GENERAL RULE: In life insurance, there is no limit in the amount the insured can insure his life. Exception: in creditor-debtor relationship where the creditor insures the debtor, the limit of insurable interest is equal to the amount of the debt. NOTE: Insurable interest in the life of another need exist only at the time of perfection of the contract and need not exist thereafter. INSURABLE INTEREST IN PROPERTY every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in (Sec. 19): 1. an existing interest; 2. any inchoate interest founded on an existing interest; or 3. any expectancy coupled with an existing interest in that out of which the expectancy arises. NOTE: Expectancy is not insurable unless coupled with an interest in the thing from which it shall arise.
INSURABLE INTEREST interest which the law requires a person making a contract of insurance to have in the person or thing insured to prevent the contract from becoming a wagering contract.
Page 41 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2. change in interest results after occurrence of an injury which results in a loss (Sec. 21) 3. change in interest in one or more several distinct things separately insured by one policy (Sec. 22); 4. change in interest by will or succession on death of insured (Sec. 23); 5. transfer of interest by one of several partners, joint partners, or owners in common who are jointly insured, to others (Sec. 24). 6. when a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured (Sec. 57); 7. when is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided (Art. 1306, NCC).
STANDARD OR UNION MORTGAGE CLAUSE - the subsequent acts of the mortgagor cannot affect the rights of the assignee
OPEN OR LOSS PAYABLE MORTGAGE CLAUSE the mortgagor does not cease to be a party to the contract acts of the mortgagor affects the mortgagee (Sections 8 and 9 ICP).
DISTINCTIONS:
Insurable interest in Life Insurance 1. must exist only at the time the policy is taken. 2. taken on insureds life, his beneficiaries need not have an insurable interest on his life. 3. no limit to the amount of insurable interest (save in life insurance effected by creditor on life of the debtor) (Sec. 10). Insurable Interest in Property 1. must exist at time policy is taken and at time of loss. 2. beneficiary must have an insurable interest in property insured.
INSURABLE INTEREST OF MORTGAGOR AND MORTGAGEE OVER MORTGAGED PROPERTY. The mortgagor and mortgagee each have
an insurable interest in the property mortgaged and this interest is separate and distinct from the other. The mortgagor of property, as owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The mortgagee's interest is only up to the extent of the debt.
CONCEALMENT
TEST OF MATERIALITY: determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries (Sec. 31).
Page 42 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
EFFECTS OF CONCEALMENT: vitiates the contract and entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). REPRESENTATION oral or written statement of a fact or condition affecting the risk, made by insured to insurer, tending to induce insurer to assume risk (Sec.36). KINDS (Sec.39): 1. AFFIRMATIVE affirmation of a fact when the contract begins; and 2. PROMISSORY promise to be performed after policy was issued. TEST OF MATERIALITY: determined by the probable and reasonable influence of the facts on the party on whom communication is due, in forming his estimate of the contract, risks and premium (Sec. 31) EFFECTS OF MISREPRESENTATION: injured party entitled to rescind from the time when the representation becomes false.
INCONTESTABILITY CLAUSE - After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. REQUISITES FOR INCONTESTABILITY CLAUSE:
1. It is payable on the death of the insured 2. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement (Sec. 48, ICP) NOTE: The period of 2 years may be shortened but it cannot be extended by stipulation.
DISTINCTIONS: WARRANTY
1. Part of the contract. 2. written on the policy, actually or by reference 3. conclusively presumed material. 4. must be strictly complied with.
REPRESENTATION
1. Mere collateral inducement. 2. may or may not be written in the policy. 3. must be proved to be material. 4. require only substantial truth and compliance.
POLICY OF INSURANCE written instrument in which a contract of insurance is set forth (Sec. 49) CONTENTS OF POLICY (Sec.51):
1. parties 2. amount of insurance, except in open or running policies; 3. rate of premium; 4. property or life insured; 5. interest of the insured in the property if he is not the absolute owner;
Page 43 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
6. risk insured against; and 7. duration of the insurance. BINDING RECEIPT merely an acknowledgment on behalf of the company that their branch office had received from the applicant the insurance premium and had accepted the application subject to processing by the head office. COVER NOTE a concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. It is intended to give insurance protection coverage to the applicant pending the acceptance or rejection of his application. Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52).
GROUNDS FOR CANCELLATION OF POLICY (EXCEPT LIFE INSURANCE POLICY) (SEC. 64):
1. non-payment of premium; 2. conviction of a crime out of acts increasing the hazard insured against; 3. discover of fraud or material misrepresentation; 4. discovery of willful or reckless acts of omissions increasing the risk nsured against; 5. physical changes in property making the property uninsurable; and 6. determination by the Insurance Commissioner that the policy would violate the Insurance Code.
DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject and interest (Sec. 93). REQUISITES OF DOUBLE INSURANCE:
1. The person insured is the same; 2. Two or more insurers insuring separately; 3. The subject matter is the same; 4. The interest insured is also the same; 5. The risk or peril insured against is likewise the same. EFFECTS OF DOUBLE INSURANCE: where double insurance is allowed, but over insurance results, he can claim in case of loss only up to the agreed valuation or up to the full insurable value from any, some or all insurers, without prejudice to the insurers ratably apportioning the payments. Insured can also recover before or after the loss, from both insurers the excess premium he has paid (Sec. 94).
KINDS OF POLICIES:
1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained at time of loss (Sec.60); 2. VALUED POLICY definite valuation is agreed by both parties, and written on the face of policy (Sec. 61);and 3. RUNNING POLICY contemplates successive insurances and which provides that the subject of the policy may from time to time be defined (Sec. 62).
PREMIUM consideration paid an insurer for undertaking to indemnify the insured against a specified peril (Sec. 77).
NOTE: Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
REINSURANCE a contract by which the rd insurer procures a 3 person to insure him against loss or liability by reason or such original insurance (also known as Reinsurance Cession) (Sec. 95).
In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies.
Page 44 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time (Sec. 99).
3. insured in the 1 contract is a party in interest nd in the 2 contract 4. subject of insurance is property
IN
MARINE
1. that the ship is seaworthy at the inception of the insurance (Sec.113,ICP) 2. that the ship will not deviate from agreed voyage unless deviation is proper (Sec. 123, 124, 125, ICP) 3. that the ship will not engage in an illegal venture 4. warranty of neutrality : that the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted 5. presence of insurable interest.
IN
MARINE
1. Shipowner over the vessel, except that if chartered, the insurance is only up to the amount not recoverable from the charterer (Sec. 100); and if hypothecated by a bottomry loan, the insurable interest is only up to the excess of the value of the vessel over the loan (Sec. 101). He also has an insurable interest on expected freightage. 2. Cargo owner over the cargo and expected profits (Sec. 105). 3. Charterer over the amount he is liable to the shipowner, if the ship is lost or damaged during t he voyage (Sec. 106).
Page 45 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS (SEC. 110):
1. national character of the insured; 2. liability if insured thing to capture or detention; 3. liability to seizure from breach of foreign laws; 4. want of necessary documents; and 5. use of false or simulated papers.
PERILS OF THE SEA VS. PERILS OF THE SHIP Perils of the sea or perils of navigation
includes only those casualties due to the unusual violence or extra ordinary causes connected with navigation. It has been said to include only such losses as are of extraordinary nature or arise from some overwhelming power which cannot be guarded against by the ordinary exertion of human skill or prudence, as distinguished from the ordinary wear and tear of the voyage and from injuries suffered by the vessel in consequence of her not being unseaworthy.
DEVIATION departure of vessel from course of voyage, or an unreasonable delay in pursuing voyage, to the commencement of an entirely different voyage (Sec. 123). DEVIATION IS PROPER WHEN (SEC. 124):
1. if due to circumstances outside the control of the ship captain or ship owner; 2. if done to comply with a warranty; 3. if made in good faith to avoid a peril; 4. if made to save human life or another distressed vessel.
LOSS:
1. TOTAL LOSS that which may be: a. actual loss, involving (Sec. 130) (i) total destruction; (ii) loss by sinking (iii) damage rendering the thing valueless; or (iv) total deprivation of owner of possession of thing insured. b. constructive total loss (Sec. 131, in relation to Sec. 139), involves --(i) actual loss of more than of the value of the object; (ii) damage reducing value by more than of the value of the vessel and of cargo; and (iii) expense of transhipment exceed of value of cargo.
BARRATRY willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the prejudice of owners interest. INSURANCE AGAINST ALL RISKS
insurance against all causes of conceivable loss or damage, except as otherwise excluded in the policy or due to fraud or intentional misconduct on the part of the insured.
Page 46 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
the master of the vessel or upon his authority, in order to save the vessel, her cargo, or both at the same time from real or known risk. it must be borne equally by all of the interests concerned in the venture. PARTICULAR AVERAGE LOSS it includes all damages and expenses caused to the vessel or to her cargo which have not inured to the common benefit and profit of all persons interested in the vessel and her cargo. It refers to those losses which occur under such circumstances as do not entitle the unfortunate owners to receive contribution from other owners concerned in the venture as where a vessel accidentally runs aground and goes to pieces after the cargo is saved.
FIRE INSURANCE contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by fire, but may include loss by lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies (Sec. 167). ALTERATION- An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles the insurer to rescind a contract of fire insurance (Sec. 168, ICP). WHEN ALTERATION IN THING INSURED ENTITLES INSURER TO RESCIND:
1. The use or condition of the thing is specifically limited or stipulated in the policy; 2. Such use or condition as limited by the policy is altered; 3. The alteration is made without the consent of the insurer; 4. The alteration is made by means within the control of the insured; and 5. The alteration increases the risk.
ABANDONMENT is the act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured (Sec. 138). REQUISITES FOR VALID ABANDONMENT:
1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138); 2. There must be a constructive total loss (Sec. 139); 3. The abandonment be neither partial nor conditional (Sec. 140); 4. It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141); 5. It must be factual (Sec. 142); 6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and 7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).
ALTERATION RESCISSION:
NOT
RESULTING
IN
1. Alteration not increasing the risk; and 2. Alterations increasing the risk but not violating the contract.
FALL-OF-BUILDING CLAUSE clause in fire insurance policy that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease. CASUALTY INSURANCE insurance covering loss or liability arising from accident of mishap, excluding those falling under other types of insurance as fire or marine (Sec. 174).
Page 47 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
VEHICLE
THIRD PARTY is any person other than the passenger as defined in 373 of CMVLI and shall also exclude a member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death or bodily injury arising out of and in the course of employment (Sec. 373{c}, CMVLI).
SURETYSHIP agreement whereby surety guarantees the performance by another of an rd undertaking or an obligation in favor of a 3 party (Sec. 175). Essentially a credit accommodation.
FIDELITY BOND contract of insurance against loss from misconduct.
KINDS:
1. ORDINARY LIFE, GENERAL LIFE OR OLD LINE POLICY - insurer pays a premium every year until he dies. Surrender value after 3 years. 2. LIMITED PAYMENT POLICY insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. 3. ENDOWMENT POLICY pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. 4. TERM INSURANCE insurer pays once only, and he is insured for a specified period. If he dies within the period, his
Page 48 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
beneficiaries benefits. If he outlives the period, no person benefits from the insurance. 5. INDUSTRIAL LIFE _ life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener; and 6. VARIABLE CONTRACT any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment.
PRESCRIPTION PERIOD (SEC. 63, 384, ICP). In the absence of an express stipulation in
the policy it being based on a written contract, the action prescribes in 10 years. However the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues. The cause of action accrues from the final in rejection of the claim of the insured and not from the time of loss.
CHARACTERISTICS CARRIER:
OF
COMMOM
contract whereby, a person, natural or juridical, obligates, to transport persons, goods or both, from one place to another by land, air or water for a price or compensation.
COMMON CARRIER- one that holds itself out as ready to engage in the transportation for hire as a public employment and not as a casual occupation. persons, firms, corporations or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. (Art.1732, New Civil Code)
1. undertakes to carry for all people indifferently and thus, is liable for refusal without sufficient reason (Lastimoso vs. Doliente, October 20, 1961) 2. cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in these goods 3. no monopoly is favored (Batangas Trans vs. Orlanes, 52 PHIL 455) 4. provides public convenience
DISTINCTIONS :
COMMON CARRIER 1. holds himself out for all people indiscriminately 2. requires extraordinary diligence 3. subject to State regulation 4. parties may not agree on limiting the carriers liability except when provided by law 5. presumption of fault or negligence applies PRIVATE CARRIER 1. contracts with particular individuals or groups only 2. ordinary diligence is required 3. not subject to State regulation 4. parties may agree on limiting the carriers liability provided not contrary to law, morals or good customs 5. no fault or negligence is presumed
CASO FORTUITO
Requisites: 1. event independent of human will; 2. occurrence makes it impossible for debtor to fulfill the obligation in a normal manner; 3. obligor must be free of participation in, or, aggravation of, the injury to the debtor; and 4. impossible to foresee or impossible to avoid. (Juntilla vs. Fontanar, 136 SCRA 624; Vasquez vs. CA, 138 SCRA 553)
Page 50 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
him while the carrier has. (Necessito vs. Paras, 104 Phil 75)
otherwise would be utterly subversive to the thrust of public policy herein involved. The public has the right to assume that the registered owner is the actual or lawful owner thereof. It would be very difficult and often impossible, as a practical matter, for the public to enforce their rights of action that they may have for injuries inflicted by the vehicle if they should be required who the actual owner is. It would also open the door to collusion between the registered owner and the actual owner and to shifting liability from the carrier to one without financial capability to meet the resulting damages. (Benedicto vs. IAC, 187 SCRA 547) 3. The registered owner cannot recover from the actual owner and the latter cannot obtain transfer of the vehicle to himself, both being in pari delicto. The Court will not aid either party to enforce an illegal contract, but will leave them both where it find them. Where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. (Teja Marketing vs. IAC, 148 SCRA 347 ) 4. For the better protection of the public, both the registered owner and the actual owner are jointly and severally liable with the driver. (Zamboanga Transportation Co. vs. CA)
KABIT SYSTEM: VOID AND INEXISTENT UNDER ART. 1409, NEW CIVIL CODE This is a system whereby a person who has
been granted a certificate of public convenience allows other persons who own motor vehicles to operate under such license, for a fee or percentage of such earnings. This has been identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. (LITA ENTERPRISES INC. VS CA, 129 SCRA 79) EFFECTS OF THE SYSTEM AND LIABILITIES OF THE REGISTERED OWNER AND THE ACTUAL OWNER OF THE MOTOR VEHICLE:
1. The transfer, sale, lease or assignment of the privilege granted is valid between the contracting parties but not upon the public or third persons. (Gelisan vs. Alday, 154 SCRA 388) 2. The registered owner is primarily liable for all the consequences flowing from the operations of the carrier because to rule
Rationale:
The business of common carriers is impressed with a special public duty such that the public must of necessity rely on their skill and care over the goods and/or passengers transported. Also, with the development in science and invention, transportation has become more rapid, but
Page 51 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
more complicated and hazardous, so the public is forced to trust all the more in the utmost diligence and foresight of common carriers. (Commission Report on the Proposed Civil Code)
1. 2. 3. 4. 5.
Reason for the exceptions: Because the carrier is not an insurer of the safety of its passengers and is not absolutely and at all events to carry them safely and without injury. (Santos vs. Dela Cruz, December 2, 1959)
2. RULES ON NEGLIGENCE
PRESUMPTION
OF
A. NATURAL DISASTER
Requisites for the Defense: 1. must be the proximate and only cause of the loss 2. carrier must exercise due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster (Art. 1739, NCC) 3. carrier had not negligently incurred in delay in transporting the goods (Art. 1740, NCC)
A. In the carriage of goods. In case of loss, destruction and deterioration of the goods, common carriers are presumed to be at fault or have acted negligently, unless they prove that they exercise extraordinary diligence. In the transport of goods, mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. (Coastwise Lighterage Corp. vs. CA, 245 SCRA 796
Page 52 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2. carrier must exercise due diligence to prevent or minimize the loss before, during or after the act causing the loss, deterioration or destruction of the goods (Art. 1739, NCC)
on the carriers observance of diligence to a degree less than extraordinary provided it be a) In writing, signed by the shipper or owner; b) Supported by a valuable consideration other than the service rendered by the carriers; and c) Reasonable, just and not contrary to public policy. (Art. 1744).
5. 6.
D. CHARACTER OF THE GOODS OR DEFECTS IN THE PACKING OR IN THE CONTAINER Even if the damage should be caused by the
inherent defect/character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. The carrier, knowing the fact of improper packing of the goods upon ordinary observation, still accepts the goods notwithstanding such condition, is not relieved of liability or loss or injury resulting therefrom. (Southern Lines, Inc. vs. CA, 4 SCRA 258)
7.
E. ORDER/ACT OF PUBLIC AUTHORITY Said public authority must have the power to
issue the order. Consequently, where the officer acts without legal process, the common carrier will be held liable. NOTE: Diligence in the selection and supervision of employees under Articles 21802181, NCC, cannot be interposed by the common carrier to prevent damages because the liability of the carriers arises from the breach of the contract of carriage. The defense under said articles is applicable to negligence in quasidelicts. (Del Prado vs. Manila Electric Co., 52 PHIL 900)
Other Valid stipulations limiting the carriers liability: 1. A stipulation that the common carriers liability is limited to the value of the goods appearing in the bill of lading unless the shipper or owner declares a greater value (HEACOCCK VS MACONDRAY, 42 PHIL 205) 2. A contract fixing the sum to be recovered by the owner or shipper for the loss, destruction or deterioration of the goods, if it is reasonable and just under the circumstances and has been fairly and freely agreed upon (Art. 1750, NCC) 3. An agreement limiting the common carriers liability for delay on account of strikes or riots (Art. 1748, NCC)
F.
1. IN THE CARRIAGE OF GOODS- the common carrier and the shipper may agree
2. IN THE CARRIAGE OF PASSENGERS extraordinary responsibility of a common carrier for the safety of passengers imposed by law cannot be dispensed with or lessened by stipulation, by posting of notices, by statements on tickets or otherwise (Art. 1757, NCC). When a passenger is carried gratuitously, a stipulation limiting the common carriers liability for negligence is valid, but not for
The
Page 53 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
willful acts on gross negligence (Art. 1758, NCC). NOTE: The diligence required in the carriage of the goods may be reduced by only one degree, from extraordinary to ordinary diligence or diligence of a good father of a family. (Art. 1744, Art. 1745, no.4, NCC) In the transport of passengers, the diligence required may be reduced by two degrees from extraordinary to ordinary diligence or even to simple negligence but ot to gross negligence. (Art. 1758, NCC)
necessarily exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. (PHILIPPINE AIRLINES VS CA, 226 SCRA 423)
H.
LIABILITY OF THE CARRIER FOR ACTS OF ITS EMPLOYEES AND OTHER PASSENGERS
For acts of Employees or injuries to passengers through the negligence or willful acts of the formers employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. (1759, NCC)
1.
Page 54 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
considered as necessary deposits. The common carrier shall be responsible for the baggage as depositaries, provided that notice was given to them or its employees and the passenger took the necessary precautions which the carrier has advised them relative to the care and vigilance of their baggage. In case of loss due to the fault of the passenger, the carrier will not be liable . The act of thief will not be force majeure unless the same is committed by armed men an through irresistible force (Article 1754, NCC) 2. BAGGAGE NOT IN SUCH CUSTODY, BUT IN THAT OF THE CARRIER (Article 1733 to 1573 of the NCC) carrier who has in his custody the baggage of a passenger to be carried like any other goods is required to observe extraordinary diligence. In case of loss or damage the carrier is presumed negligent. 8) CAUSE OF ACTION ARISING FROM THE NEGLIGENT ACT OF THE CARRIER The injured passenger can avail of any of the three causes of action arising from the negligent act of the common carrier: 1)culpa contractual Art.1759, NCC only the carrier could be held liable, not the driver because the there is no privity between the driver and the passenger 2)culpa acquiliana Art. 2180, NCC the carrier and driver are solidarily liable as joint tortfeasors 3)culpa criminal Art. 100, Revised Penal Code the carrier could be held liable only if driver be convicted and declared insolvent, making him subsidiarily liable.
ON BOARD BILL OF LADING- issued when the goods have been actually placed aboard the ship with very reasonable expectation that the shipment is as good as on its way. FUNCTIONS OF A BILL OF LADING:
(MAGELLAN, MANUFACTURING vs. CA 201 SCRA 2021) 1. best evidence of the existence of the contract of carriage of cargo; 2. commercial document whereby, if negotiable, ownership may be transferred by negotiation; and 3. receipt of cargo.
RECOVERY OF DAMAGES FROM CARRIER FOR CARRIAGE OF GOODS1. INTER-ISLAND- if goods arrived in damaged condition: Art 366, CODE OF COMMERCE). a. If damage is apparent, the shipper must file a claim immediately; or b. If damage is not apparent, he should file a claim within 4 hours from delivery
Page 55 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
c. d. e. f. g. h. i. j.
pilotage and tonnage charges and other sea and port charges; salaries of depositaries and keepers of the vessel captain and crews wages; general average; salvage, including contract salvage; maritime liens arising prior in time to the recording of the preferred mortgage; damages arising out of tort; and preferred mortgage registered prior in time.
DOCTRINE OF LIMITED LIABILITY- Because of real and hypothecary nature of maritime law, liability of ship owners is limited to the amount of interest in said vessel such that where vessel is entirely loss, obligation is extinguished. (LUZON STEVEDORING VS. CA AND ESCANO, 156 SCRA 169) The interest extends to vessels appurtenances and equipment, freightage and insurance proceeds. (CHUA VS. IAC, 166 SCRA 183) Exceptions: 1) injury or damage due to shipowners fault 2) claims under Workmens Compensation; 3) repair on vessel before loss; 4) vessels not abandoned; 5) the vessel is insured.
MARITIME COMMERCE
MERCHANT VESSEL vessel engaged in maritime commerce,
whether foreign or otherwise.
PARTICIPANTS IN MARITIME COMMERCE 1. shipowners and ship agents 2. captains and masters of the vessel 3. officers and crew of the vessel 4. supercargoes A. SHIPOWNERS AND SHIP AGENTS
SHIPOWNER person who has possession, control in management of the vessel and the consequent right to direct her navigation and receive freight earned and paid, while his possession continues; SHIP AGENT person entrusted with provisioning and representing the vessel in the port in which it may be found; also includes the shipowner;
CHARACTERISTICS TRANSACTION:
OF
MARITIME
1) Real- similar to transactions over property with respect to effectively against third persons which is done through registration as shown by the limitation of the liability of the agents to the actual value of the vessel and the freight money; and the right to retain the cargo and embargo and detention of the vessel; and 2) Hypothecary- the liability of the owner of the value of the vessel is limited to the vessel itself (Doctrine of Limited Liability) PREFERENCE OF CREDITS - Mortgage of a vessel properly registered becomes of preferred mortgage lien which shall have priority over all claims against the vessel in an extrajudicial foreclosure for: a. credit in favor of the public treasury; b. judicial costs of the proceedings;
Page 56 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4) make contracts for the charter of vessel in the absence of ship agent. 5) supply, equip, and provision the vessel; and 6) order repair of vessel to enable it to continue its voyage.
DUTY OF SHIP AGENT TO DISCHARGE THE CAPTAIN AND MEMBERS OF THE CREW:
If the seamen contract is not for a definite period or voyage, he may discharge them at his discretion. If for a definite period, he may not discharge them until after the fulfillment of their contracts, except on the following grounds: -insubordination in serious matters -robbery -theft -habitual drunkenness -damage caused to the vessel or to its cargo through malice or manifest or proven negligence
1) general agent of the shipowner; 2) technical director of the vessel; 3) representative of the government of the country whose flag he navigates
LIABILITIES OF THE SHIP AGENT/SHIP OWNER FOR ACTS DONE BY THE CAPTAIN TOWARDS PASSENGERS AND CARGOES, MAKING THEM SOLIDARILY LIABLE TO THE LATTER:
1. damages to vessel and to cargo due to lack of skill and negligence 2. thefts and robberies of the crew 3. losses and fines for violation of laws 4. damages due to mutinies 5. damages due to misuse of power 6. for deviations 7. for arrivals under stress 8. damages due to non-observance of marine regulations
Page 57 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
GROUNDS CAPTAIN:
1) 2) 3) 4) 5)
FOR
DISCHARGE
OF
insubordination in serious matters robbery theft habitual drunkenness damage caused to the vessel or to its cargo through malice or manifest or proven negligence
Page 58 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
CAUSES OF REVOCATION OF VOYAGE: 1) war 2) blockade 3) prohibition to receive cargo at destination 4) embargo 5) inability of the vessel to navigate RULES IN CASE OF DEATH OF A SEAMAN: The seamans heirs are entitled to payment as follows: 1) if death is natural a) compensation up to time of death if engaged on wage b) if by voyage-half of amount if death occurs on voyage out; and full, if on voyage in c) if by shares-none, if before departure; full, if after departure 2) if death is due to defense of vessel, full payment 3) if captured on defense of vessel, full payment 4) if captured due to carelessness, wages up to the date of the capture NO LIABILITY UNDER THE FOLLOWING CIRCUMSTANCES: 1) if, before beginning voyage, captain attempts to change it, or a naval war with the power to which the vessel was destined occurs 2) if disease break out and be officially declared an epidemic in the port of destination 3) if the vessel should change owner or captain COMPLEMENT OF THE VESSEL all persons on board, from the captain to the cabin boy, necessary for the management, maneuvers, and service, thus including the crew, the sailing mates, engineers, stokers and other employees on board not having specific designations, but shall not include the passengers or the persons whom the vessel is transporting. D. 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 book of the captain.
another person for a specified time or use. (PUROMINES VS. CA 220 SCRA 281)
CHARTER PARTY- contract by virtue of which owner or agent binds himself to transport merchandise or persons for a fixed price. contract by which an entire ship, or some principal part thereof is let by the owner to
Page 59 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2) to pay freightage on unboarded cargo 3) to pay losses to others for loading uncontracted cargo and illicit cargo 4) to wait if the vessel needs repair 5) to pay expenses for deviation RESCISSION OF A CHARTER PARTY A. At Request of Charterer 1) by abandoning the charter and paying half of the freightage 2) error in tonnage or flag 3) failure to place the vessel at the charterers disposal 4) return of the vessel due to pirates, enemies or bad weather 5) arrival at a port for repairs B. At Ship Owners Request 1) if the extra lay days terminate without the cargo being placed alongside the vessel 2) sale by the owner of the vessel before loading by the charterer
TRANSHIPMENT OF GOODS- act of taking cargo from one ship and loading it in another, if done without legal excuse, however, competent and safe the vessel into which the transfer is made is a violation of contract and infringement of right of shipper and subjects carrier to liability if freight is lost event by cause otherwise excepted (MAGELLAN MANUFACTURING vs. CA , 201 SCRA 102)
LOAN OF BOTOMMRY- loan made by shipowner or shipagent guaranteed by vessel itself and repayable upon arrival of vessel at destination. LOANS ON RESPONDENTIA loan, taken on security of cargo laden on a vessel, and repayable upon safe arrival of cargo at destination. COMMON ELEMENTS OF LOANS BOTTOMRY AND RESPONDENTS: ON
1) Exposure of security to marine peril 2) Obligation of the debtor conditioned only upon safe arrival of the security at the point of destination. FORMS OF A LOAN ON BOTTOMRY/RESPONDENTIA: May be executed by means of: 1) public instrument 2) policy signed by the contracting parties and the broker taking part therein 3) private instrument CONTENTS OF THE LOAN CONTRACT:
PRIMAGE- bonus to be paid to the captain after the successful voyage. DEMURRAGE sum due, by express contract, for the detention of the vessel, in loading and unloading, beyond the time allowed in the contract of afreightment, and to any other improper detention or delay beyond the time set for loading. SALVAGE- services one person render to
the owner of a ship or goods, by his own labor, preserving the goods or the ship which the owner or those entrusted with the care of them have either abandoned in distress at sea, or are unable to protect or secure. CONTRACT OF TOWAGE - contract whereby one vessel, usually motorized, pulls another, whether loaded or not with merchandise, form one place to another, for a compensation. It is a contract for services rather than a contract of carriage.
1) kind, name and registry of the vessel 2) name, surname and domicile of the captain 3) names, surnames and domiciles of the borrower and the lender 4) amount of the loan and the premium stipulated 5) time for repayment 6) goods pledged to secure repayment 7) voyage during which the risk is run WHO MAY CONTRACT: 1) Bottomry general rule: the owner; if owner is absent; captain; 2) Respondentia only the owner of the cargo.
Page 60 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
DISTINCTIONS :
LOANS ON BOTTOMRY/RESPON DENTIA 1. Not subject to Usury Law 2. Liability of the borrower is contingent on the safe arrival of the vessel or cargo at destination 3. The last lender is a preferred creditor ORDINARY LOAN REQUISITES: 1) common danger 2) deliberate sacrifice 3) success 4) proper formalities and legal steps PROCEDURE FOR RECOVERY: 1) There must be a resolution of the captain, adopted after a deliberation with the other officers of the vessel and after hearing all persons interested in the cargoes. If the latter disagree, the decision of the captain should prevail but they shall register their objections. 2) The resolution must be entered in the logbook, stating the reasons and motives for the dissent, and the irresistible and urgent causes if he acted in his own accord. It must be signed, in the first case, by all persons present in the hearing. In the second case, by the captain and all the officers of the vessel. 3) The minutes must also contain a detail of all the goods jettisoned and those injuries caused to those on board. 4) The captain shall deliver it to the maritime judicial authority of the first port he may make, within 24 hours after his arrival, and to ratify it immediately under oath. ORDER OF GOODS TO BE CAST OVERBOARD IN CASE OF JETTISON: 1) those which are on the deck, preferring the heaviest one with the least utility and value 2) those which are below the upper deck, beginning with the one with greatest weight and smallest value 2. ARRIVAL UNDER STRESS- arrival of vessel at a port of destination on account of lack of provision, well founded fear of seizure, pirates, or accidents of sea disabling navigation. When not lawful: a. lack of provisions due to negligence to carry according to usage and customs; b. risk of enemy not well known or manifest c. defect of vessel due to improper repair; and d. malice, negligence, lack of foresight or skill of captain. Who bears expenses: The ship owner bears all the expenses except when it is unlawful arrival, the ship
NOTE: Under existing laws, the parties to a loan, whether ordinary or maritime, may agree on any rate of interest. (CB Circular 905). EXCEPTIONS TO THE HYPOTHECARY NATURE OF BOTTOMRY AND RESPONDENTIA: 1) loss due to inherent defect; 2) loss due to the barratry on the part of the captain; 3) loss due to the fault of malice of the borrower; 4) that the vessel was engaged in contraband; and 5) that the cargo loaded on the vessel be different in form that agreed upon..
Page 61 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
owner also answers for damages to the owners of the cargo and the passengers. 3. COLLISIONS- impact of 2 vessels both of which are moving. ZONES OF TIME IN THE COLLISSION OF VESSELS (URRUTIA AND CO. VS. BACO RIVER PLANTATION CO., 26 PHIL 632). 1. 1 ZONE all time up to the moment when risk of collision begins; ND 2. 2 ZONE time between moment when risk of collision begins and moment it becomes a practical certainty; RD ZONE time when collision is 3. 3 certain and time of impact. RULES ON COLLISSION OF VESSELS (Arts. 826, 827, 828, 830, 831, and 832, Code of Commerce) 1. The collision may be due to the fault, negligence or lack of skill of the captain, sailing mate, or any other member of the complement of the vessel. The owner of the vessel at fault be liable for losses or damage (826 Code of Commerce) 2. The collision may be due to the fault of both vessels. Each vessel shall suffer its own losses, but as regards the owner of cargoes both vessels shall be jointly and severally liable. (827, CC) 3. If it cannot be determined which vessel is at fault. Each vessel shall also suffer its own losses and both shall be solidarily liable for losses o damages on the cargoes. (828, CC) 4. The vessels may collide with each other through fortuitous event or force majeure. In this case each shall bear its own damage. (830, CC). 5. Two vessels may collide with each other without their fault by reason of a third vessel. The third vessel will be liable for losses and damagea (831, CC) 6. A vessel which is properly anchored and moored may collide with those nearby reason of storm or other cause of force majeure. The vessel run into shall suffer its own damage and expense (832, CC) PREQUISITE TO RECOVERY: Protest should be made within 24 hours before the competent authority at the point of collision or at the first port of arrival,
ST
if in the Philippines and to the Philippine consul, if the collision took place abroad. Injuries to persons and damage to cargo of owners not on board on collision time, need not be protested. DOCTRINE OF INSCRUTABLE FAULT In a collision, the vessel at fault shall indemnify the damages sustained or losses incurred (Article 826, Code of Commerce), and if both vessels were at fault, each shall suffer its own damages, and both Articles 827-828, Code of Commerce). This solidarity expressed in Article 827 of the Code of Commerce has been held to preclude a common carrier operating a vessel from interposing the defense of due diligence in the selection and supervision of its employees in an action against it by a shipper of the other colliding vessel as distinguished from the ordinary rule in liabilities for tort or culpa aquiliana. Under the doctrine of inscrutable fault, where 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. NOTE: The Doctrine of Limited Liability applies in case of collisions, but it shall be limited only to the value of the vessel with all its appurtenances and freightage earned during the voyage. When the latter is not sufficient to cover all the liabilities, the indemnity due by reason of the death or injury of persons shall have preference. (Art. 837,838, Code of Commerce)
ALLISION- impact between a moving vessel and a stationary one. ERROR IN EXTREMIS- sudden movement rd made by a faultless vessel during the 3 zone of collision with another vessel which is at fault nd during the 2 zone. Even if such sudden movement is wrong, no responsibility will fall on said faultless vessel (URRUTIA CASE)
4. SHIPWRECK- loss of the vessel at sea as a consequence of its grounding, or running against an object in sea or on the coast. If the wreck was due to malice, negligence or lack of skill of the captain, the owner of the vessel may demand indemnity from said captain.
Page 62 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
acquire a property right in the route covered thereby. Nor does it confer upon the holder any proprietary right or interest or franchise in the public highways. Revocation of this certificate deprives him of no vested right. New and additional burdens, alteration of the certificate, or even revocation or annulment thereof is reserved to the State. (LUQUE VS. VILLEGAS, 30 SCRA 408) CONDITIONS THAT MUST CONCUR IN THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY (VDA. DE LAT VS. PSC): 1) grantee must be a citizen of the Philippines or a corporation or entity 60% of the capital of which is owned by such citizens. 2) grantee must have sufficient financial capability to undertake the services 3) the service will promote public interest and convenience in a proper and suitable manner NOTE: primordial considerations: public interest, necessity, and convenience. GROUNDS FOR THE REVOCATION OF THE CERTIFICATE: When the holder: 1) violates or contumaciously refuses to comply with any order, rule or regulation of the commission 2) is a mere dummy 3) ceases operations by placing his buses in storage 4) abandons the service GROUND FOR SUSPENSION: When the operator willfully or contumaciously refuses to comply with any order, rule or regulation. But such can only be suspended upon prior notice and hearing. The only exception is when it is necessary to avoid serious and irreparable damage or inconvenience to the public or private interest, in which case, a suspension not more than 30 days may be ordered, prior to the hearing. (Soriano vs. Medina, 164 SCRA 36) POWERS REQUIRING PRIOR NOTICE AND HEARING: 1) issuance of certificate of public convenience and certificate of public convenience and necessity 2) fixing of standards and qualifications 3) fixing of standards for measuring quantity 4) establishment of rules to secure accuracy of all meters and all measuring appliances
NOTICE OF DAMAGE
If the damage is externally apparent, it should be given on receipt of the goods; if the damage is externally visible, then within three days from receipt. Failure to give notice however, does not bar the filing of the suit if made within one year.
Page 63 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
5) compel operators to furnish proper service 6) extension of facilities POWERS EXERCISABLE WITHOUT PRIOR NOTICE AND HEARING: 1) investigation of public utility companies 2) require public services to pay expenses of investigation 3) valuation of properties of public utilities 4) examination and test of measuring appliances 5) grant of special permits to make extra or special trips in territories specifdied in the certificate 6) uniform accounting system and furnishing of annual reports 7) investigation of accidents 8) compel compliance with the laws and regulations UNLAWFUL ACTS OF PUBLIC UTILITY COMPANIES: 1) engage in public service business without first securing the proper certificate 2) provide or maintain unsafe, improper or inadequate service as determined by the proper authority 3) commit any act of unreasonable and unjust preferential treatment to any particular person, corporation or entity as determined by the proper authority 4) refuse or neglect to carry public mail upon request ACTS REQUIRING PRIOR APPROVAL: 1) establish and maintain individual or joint rates 2) establish and operate new units 3) issue free tickets 4) issue any stock or stock certificates representing an increase of capital 5) capitalize any franchise in excess of the amount actually paid to the Government 6) sell, alienate, mortgage or lease property, certificates or franchise NOTE: Under Sec. 20g of C.A. 146, the sale, etc. may be negotiated and completed before the approval by the proper authority. Its approval is not a condition precedent to the validity of the contract. The approval is necessary only to protect public interest. PRIOR OPERATOR RULE rule allowing an existing franchised operator to invoke a preferential right within the authorized territory as long as he renders satisfactory and economical service. It
subordinates the PRIOR APPLICANT RULE which gives the first applicant priority only if things and circumstances are equal. The granting of preference to an old operator applies only when said operator has made an offer to meet the increase in traffic or demand for service and not when another operator, even a new one, has made the offer to serve the new line or increase the service on said line. The rule of preference protects only those who are vigilant, in meeting the needs of the travelling public. (TIONGSON VS. PSC, 36 SCRA 241) PRIOR APPLICANT RULE presupposes a situation when two interested persons apply for a certificate to operate a public utility in the same community over which no person has as yet granted any certificate. If it turns out, after the hearing, that the circumstances between the two applicants are more or less equal, then the applicant who applied ahead of the other, will be granted the certificate.
Page 64 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
V. INTELLECTUAL PROPERTY
INTRODUCTION to Intellectual Property Law
(R. A. 8293 - Intellectual Property Code or IPC; effective Jan. 1, 1998) Intellectual Property those property rights which result from the physical manifestation of original thought. (Ballantine's Law Dictionary) refers to the totality of all rights which the law recognizes in favor of the author, composer, painter, artist, scientist, or any other person with respect to the creations or product of his intellect, and consists of principally, in his right to;(1) authorize; or 2) refuse; the publication or production of such creations or products (De Leon; Comments and Cases on Property).
LAW ON COPYRIGHT
COPYRIGHT
It is that system of legal protection an author enjoys in the form of expression of ideas. (World Intellectual Property Organization WIPO) the exclusive right (or rights) of an author to the work of his authorship (1987 Constitution).
AND
Any person who is a national or who is domiciled or has a real and effective industrial establishment in a country which is: (1) A party to any convention, treaty, or agreement relating to intellectual property rights or the repression of unfair competition to which the Philippines is also a party, or; (2) Extends reciprocal rights to nationals of the Philippines by law, shall be entitled to benefits to the extent necessary to give effect to any provision of such convention, treaty, or reciprocal law, in addition to the rights to which any owner of an intellectual property right is otherwise entitled by this act.
Page 65 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
"Work of applied art" - is an artistic creation with utilitarian functions or incorporated in a useful article, whether made by hand or produced on an industrial scale.
"Performers" - are actors, singers, musicians, dancers, and other persons who act, sing, declaim, play in, interpret, or otherwise perform literary and artistic work. CONSTITUTIONAL BASIS
The State shall protect and secure the exclusive rights of SCIENTISTS, INVENTORS, ARTISTS AND OTHER GIFTED CITIZENS to their intellectual property and creation, particularly when beneficial to the people, for such period as may be provided by law. (Art. XIV, Sec. 13, 1987 Constitution)
of performers, producers of phonograms and broadcasting organizations (RECIPROCITY RULE). d) Members are to comply with the Berne Convention of 1971 and its appendix, EXCEPT the rights and obligations under Article 6bis (has to do with an author's "moral rights") - MEANING: whether or not the protection and guarantees conferred by Article 6bis (moral rights) apply or not is left with the municipal legislation of each member-state.
CREATION OF A WORK:
A copyrightable work is created when the two requirements are met: 1. ORIGINALITY- does not mean novelty or ingenuity, neither uniqueness nor creativity, it simply means that the work "owes its origin to the author". The work is an independent creation of the author. 2. EXPRESSION-there must be "Fixation"; to be "fixed" a work must be embodied in a medium sufficiently: a) PERMANENT; or b) STABLE; to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration. Strictly speaking there is no work for copyright purpose, unless there is something tangible. -It is fixation that defines the time from when copyright subsists. Before the time of fixation there can be no infringement. -Crucial event or act that allows the author to invoke the law: - It must be when a work of authorship is at least expressed in some determinate form, i.e. fixation. NOTE : CONTRARY VIEW - The new Intellectual Property Code is silent on the requirement of fixation. Absent this requirement of fixation, then copyright would attach to bear ideas which is excluded by universal principles of copyright.
SIGNIFICANT PROVISIONS OF THE AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS) IN REGARD TO COPYRIGHTS:
a) Compliance with the provisions of the Paris convention (1967) is made compulsory to members. b) Obligations under the Paris, Berne and Rome conventions remain, c) The treatment any member-state accords its own nationals relative to intellectual property is to be accorded the nationals of all other member-states. Furthermore, any advantage, favor or privilege accorded the nationals of any other country shall be accorded the nationals of other member states. EXCLUDED from this most favored nation provision are the rights
Page 66 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
b.
c.
d.
e.
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, sculpture, engraving, lithography or other works of art; models or designs for works of art; 8. Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art; 9. Illustrations, maps, plans, sketches, charts and three (3) dimensional works relative to geography, topography, architecture or science; 10. Drawings or plastic works of a scientific or technical character; 11. Photographic works including works produced by a process analogous to photography; lantern slides; 12. Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audiovisual recordings; 13. Pictorial illustrations and advertisements; 14. Computer programs; and 15. Other literary, scholarly, scientific and artistic works. (Sec. 172) NOTE: The author of speeches, lectures, sermons, addresses, and dissertations shall have the exclusive right of making a collection of his works. (Sec. 176.2) B. DERIVATIVE WORKS The following derivative works shall also be protected by copyright. 1. Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works; and 2. Collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents (Sec. 173). An important innovation of the new law is the distinct copyright that the publisher of a work enjoys. The code provides - "In addition to the right to publish granted by the author, his heirs, or assigns, the publisher shall have a copyright consisting merely of the right of reproduction of the typographical arrangement of the published edition of the work." (Sec. 174)
f.
Page 67 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
3. First public distribution of the original and each copy of the work; 4. Rental of the original or a copy of an audiovisual or cinematographic work; 5. Public display of the original or a copy of the work; 6. Public performance of the work; and 7. Other communication to the public of the work. (Sec. 177)
B. Moral Rights
The author of a work shall, independent of economic rights or the grant of an assignment or license with respect to such right, have the right: 1. Require that the authorship of the works be attributed to him, in a prominent way on the copies, and with the public use of the work; 2. Make any alterations of his work prior to, or to withhold it from publication; 3. Object to any distortion, mutilation or other modification of, or other derogatory action in relation to, his work which would be prejudicial to his honor or reputation; and 4. Restrain the use of his name with respect to any work not of his own creation or in a distorted version of his work (Sec. 193).
LIMITATIONS ON COPYRIGHT:
The following acts shall NOT constitute infringement of copyright: 1. Recitation or performance of a work -made accessible to the public -privately done - free of charge -strictly for a charitable or religious institution; 2. Making of quotations from a published work - compatible with fair use - to the extent justified for the purpose - including quotations from newspaper articles and periodicals - source and name of the author, appearing on work, must be mentioned; 3. Reproduction or communication to the public by mass media - of articles on current political, social, economic, scientific or religious topic, lectures, addresses and other works, delivered in public - use is for information purposes - not expressly reserved - source is already indicated; 4. Reproduction and communication to the public of literary, scientific or artistic works - as part of reports of current events
Page 68 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
5.
6.
7.
8.
9.
10.
11.
-by means of photography, cinematography or broadcasting - to the extent necessary for the purpose; Inclusion of a work in a publication, broadcast, or other communication to the public, sound recording or film - if made by way of illustration for teaching purposes - compatible with fair use - source and name of the author, appearing on work, must be mentioned; Recording made in schools, universities, or educational institutions of a work included in a broadcast for the use of such schools, universities or educational institutions - such recording must be deleted within a reasonable period - such recording may not be made from audiovisual works which are part of the general cinema repertoire of feature films EXCEPT for brief excerpts of the work; Making of ephemeral recordings -by a broadcasting organization - by means of its own facilities - for use in its own broadcast; Use made of a work by or under the direction or control of the Government - Government - National Library - Educational, Scientific, or professional institutions - use is in the public interest - compatible with fair use; Public performance or the communication to the public of a work - in a place where no admission fee is charged by a club on institution - for charitable or educational purpose only - aim is not profit making; Public display of the original or a copy of the work not made by means of a film, slide, television image or otherwise on screen or by means of any other device or process - either the work has been a) published b) sold c) given away d) transferred to another person by the author or his successors in title; Any use made of a work for the purpose - of any judicial proceedings; or - for the giving of professional advice by a legal practitioner.
by a natural person exclusively for (1) research and (2) private study, shall be permitted, without the authorization of the owner of copyright in the work. (Sec. 187.1) HOWEVER, the permission granted under Subsection 187.1 SHALL NOT EXTEND to the reproduction of: xxx (b) An entire book, or a substantial part thereof, or of a musical work in graphic form by reprographic means; (Sec. 187.2) Under Article 9, paragraph 2 of the Berne Paris Convention, individual countries may permit the reproduction of literary and artistic works "provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author." (also found in Sec. 187.2 e) The same caveat is contained in Article 14 of the GATT 94 intellectual property agreement: Limitations or exceptions to the exclusive rights shall be confined to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right - holder. This inbuilt protection of the interests of a copyright owner is now unequivocally enshrined in Sec. 187.2 e. PERSONAL USE - generally understood as making a single reproduction, adaptation, arrangement or other transformation of another's work exclusively for one's own individual use in such cases as personal research, learning or amusement. PRIVATE USE - generally understood in relation to a published work as making a reproduction, adaptation or other transformation of it, in a single person, as in the case of "personal use" but also for a common purpose by a specific circle of persons only.
The provisions of this section shall be interpreted in such a way as to allow the work to be used in a manner which does not conflict with the normal exploitation of the work and does not unreasonably prejudice the right holder's legitimate interests. (Sec. 184.2) The private reproduction of a published work in a single copy, where the reproduction is made
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3. Purpose for which the reproduction is made is legal, like: a) use to which the program is made and for which it was purchased demand the reproduction of a copy; or b) loss or destruction is avoided. (Sec. 189.1)
OF
PROTECTED
1. Criticizing, commenting, and news reporting; 2. Using for instructional purposes, including producing multiple copies for classroom use, for scholarship, research and similar purposes is not an infringement of copyright. (Sec. 185)
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known, the publisher shall be presumed to be the representative of the author. (Sec. 178 and 179) As regards moral rights, the joint authors are entitled to be acknowledged as authors of the work (Sec. 193.1 may apply). As regards contributions to a collective work, the law provides that unless the contributor expressly reserves his right (which often will not be the case precisely because he is in the employ of a putative author or commonly accepted author), it is the putative author to whom the work will be attributed. (Sec. 196) When a writer, a photographer, an artist - or any other contributor - sends in his piece to a periodical or newspaper publisher, such writer or artist retains his copyright on the piece except the right to publish once - which is deemed granted to the publisher. (Sec. 180.3)
NOTICE OF COPYRIGHT Each copy of a work published or offered for sale may contain a notice bearing the name of the copyright owner, x x x. (Sec. 192) Notice of copyright is allowed, not prescribed, for the permissive "may" is used.
INFRINGEMENT
REMEDIES of infringement: one who complains of
1. INJUNCTION to prevent infringement (Sec. 216) 2. DAMAGES assessed on the basis of the proof alleged by the plaintiff of sales made by the defendant of the infringing work minus whatever costs the defendant may be able to prove and appreciated by the court. (b) 3. DELIVERY UNDER OATH OF ALL IMPLEMENTS employed in the production of the infringing items, as well as the infringing products themselves, for impounding. (c) 4. DELIVERY under oath of all infringing copies or devises for destruction. (d) 5. PAYMENT of moral and exemplary damages in the discretion of the court. (e) The infringer also exposes himself to criminal liability wherein the law prescribes penalties of imprisonment and fines, including subsidiary imprisonment in case of insolvency. (Sec. 218)
RELATED ISSUES
1. JURISDICTION Original jurisdiction lies with the Director General of the IPO over disputes relating to the terms of a license involving the author's right to public performance or other communication of his work. (Sec. 7 c) Other infringement cases are not within the jurisdiction of the Director - General. In fact throughout Section 216, the term "court" is used, leaving no doubt that jurisdiction will rest with the "court" in view of the jurisdictional amount and the criminal prosecution of imposable penalties. 2. STANDING TO SUE Persons who may sue: a) Legal owner; or b) Beneficial owner; since they are "parties in interest." 3. DEFENDANTS Those who may be liable for infringement under the copyright law: a) Infringer
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b) Aids c) Abets d) Participates e) Contributes f) Authorizes a) Benefits (deemed included in Sec. 217). A corner book store and magazine store that vends pirated copies of a work is in fact violating the copyright owner's right to exclusively distribute his work. Such store would therefore be infringing. The printer who, though acting under instructions from another, sets into motion the illegal reproduction of protected material would, in fact, be infringing copyright. 4. PRESCRIPTIVE PERIOD No damages may be recovered after four (4) years from the time the cause of action arose. (Sec. 226) This pertains only to recovery of damages. There is no such prescriptive period in petitions for injunctive relief as well as for the impounding and destruction of infringing material. The crime of infringement is subject to the general rules of prescription of crimes.
LAW ON TRADEMARKS
TRADEMARK is anything which is adopted and used to identify the source of origin of goods, and which is capable of distinguishing them from goods emanating from a competitor. GOODWILL is the reputation and public confidence that a business venture has earned through a period of creditable dealings. The reason the law protects trademarks is to protect the interests of producers in their marks, and in the goodwill earned. The essence of trademark infringement is: passing off ones goods as those of a producer of fame or note. SERVICE MARK distinguishes the services of an enterprise from the service of other enterprises. MARK any visible sign capable of distinguishing the goods or services of an enterprise and shall include a stamped or marked container of goods. The term visible is not limited to whatever may be perceptible by the senses. COLLECTIVE MARK any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark.
PERFORMER'S RIGHTS
1. Authorize as well as prohibit: a. The broadcasting and other communication to the public of their performance (including telecast). (Sec. 203.1 a) b. The fixation of their unfixed performance. (b) (The above rights shall be maintained and exercised fifty (50) years after his death, by his heirs, and in default of heirs, the government Sec. 204.2) 2. Direct or indirect reproduction of their performances (Sec. 203.2) 3. First Public distribution of the original and copies of their performance (Sec. 203.3). 4. Commercial rental to the public of the original and copies of their performances (Sec. 203). 5. Making available to the public of their performances fixed in sound recordings by wire or wireless means (Sec. 204.5).
DISTINCTION : TRADEMARKS
- The goods or services offered by a proprietor or an enterprise are designated by trademarks or service marks.
TRADE NAME
- The person (whether natural or juridical) who does the business and produces the goods or services is designated by a trade name.
A trademark has an existence proprietor or the juridical person doing business and producing the goods or distinct from the existence of the the services offered by such person or enterprise. Under the new law, there is no need to register trade names in order to secure protection for them (Sec. 165.2, a, IPL).
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DISTINCTIONS : TRADEMARKS
- is anything which is adopted and used to identify the source of origin of goods, and which is capable of distinguishing them from goods emanating from a competitor.
LABEL
- it names what is within the container or package. - purpose:informative
of others, such a person has a property right in the goodwill of the said goods, of services which will be protected in the same manner as other property rights. Priority in registration in the Philippines of a trademark is not material in an action for unfair competition as distinguished from an action for infringement of trademark. The basis of an action for unfair competition is confusing and misleading similarity in general appearance, not similarity of trademark. (Converse Rubber World v. Jacinto Rubber, G.R. Nos. L-27425 and L30505, April 28, 1980) The use of the mark must be such as to allow the same to be associated by the public with a particular producer or manufacturer. Hence, mere intention to adopt a particular mark or name without actual use gives rise to no rights at all.
In practice, a word, a name of a phrase, coupled with indicators of business organization, such as Inc., Corp. or Co. will not be registered as trademarks or service marks. TRADE DRESS involves the total image of a product, including such features as size, shape, color or color combinations, texture and /or graphics. Unfair competition includes the selling of goods and giving them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer, or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose. All that is necessary is the likelihood of deception.
UNFAIR COMPETITION
1. is the passing off of ones goods as those of another 2. fraudulent intent is essential 3. registration is not necessary.
4 FUNCTIONS OF A MARK
According. to the World Intellectual Property Organization: 1. Distinguishing or differentiating functions. It sets apart the products or services of an enterprise from those of another. 2. Origin or source function. It refers to origin or source in terms of enterprise. 3. Quality function. The marks guarantees the same standards and controls with which it is associated. 4. Advertising function.
ARTICLE 189 of the Revised Penal Code provides for the following punishable acts: 1. Selling ones goods, giving them the general appearance of the goods of another manufacturer or dealer. (Unfair competition) 2. Affixing to ones goods or using in connection with ones services a false designation or origin, or any false description or representation. 3. Procuring fraudulently from the patent office the registration of trade name, trademark or service mark. (Fraudulent registration)
ACQUISITION OF RIGHT/GOODWILL THROUGH USE When a person has identified in the mind of
the public the goods he manufactures or deals in his business or services from those
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of the mark, with evidence to that effect, within three (30 years from the filing date of the application (Sec. 124.2, IPL).
EFFECTS OF NON-USE
Circumstances arising independently of the will of the trademark owner (Sec. !52, IPL), such as military coup, or political changes that impede commerce. Registration is an administrative act declaratory of a pre-existing right that does not, of itself, perfect a trademark, for what does is actual use. Non-use is a ground for removing a mark from the register (Sec. 124.2, IPL).
The law institutes a race for the registry office, she who reaches and registers first gains the protection of law to the exclusion of others in regard to the same or a confusingly similar mark. 5. Is identical with, or confusingly similar to, or constitutes a translation of a mark which is considered by the competent authority of the Philippines (IPO) to be well-known internationally and in the Philippines., whether or not it is registered here, as being already the mark of a person other than the applicant for registration, and used for identical or similar goods or services: Provided, That in determining whether a mark is well-known, account shall be taken of the knowledge of the relevant sector of the public, rather than of the public at large, including knowledge in the Philippines. Which has been obtained as a result of the promotion of the mark; Protects even unregistered marks and names. Deals with an applicants goods that are identical or similar to those under a previously registered or previously wellknown mark. Where the same sign is used for identical goods, there will be presumption of the likelihood of confusion. (Sec. 147.1, IPL) 6. Is identical with, or confusingly similar to, or constitutes a translation of a mark considered well-known in accordance with the preceding paragraph, which is registered in the Philippines with respect to goods or services which are not similar to those with respect to which registration is applied for: Provided, That use of the mark in relation to those goods or services would indicate a connection between those goods or services, and the owner of the registered mark: Provided further, That the interests of the owner of the registered mark are likely to be damaged by such use; This provision deals with goods or services dissimilar from those disposed of under the same mark or name. DOCTRINE OF DILUTION -refers to copying which, while not sufficiently confusing to divert sales in the short run, will tend to divert them in the long run by weakening the instantaneous favorable associations the public makes with highly regarded products.
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it
can
no
longer
be
10. Consists exclusively of signs or of indications that may serve in trade to designate the kind, quality, quantity, intended purpose, value, geographical origin, time or production of the goods or rendering of the services, or other characteristics of the goods or services; That which may rightly be said of all can be appropriated by none. 11. Consists of shapes that may be necessitated by technical factors or by the nature of the goods themselves or factors that affect their intrinsic value; 12. Consists of color alone, unless defined by a given form; or 13. Is contrary to public order or morality (Sec. 123.1, IPL). Sec. 123.2. As regards signs or devices mentioned in paragraphs (j), (k) and (l), nothing shall prevent the registration of any such sign or device which has become distinctive, in relation to the goods for which registration is requested as a result of the use that have been made of it in commerce in the Philippines. The Office may accept as a prima facie evidence that the mark has become distinctive, as used in connection with the applicant's goods or services in commerce, proof of substantially exclusive and continuous use thereof by the applicant in commerce in the Philippines for five (5) years before the date on which the claim of distinctiveness is made. DOCTRINE OF SECONDARY MEANING While a generic, indicative or descriptive mark will, as a general rule, be denied registration, there is a circumstance that will allow it to be registered, this is the doctrine of secondary meaning which has been defined as, when a mark has become distinctive of the applicant's goods in commerce and, and in the mind of the public, indicates a single source to consumers, it may be registered. Requirements of the doctrine: 1. The secondary meaning must have arisen as a result of substantial commercial use in the Philippines. 2. The use result in the distinctiveness of the mark insofar as the goods or the products are concerned. 3. Prima facie evidence is proof of commercial use in the Philippines 5 years before date of claim. .
Under the Dominancy Test, if the competing trademark contains the main or essential or dominant features of another, and confusion and deception is likely to result, infringement takes place.
TRANSLATIONS
There will be infringement when a translation of a well-known mark in the Philippines. or internationally is used for similar goods or products. There will like wise be infringement when a translation of a registered mark in the Philippines. is used for dissimilar goods or products. DOCTRINE OF FOREIGN LANGUAGE EQUIVALENTS - states that "the foreign equivalent of a merely descriptive Englishlanguage word is deemed to be no more registrable than the English word itself, despite the fact that the foreign term may not be commonly known to be general public". 7. Is likely to mislead the public, particularly as to the nature, quality, characteristics or geographical origin of the goods or services; A mark then will not be granted registration that suggests a quality, a characteristics or an origin that the good or service does not possess. 8. Consists exclusively of signs that are generic for the goods or services that they seek to identify; 9. Consists exclusively of signs or of indications that have become customary or usual to designate the goods or services in everyday language or in bona fide and established trade practice; It must be made clear that the fact that a term is generic does not per se render it nonregistrable. What the law excludes is the registration of a mark that is generic relative to the goods or products for which the mark is used. Where a word or a term was originally the subject of a trademark, but becomes so associated in the public mind with an article to which it is applied and thereby becomes a
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RIGHTS CONFERRED
1. The right to the exclusive use of the mark for one's own goods or services. 2. The right to prevent others from the use of the same mark for identical goods or services in the course of trade. 3. The right to the exclusive use of one's already registered mark even for goods or services into which one's venture expands, if use by others for dissimilar products is likely to damage the business interests of the first venturer (Sec. 147, IPL). The rights, by Sec. 145, lasts for ten (10) years subject to indefinite renewal for periods of ten years each. The right to the use of a registered trademark may be licensed to another person, natural or juridical, enabling such a party to produce, market, distribute and advertise goods or services by the trade or service mark of the licensor. Sec. 150.1 however requires that a licensor effectively control the quality of the goods or services of the licensee.
PATENT
Is a document, issued, upon application, by a government office, which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent is an exclusive right acquired over an invention, to sell, use and make the same whether for commerce or industry.
DISTINCTIONS : PATENT
When a person, by independent research arrives at the same product or that already patented, he is restrained by the arm of the law from exploiting such an invention by reason of the patent granted the earlier discoverer.
COPYRIGHT
- It may be vested in a work closely similar or even identical to an earlier, already patented work, provided that the former is truly original, ie., it owes its existence to its creator.
It will be remembered that what is not patentable may nevertheless be protected under copyright law.
PATENTABILITY
To be patentable, a product must be: a. a technical solution of a problem in any field of human activity b. novel c. an invention d. industrially applicable These criteria may apply to: a. products b. processes c. improvements of either products or processes PROCESS- consists of an act, operation, or steps or a series thereof, performed upon a specified subject matter to produce physical result. where the patent is for a process, the law forbids others from using the process, and also from manufacturing, dealing in , or importing any product obtained directly or indirectly from such process. PRODUCT-is broad enough a term to include every output of human ingenuity, every tangible
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result of craftsmanship or partnership. It is to be noted that not all products are patentable because not all process the requirements of patentability. IMPROVEMENTS- to be patentable, the improvement should be non-obvious to one skilled in the art of the original invention and is truly novel. If it is merely a consequence of technical configuration of the original invention and is thus suggested by the invention itself, the improvement is still within the dominion of the original invention.
does not prejudice the application if the disclosure is made by: a. inventor himself (or by anyone who has the right to patent, Sec. 25, 2) b. patent office- when the information of the latter office comes another application filed by the inventor that should not have been disclosed by the office c. third persons application when such persons information directly indirectly comes from the inventor himself without the inventors permission, or from any third persons who obtained his information from the inventor. 2. INVENTIVENESS an invention involves an inventive step if, having regard to prior act, it is not obvious to a person skilled in the art at the time of the filing date or priority date of the application claiming the invention (Sec. 26, RA 8293). It is suggested that the test of nonobviousness be pursued in four steps: 1. the scope and content of the prior art are determined 2. the differences between the prior art and the claims at issue are ascertained 3. the level of ordinary skill in the pertinent art is resolved 4. against this background, the obviousness or nonobviousness of the subject matter is ascertained (60 AM JUR 2d, Patents, Sec. 144). 3. CAPABLE APPLICATION OF INDUSTRIAL
(TRIPS, Sec. 5 Art. 27, par. 1) Two requirements of industrial applicability shall be fulfilled: a. it can be produced b. can be used in industry (Sec. 27) The application shall disclose the invention in a manner sufficiently clear and complete for it to be carried out by a person skilled in the art. according to TRIPS, it is synonymous with useful (Sec. 5 Art. 29 year 1, TRIPS) an applicant for a patent shall disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may require the applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date
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FIRST TO FILE RULE Under Sec. 29 R.A. 8293, if two or more person 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 for such invention.
and to manufacture, deal in, use, sell or offer for sale or import any product obtained directly or indirectly from such process. The government or a third person authorized by the government may use the patent without the authority of a patent owner, provided: 1. on public interest grounds, in particular, national security, nutrition, health or the development of other sectors, as determined by the appropriate agency of the government so requires; i.e. importation of medicines under the Generics Act by the Department of Health. 2. The manner of exploitation by the owner of the patent or his licensee, is anticompetitive (Sec. 74.1). Under Sec. 46 R.A. 8293, After the publication of the patent application, the applicant, event while his application is still pending, is already accorded the rights of a patentee granted under the law as against any person unlawfully exercising patent rights, provided the ff. conditions concur 1. the latter has actual knowledge that the invention he was using was the subject matter of a patent 2. he has written notice of such fact 3. the action may be filed only after the grant of the patent and within four (4) years from the commission of the acts complained of.
TERM OF A PATENT
The term of a patent shall be twenty (20) years from the filing date of application (Sec. 54 ). INFRINGEMENT- the making, using, offering for sale , selling or importing a patented product or a product obtained directly or indirectly from a patented process, or the use of a patented process without the authorization of the patentee (Sec. 76.1).
UTILITY MODELS - are models of implement or tools of any industrial product even if not possessed of the quality of invention but which is of practical utility.
Sec. 108.1 treats patents and utility models similarly what distinguishes a utility model however from a patentable invention is set forth in Sec. 109.1: An invention qualifies for registration as a utility model if it is new and industrially applicable. That is why it is said that the degree of inventiveness necessary for the grant of protection to utility model is lower in degree than that required of a patentable invention.
MANDATORY PROVISIONS
The law requires that certain mandatory provisions be incorporated in the technology transfer agreement (TTA) a. Philippine Law should govern the interpretation of contracts and that in case of litigation, the venue shall be the peace where the licensee has its principal office. b. The licensee shall have continued access to improvements in
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techniques and processes related to the technology for the duration of the TTA. c. In cases of arbitration, the arbitration laws of the Philippines or of the UN Commission or International trade law or of the International Chamber of Commerce shall apply and the venue shall be the Philippine or any neutral country, and d. Payment of Philippine Taxes relating to the TTA shall be borne by the licensor.
d)
e)
f)
Foreign banks or certain Philippine corporations may own up to 60% of voting stock of a domestic bank (RA 7721). Foreigners or any foreign corporation may own up to 60% of the voting stock in thrift banks established after approval of RA No. 7906. Generally, the capital stock of rural banks shall be fully owned by Filipinos and corporations, associations or cooperatives qualified to own such stock.
STOCK OWNERSHIP PERCENTAGE OF LIMITATIONS IN BANKS OF: a. Natural persons and their relatives within 3rd
degree of consanguinity or affinity 20% of voting stock. b. Corporation (cooperative, association, partnership) - 30% of voting stock. 1. If 2 or more corporations are owned or controlled by the same group of persons, the aggregate voting stocks which said corporations may own in any single bank shall not exceed 30% of voting stock of the bank. 2. If said corporations are owned or controlled by one person or group of rd persons related within the 3 degree of consanguinity or affinity, the aggregate voting stocks which such corporations may own in any bank shall not exceed 20% of voting stock of the bank (Secs. 12-B-12-D, RA 337). DISCLOSURE REQUIREMENT- Banks shall report to the Central Bank any sale or other forms of transfer of ownership of their shares of stock by and between corporations or individuals and corporations, for purposes of determining compliance with the limitations on bank equity holdings of corporations. NOTE: The Monetary Board may exempt voting stockholdings of corporations and of any person/s related to each other within the third degree of consanguinity or affinity from the prescribed ceilings in exceptional cases and when circumstances warrant, such as but not limited to PURCHASES IN THE EQUITY OF DISTRESSED BANKS FOR PURPOSES OF REHABILITATION.
Page 79 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2. the equity investment in any one enterprise shall not exceed 15% of the net worth of the bank; 3. the total equity investment of the bank in any single enterprise shall remain a minority holding in that enterprise. EXCEPT when the enterprise is a nonfinancial allied undertaking and when a commercial bank owns more than 30% of the voting stock of thrift bank or rural bank up to a majority thereof; 4. the equity investment in other banks shall be deducted from the investing banks net worth for purposes of computing the prescribed ratio of net worth to risk assets. EQUITY INVESTMENTS SHALL NOT BE PERMITTED IN NONRELATED ACTIVITIES (Sec. 21-A, RA 337).
BANKING
1) discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debts; 2) accepting drafts and issuing letters of credit ; 3) receiving deposits; 4) buying and selling foreign exchange and gold or silver bullion; 5) lending money against personal security or against securities consisting of personal property of mortgages on improved real estate and the insured improvements thereon (Section 20, RA 337).
ALLIED UNDERTAKINGS OF COMMERCIAL BANKS INCLUDING GOVERNMENT BANKS AND FOREIGN BANKS WITH EXISTING LOCAL BRANCHES:
a. warehousing companies b. leasing companies c. storage companies d. safe deposit box companies e. companies engaged in the management of mutual funds but not in the mutual funds themselves PROVIDED: 1. the total investment in equities shall not exceed 25% of the net worth of the bank;
Whenever it is necessary to further national development objectives or support national priority projects, the Monetary Board may authorize a commercial bank, bank authorized to provide commercial banking services as well as government-owned and controlled bank to operate under an expanded commercial bank authority and by virtue thereof: a. exercise the powers of an Investment House under PD 129; b. invest in the equity of non-allied undertaking; c. own majority or all of the equity in a financial intermediary other than a commercial bank or bank authorized to provide banking services. PROVIDED: 1. the total investment in equities shall not exceed 50% of the net worth of the bank; 2. the equity investment in any enterprise whether allied or nonallied shall not exceed 15% of the net worth of the bank; 3. the equity investment of the bank or of its wholly-or majority owned subsidiary, in a single non-allied undertaking shall not exceed 35% of the total equity in the enterprise nor shall it exceed 35% of the voting stock in the enterprise; 4. the equity investment in other banks shall be deducted from the investing banks net worth for purposes of computing the prescribed ratio of net worth to risk assets (Section 21B, RA 337)
Page 80 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
COMMERCIAL BANKS MAY OWN VOTING STOCKS OF A THRIFT BANK OR RURAL BANK
Commercial Banks may own more than 30% of voting stock of thrift bank or rural bank up to a majority or all of equity thereof, PROVIDED: 1. acquisition of such equity is approved by the Monetary Board; 2. the equity ownership of any individual, related group or corporation in the investing bank is in accordance with Sections 12, 12-A,12-B,12-D of RA 337; 3. the equity investment in other banks shall be deducted from the investing banks net worth for purposes of computing the prescribed ratio of net worth to risk assets (Section 21-C, RA 337) Section 22 - prescribed that a banks capital should be at least 10% of its total loan portfolio minus non-risk assets. For example, if a banks net worth or capital is P10 billion, its total loan portfolio, net of risk assets, should not exceed P100 billion. Section 23- SINGLE BORROWERS LIMIT OR SBL- 25% of unimpaired capital and surplus of the bank under present BSP regulations.
Page 81 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
1) when it is necessary for its immediate accommodation in the transaction of its business; M 2) when mortgaged to it in good faith by way of security for debts; C 3) when conveyed to it in satisfaction of debts previously contracted in the course of its dealings; P 4) when purchased at sales under judgments, decrees, mortgages or trust deeds held by it and such as it shall purchase to secure debts due to it.
CODE: A M C P
In the case of REGISTER OF DEEDS OF MANILA vs. CHINA BANKING CORPORATION (4 SCRA 1146), debts referred to in Section 24 are only those resulting from previous loans and other similar transactions made or entered into by the commercial bank in the ordinary course of its business as such. Thus, an alien-owned commercial bank cannot acquire ownership of real estate by virtue of a deed of transfer executed by its former employee in satisfaction of a civil liability arising from a criminal offense of a qualified theft. Section 25 - But no such bank shall hold the possession of any real estate under mortgage or trust deed, or title and possession of any real estate purchased to secure any debt due to it, for a longer period than 5 years.
Section 64 Real estate acquired by a trust company shall be governed by Section 25, RA 337.
2.
3.
Page 82 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4.
services for the customers as are not incompatible with banking business. Act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts with approval of Monetary Board.
The purchaser of the auction sale concerned in a judicial foreclosure shall have the right to enter upon and take possession of the property immediately after the date of confirmation of auction sale by court. In JOVEN VS. CA (212 SCRA 700), to give effect to his right of possession, the purchaser must invoke the aid of courts and ask for a writ of possession. He cannot simply take the law into his own hands and enter the property without judicial authorization. He need not bring a separate and independent suit for this purpose. Nevertheless, it is essential that he ask for and be granted a writ of possession in order that he may be legally installed in the property he has bought. As a general rule, there is no right of redemption from a judicial foreclosure sale after confirmation of the sale. However, foreclosure of mortgages to banking institutions shall be subject to legal redemption even after confirmation (LIMPIN VS. IAC, GR No. 70987, GSIS VS. CFI, 175 SCRA 19).
Section 74 PRACTICES:
1. 2. 3. 4.
COMMON
BANKING
5. 6. 7. 8.
9.
borrowing of money by banking institution through the rediscounting of receivables; acceptance of drafts or bills of exchange; certification of checks; transactions involving the release of documents attached to items received for collection; letters of credit transaction, includingstandby arrangements; repurchase agreements; shipside bonds; ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign firms or persons to domestic borrowers for capital investment purposes; other transactions which Monetary Board may define or specify as not covered by the prohibition.
PROHIBITIONS:
Section 73 Banking institutions shall not engage in insurance business as the insurer. Section 74 - No bank shall enter directly or indirectly into any contract of guaranty or suretyship or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation, or other entity. However, this provision shall not apply to common banking practices.
Page 83 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
Section 83 - LOANS TO DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED INTEREST (DOSRI)
No Director or officer of any bank shall borrow any of the deposits of funds of such banks, EXCEPT, with written approval of majority of the directors of the bank, excluding the director concerned. The approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted to the appropriate supervising department of BSP. The credit accommodation which may be extended by a bank to each of its stockholders owning 2% or more of the subscribed capital stock, its directors or officers shall be limited to an amount equivalent to the respective outstanding deposits and book value of paid in capital contribution in the bank. Loans and advances to officers, in the form of fringe benefits granted in accordance with rules prescribed by Monetary Board shall not be subject to the limitation that the loanable amount shall not exceed the outstanding deposits and book value of the paid-in capital contribution to the bank of the borrower-officer concerned. Section 87-A, as amended, penalizes an officer, employee or agent of a bank, who, without order of a court of competent jurisdiction, shall disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to a private person, whether natural or juridical.
government al, bureau, or office. EXCEPT IN THE offici FOLLOWING CASES: 1) Where the depositor consents in writing; 2) Impeachment cases; 3) By court order in bribery or dereliction of duty cases against public officials; 4) Deposit is subject of litigation; 5) If authorized by Monetary Board if it has reasonable ground to believe that such account is used to defraud the bank; 6) When made by an independent auditor hired by the bank for the exclusive use of the bank (Sec. 2, RA 1405); 7) Anti-graft cases (Added by analogy in PNB VS. GANCAYCO, 15 SCRA 91); 8) Inquiry of Commissioner of BIR into bank deposits of: a) a decedent to determine his gross estate b) a taxpayer who has filed an application for compromise of his tax liability (Sec. 6 (F) NIRC). In PNB VS. GANCAYCO (15 SCRA 91), the court held that a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth. Section 2 of RA 1405 provides that bank deposits are absolutely confidential xxx and therefore may not be examined, inquired or looked into, except in cases mentioned therein. Meanwhile, Sec. 8 of RA 3019 (Anti-Graft Law) directs that bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. The only conclusion possible is that Sec. 8 of Anti-Graft Law is intended to amend Sec. 2 of RA 1405 by providing an additional exception to the rule disclosure of bank deposits. (Ibid. p. 92). In CHINA BANKING CORPORATION VS. ORTEGA (49 SCRA 355), the Court held that garnishment of bank deposit of judgment debtor does not violate RA 1405. The lower court did not order an examination of or inquiry into the bank deposit of the defendant, as contemplated in the law. It merely required the cashier of the bank to inform the court whether or not the defendant had a deposit in said bank only for purposes of garnishment issued by it. So that the bank would hold the same intact and not allow any withdrawal until further order.
Page 84 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
In BANCO FILIPINO SAVINGS AND MORTGAGE BANK VS. PURISIMA (161 SCRA 576), the Supreme Court reiterated its ruling in PNB VS. GANCAYCO, supra and expanded the coverage of persons excluded from the prohibition against disclosures in RA 1405. Under RA 3019, illegally acquired property extends to cases where property is concealed by being held by or recorded in the name of respondents spouse, ascendants, descendants, relatives, or any other persons. Bank records of transactions by or in the names of the wife, children and friends of a person charged with violation of Anti-Graft Law may be the proper subject of subpoena duces tecum. In MELLON BANK VS. MAGSINO (190 SCRA 633), private respondents sought to disallow testimony on the bank accounts of the third parties for violating RA 1405. The court ruled that an inquiry into the whereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition. Since the action was aimed at recovering the amount converted by respondents for their own benefit such inquiry therefore involved deposited money which was the subject matter of litigation to be exempted from the prohibition. Safe deposit boxes are not strictly deposits since the relationship between the bank is that of lessor and lessee. However, any information regarding the existence of the safe deposit box in the name of the renter is considered confidential in view of Sec. 87-A of RA 337 as amended.
confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit account. PENALTIES Violation of the secrecy of bank deposits will subject the offender upon conviction to imprisonment of not more than five (5) years or a fine not more than Php 20,000 or both , in the discretion of the court.
Page 85 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
2.
Insured Deposits means the net amount due to any depositor for deposits in an insured bank (after deducting offsets) less any part thereof which is in excess of Php100,000.00.
of closure by the Monetary Board of the Bangko Sentral ng Pilipinas under Section 29 of R.A. 265 as amended by the New Central Bank Act. Insolvency refers to a situation wherein a banks liabilities exceed its total assets resulting in the banks inability to repay its creditors. Section 4, RA 3591 - The deposit liabilities of any bank or banking institution which is engaged in the business of receiving deposits as herein defined on the effective date of this Act or which thereafter may engage in the business of receiving deposits, shall be insured by the corporation. If a bank is insolvent, every depositor is compulsorily insured for a maximum amount of P100,000.00. If the total valid deposits (as determined by PDIC) exceeds the amount of Php 100,000.00, the excess amount can still be claimed from PDIC upon the final liquidation of the remaining assets of the closed bank. The schedule of payment beyond the Php 100,000.oo maximum insurance shall be based on priorities set by law. Under the law, claims for deposit in excess of the insured Php100,000.00 will be settled together with other ordinary claims, after preferred claims like government, taxe, labor claims are settled. TWO (2) TYPES OF CLAIM SETTLEMENT 1. Direct Claims Settlement 2. Transfer Deposit Settlement
TYPES OF DEPOSIT INSURED: 1. 2. 3. Savings Deposits Time Deposits Current or Demand Deposits
By virtue of Presidential Decree No. 1974, approved on June 27, 1984, TRUST FUNDS were deleted from the scope of insured deposits. Hence, effective said date, trust funds were no longer insured with PDIC. PRIMARY OBJECTIVE OF PDIC To enhance public confidence in the banking system through the provision of insurance protection to bank depositors and the effective regulation of banks. MAIN FUNCTIONS OF PDIC: 1. Risk Management The insurance and examination function of the PDIC deals with the insurance assessment and premium collection from member banks. PDIC monitors the health of member banks, examines and identifies risk areas in banks, or their weaknesses. It also institutes corrective measures to prevent closures thru bank rehabilitation. Further, it provides financial assistance to distressed banks and assists in the reopening of closed banks, provided all PDIC requirements are met. Claims, Receivership and Liquidation Claims refers to the settlement of claims for insured deposits; Receivership deals with the takeover and control of all assets, liabilities and affairs of closed banks; Liquidation covers the conversion of loans, disposal of fixed assets into cash deposits, and the implementation of final settlement with creditors.
2.
RECOVERABLE CEILING IN CASE SEVERAL ACCOUNTS ARE MAINTAINED BY THE SAME DEPOSITOR:
a. If a single depositor maintains several accounts with one bank of several branches of the same bank totaling more than P100,00.00, the amount insured is only P100,000.00, although the depositor is maintaining his deposits in different accounts; b. If three accounts are maintained in the same bank in the individual capacity of each of the depositors and in an and/or capacity or jointly by the depositors, the three accounts are insured up to P100,000.00 each because the depositors are maintaining the accounts in different capacities and rights. c. If two bank accounts (savings and current) are held jointly by two persons, the said accounts are not deemed insured separately but are added together and covered on up to a total of P100,000.00 because the amounts
What specific risks to a bank does PDIC Cover? Only the risk of bank closures. Thus losses due to a bank theft is not covered by PDIC. When is an insured bank deemed closed? An insured bank shall be deemed closed on account of insolvency upon the order
Page 86 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
are maintained in the same capacity and right by the two depositors. PDIC is given priority to be appointed as receiver of any banking institution. PDIC is subrogated to all rights of depositor against a closed bank to the extent of the payment made by the PDIC. Provided that in the event a depositor in a closed bank fails to file a claim for his insured deposit within 18 months after the Monetary Bank shall have ordered the closure of said bank, all rights of depositor against the Corporation with respect to the insured deposit shall be barred. REPUBLIC vs. COURT OF APPEALS (65 SCRA 186) the Supreme Court ruled that since the relation between the depositor and the bank is that of creditor and debtor, a depositor has every right to apply his credit with the bank against his loans. When all the elements necessary for set-off are present, compensation takes place ipso-jure, without need of any conscious intent on the part of the parties.
Page 87 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
official form serving as director, officer, consultant or in any capacity in the bank. Loans extended shall be primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families owning or cultivating land dedicated to agricultural production as well as normal credit needs of cooperatives and merchants with the land as security. Rural bank may devote a portion of their loanable funds to meeting the normal credit needs of small business enterprises and of essential enterprises and industries provided loans shall not exceed 15% of net worth of rural bank or amount prescribed by Monetary Board may be warranted by prevailing economic conditions. With the approval of Monetary Board, any rural bank may act as trustees over estates or properties of farmers and merchants or perform services authorized for savings and mortgage banks or for commercial banks under RA 337 or operating under an expanded banking authority.
Page 88 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
Any bank which shall make any deposit with the Treasurer shall not be liable to any person which the latter may bring against the bank.
CURRENCY
Foreign Currency Deposit Unit shall refer to that unit of a local bank or of a local branch of a foreign bank authorized by the Central Bank to engage in foreign currency-denominated transactions. All foreign currency deposits under RA 6426 and PD 1034 are absolutely confidential in nature and may not be examined EXCEPT UPON WRITTEN PERMISSION OF DEPOSITOR. Foreign currency deposits are exempt from garnishment, attachment or any court process. However in SALVACION, et al. VS. CBP, et al. 278 SCRA 27, the court allowed garnishment of such deposits since to hold otherwise would result to injustice to a citizen perpetrated by a foreigner.
held by domestic banks which are at least majority-owned by Filipinos: 2. prevent a dominant market position by one bank or the concentration of economic power in one or more financial institutions, or in corporations, partnerships, groups and individuals with related interests; and 3. secure the listing in the Philippine Stock Exchange of the shares of stocks of banking corporations established under Section 2, numbers 1 and 2. Provided, that said banking corporations shall establish stock option plans for their officers and employees as the resources or assets of these corporations may allow in the best business judgment of their respective boards of directors, pursuant to the Corporation Code of the Philippines ( Sec. 3).
RA 7721 AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS IN THE PHILIPPINES
When MB authorizes foreign banks to operate through any of the following: 1) by acquiring, purchasing or owning up to 60% of the voting stock of an existing bank; 2) 2) by investing in up to 60% of the voting stock of a new banking subsidiary incorporated under laws of Philippines; 3) by establishing branches with full banking authority, provided: a) foreign bank may avail itself of only one mode of entry and b) foreign bank or Philippine corporation may own up to 60% of the voting stock only one domestic bank or new banking subsidiary (Sec. 2,RA. 7721). Only those among the top150 foreign banks in the world or the top 5 banks in their country of origin as of the date of application shall be allowed entry in allowance with Sections 2 , numbers 2 and 3 (Sec. 3). In the exercise of this authority, the MB shall adopt such measures as may be necessary to: 1. ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is
Page 89 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
PURPOSE
To prevent the defrauding of creditors by the secret sale or disposal in bulk of all or substantially all of a merchants stock of goods.
EXCEPTIONS:
a. sale is made in the ordinary course of business; b. there is a waiver from all the creditors and must be written; c. sale is by virtue of a judicial order; d. those sold by assignee or those beyond the right of creditors.
Page 90 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
AFFIDAVIT OF GOOD FAITH It is an oath in contract of chattel mortgage wherein the parties severally swear that the mortgage is made for the purpose of securing the obligation specified in conditions thereof, and for no other purpose and that the same is just and valid obligation and one not entered into for the purpose of fraud. EFFECT OF ABSENCE OF AFFIDAVIT OF GOOD FAITH: a. Valid between the parties; rd b. Does not affect 3 persons without notice like creditors and subsequent encumbrances.
3. the procedure for the sale of the thing given as security is different, the procedure is found in Sec. 14 of Act no. 1508 4. if the property is foreclosed, the excess over the amount due goes to the debtor
5.if there is a deficiency, the creditor is entitled to recover the deficiency from the debtor
4. the debtor is not entitled to the excess unless it is otherwise agreed or except in the case of a legal pledge 5. the creditor is not entitled to recover the deficiency notwithstanding any stipulation to the contrary
CHATTEL MORTGAGE
1. It is an accessory contract to secure the fulfillment of the performance of an obligation. 2. Title to the thing mortgaged is not transferred
PACTO DE RETRO
1. It is a principal contract.
d.
2. the title to the subject matter of the contract is transferred to the vendee a retro but subject to the redemption by the vendor. 3. It is not required.
CHATTEL MORTGAGE
1. The thing mortgaged must be personal or movable property 2. Affidavit of good faith executed by the mortgagor is required. 3. The mortgagor cannot alienate the thing mortgaged without the written consent of the mortgagee annotated at the back of the mortgage
REAL MORTGAGE
1. The thing mortgaged must be real or immovable property. 2. Affidavit of good faith is not required. 3. The mortgagor can alienate the thing mortgaged without the consent of the mortgagee and any stipulation prohibiting such is void
PLEDGE
1. delivery is necessary
Page 91 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
4. Redemption of the thing mortgaged may be made only before the sale thereof.
4. The thing mortgaged may be redeemed after it is judicially sold but before judicial confirmation of the sale or if extrajudicially sold, within one year from and after the date of sale.
LAWS WHICH REPEALED EITHER EXPRESSLY OR IMPLIEDLY CERTAIN PORTIONS OF THE CODE OF COMMERCE:
1. The Corporation Law which repealed principally the provisions on Sociedad Anonimas; 2. The Negotiable Instruments Law, which repealed the provisions on Promissory Notes and Bills of Exchange also in Book Two; 3. The Insolvency law, which repealed the provisions on Suspension of Payments and Bankruptcy in Book Four; 4. The Insurance Law, which repealed the provisions on Fire and Marine Insurance; 5. The Securities Act, which repealed the provisions on Commercial Houses; 6. The New Civil Code, which repealed the provisions on Partnership, Agency, Sales, Loan, Deposit and Guaranty; 7. Commerce- branch of human activity, purpose of which is to bring products to community by means of exchanges or operations which tend to supply and extend to him, habitually, with intent to gain at the proper time and place and in good quality and quantity.
MERCHANTS ARE:
1. those who having capacity to engage in commerce, habitually devote themselves to it. 2. The commercial or industrial companies which may be created in accordance with existing legislation. (Art. 1) QUALIFICATIONS: 1. having completed the age of 18 years; and 2. having the free disposition of his property.
CODE OF COMMERCE
PROVISIONS OF THE CODE OF COMMERCE WHICH ARE STILL IN FORCE
1. 2. 3. 4. 5. 6. Merchants, Book of Merchants, Commercial contracts Joint Account Transfers of Non-negotiable credits Commercial Contracts of Overland Transportation letters of credit Maritime Commerce
LEGAL PRESUMPTION OF HABITUALITYexists from the moment a person who intends to engage in commerce announces through circulars, newspapers, handbills, posters exhibited to the public, or in any other manner whatsoever, an establishment which has for its object some commercial acts. Habituality in the practice of commerce presupposes the repetition and continuation of commercial acts in such manner that they are related to each other by reason of the commercial purpose or end which they tend to have, which is the exchange or circulation of products. However, it may be shown by a single act of commerce, if it manifests the intention to engage habitually in commerce.
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ACTS OF COMMERCE
Those acts contained in this Code of Commerce and all other acts of analogous character. An act need not be performed by a merchant in order that it may be considered an act of commerce. Hence, an act performed by one who is not a merchant would, nevertheless, be an act of commerce if it is contained in the Code or is one of analogous character. JURIDICAL MERCHANTSregister with the SEC. mandated to
b) RELATIVE DISQUALIFICATIONS
(in specified territories such as in places where they exercise their functions, or under certain circumstances) 1. certain government officials, such as judicial officers, prosecutors, department heads, collectors, and custodian of government funds; 2. money and commercial brokers 3. those who are under relative disqualification under special laws (Art. 14, Code of Commerce)
RELATIVE INCAPACITY
1. extends only to the province or town where the officer incapacitated is exercising his functions. 2. the effect is merely to subject the person violating Art. 14 to such disciplinary action or punishment as may be imposed by the special laws.
TO
1. First, the Code of Commerce; 2. In the absence of the foregoing, the commercial customs; and 3. Civil Code (in the absence of the first two).
GENERAL RULE: Commercial contracts shall be valid and give rise to obligations and causes of action in suits, whatever the form and language in which they may be executed, provided their existence is shown by means established by civil law. EXCEPTIONS:
1. when the Code of Commerce or other special laws require that it must be reduced in writing, require forms or
INDIVIDUAL MERCHANTS- not required to register however cannot enjoy the benefits of registration.
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formalities necessary for efficacy (for validity); 2. when executed in a foreign country whose laws require certain instruments, forms or formalities for their validity, although Philippine Law does not require them ( for validity); and 3. Commercial contract exceeding PHP 300.00 cannot be proved by parol evidence (for enforceability).
ESSENTIAL CONDITIONS OF LETTERS OF CREDIT: 1. to be issued in favor of a definite person and not to order. 2. to be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum limits of which have to be stated exactly. 3. Those which do not have any of these last circumstances shall be considered as mere letters of recommendation. TERM/ DURATION OF A LETTER OF CREDIT: 1. upon the period fixed by the parties 2. in its absence, within 6 months from its date in any point in the Philippines and within 12 months outside thereof
INSOLVENCY LAW
PURPOSE OF THE LAW:
1. to effect an equitable distribution of assets of an insolvent debtor among his creditors; to benefit the debtor in discharging him from his liabilities and enabling him to start anew with the property set apart to him as exempt.
2.
REMEDIES OF A DEBTOR:
1. apply for suspension of payment; 2. apply for voluntary insolvency; 3. creditor may file for an involuntary insolvency.
DOUBLE MAJORITY
At least 2/3 of the creditors representing at least 3/5 of the total liabilities of the debtor.
CANNOT PARTICIPATE
1. claims of laborers; 2. funeral; 3. contractual mortgages or pledges. NOTE: In case of corporation and partnerships, SEC has jurisdiction.
ACTS OF INSOLVENCY:
1. intention to depart or departure from the Philippines to defraud creditors; 2. absence from the Philippines to defraud creditors; 3. concealment of debtor to avoid legal processes;
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4. concealment or removal of his property to avoid legal processes; 5. confession of judgment in favor of any creditor to defraud other creditors; 6. allowing default judgment in favor of a creditor to defraud other creditors; 7. allowing his property to be taken under legal process in preference of a particular creditor to defraud other creditors; 8. making conveyance, assignment or transfer of his property to defraud his creditors; 9. making conveyance, assignment or transfer of his property in contemplation of insolvency; 10. default of a merchant or tradesman to pay his current obligations for a period of thirty days after demand; 11. failure to pay money on deposit or received in a fiduciary capacity for a period of thirty (30) days; 12. insufficiency of property to satisfy an execution issued against him. (Sec. 20, Insolvency Law)
INVOLUNTARY INSOLVENCY
1. Three or more creditors are required. 2. Filed by three or more qualified creditors. 3. Debtors must have committed one or more acts of insolvency. 4. Indebtedness must not be less than one thousand pesos (P1,000.00). 5. Petition must be accompanied by a bond.
SUSPENSION OF PAYMENTS
is the postponement, by court order, of payment of debts of one who, while possessing sufficient property to cover his debts, foresees the impossibility of meeting them when they respectively fall due.
b.
INSOLVENCY
1. The debtor does not have sufficient property to pay his debts.
c.
EFFECTS OF INSOLVENCY:
ADJUDICATION
OF
2. The purpose is to discharge the debtor from the payment of certain debts. 3. Some of the creditors may receive less than their credits. 4. In case of involuntary insolvency, 3 or more creditors are required.
The adjudication or declaration of insolvency by the court after hearing or default shall have the following effects: a. forbid the payment to the debtor of any debt due to him and the delivery to him of any property belonging to him; b. forbid the transfer of any property to him; c. stay of all pending civil proceedings against the insolvent. (Secs. 18 and 24 of Act 1956) Unpaid claims of wages are subordinate to legal and contractual claims.
JURISDICTION:
Note: The provisions of the Insolvency Law still governs the procedure when a corporate debtor seeks to pursue voluntary insolvency proceedings (the word debtor includes
Page 95 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo
partnerships, anonimas).
corporations
and
sociedades
VOLUNTARY INSOLVENCY Sec. 14 An insolvent debtor, owing debts exceeding in amount the sum of P1,000, may apply to be discharged from his debts and liabilities by petition to the Regional Trial Court of the province or city in which he has resided for six months next preceding the filing of such petition.
OBLIGATION OF:
(A) ENTRUSTER An entruster releases the title and possession of goods (over which he holds absolute title or security interest) to an entrustee upon the latters execution of the trust receipt. (B) ENTRUSTEE (See Sec. 9 of P.D. 115 TRL) 1. holds the goods, documents or instruments in trust; 2. receives the proceeds in trust; 3. insures the goods for their total value against loss; 4. keeps said goods or proceeds thereof; 5. binds himself to hold the goods in trust for the entruster and to sell or otherwise dispose the same and to turn over to the entruster the amount still owing; 6. returns the goods, documents or instruments if unsold or upon demand of entruster; 7. observes all other terms and conditions of the trust receipt. IN CASE OF LOSS: (Sec 10) The risk of loss shall be borne by the entrustee. Loss of goods, documents or instruments which are the subject of the trust receipt, pending disposition, irrespective of whether or not it is due to the default or negligence of the entrustee shall not extinguish his obligation to the entruster for the value thereof. It is assumed that the title and possession is turned over to the entrustee. The law does not cover sales on credit with the title or other interest being retained by the seller as security thereof.
INVOLUNTARY INSOLVENCY
Sec. 20 An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippines whose credits or demand accrued in the Philippines, and the amount of which credits or demand are in the aggregate not less than P1,000: PROVIDED, that none of his creditors has become a creditor by assignment, however made, within 30 days prior to the filing of said petition. Such petition must be filed in the Regional Trial Court of the province or city in which the debtor resides or has his principal place of business, and must be verified by at least three of the petitioners.
B) DEBTOR CORPORATION
Sec. 5[d]. P.D. 902-A: Petitions of Corporations to be declared in a state of suspension of payments in cases where the corporation possess sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation has no sufficient assets to cover its liabilities but is under management of a Rehabilitation Receiver or Management Committee.
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Penal Code. Thus, the court ruled, an entrustee in a trust receipt who failed to account for the proceeds of the goods sold or to return the goods, as the case maybe, is guilty of estafa even where the offense was committed before the promulgation of P.D. 115 on June 29, 1973. But unlike the old rule, P.D. 115 now expresses a criminal liability on the part of responsible officers of corporation and judicial entities.
NOTE:
The borrower continues to be the owner of the goods and may not exempt himself from liability by offering the goods to the bank.
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1. The document is impounded by the court. Reason: the law protects an innocent purchaser for value in the negotiation of NWR. Goods covered by NWR cannot be attached or levied upon unless receipt is surrendered. WAREHOUSEMAN A person lawfully engaged in the business of storing goods for compensation for such service. TO WHOM DELIVERED upon demand made by the holder of receipt or depositor provided such demand is accompanied by : a. an offer to satisfy the WMs lien; b. an offer to surrender the receipt, if negotiable, with such endorsement as would be necessary for the negotiation of the receipt; and c. a readiness and a willingness to sign, when the goods are delivered, if such signature is requested by the warehouseman. WARRANTIES ON SALE OF RECEIPT: (Sec. 44) a. that the receipt is genuine; b. that he has legal right to negotiate or transfer it; c. that he has knowledge of no fact which would impair the validity or worth of the receipt; and d. that he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose whenever such warranties would have been implied, if the contract of the parties had been to transfer without a receipt the goods represented thereby.
CONCUR
TO
a. the seller must be habitually engaged in selling; b. the sale must be direct to the general public; c. the object of the sale is limited to merchandise, commodities or goods for consumption (Marsman and Co. vs. First Coconut). FOREIGN EQUITY PARTICIPATION CONSUMER GOODS Category A Enterprises with paid up capital of the equivalent in Philippine Peso of less than Two million five hundred thousand US dollars ( US $2, 500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens. Category B Enterprises with a minimum paid up capitail of the equivalent in Philippine Pesos of Two million five hundred thousand US dollars ( US$2, 500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than sixty percent (60%) of total equity. Category C Enterprises with a paid up capital of the equivalent in Philippine Pesos of Seven million five hundred thousand US dollars (US$7, 500,000.00) or more may be wholly owned by foreigners : Provided, however, That in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of Eight hundred thirty thousand US dollars. (US$830,000.00) Category D Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine Pesos of Two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.
LIBERALIZATION
END-USE DOCTRINE
This means that a person who buys the goods acquires them for his own use and not for resale, in that case the transaction is retail.
It is the policy of the State: to promote consumer welfare in attracting, promoting and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.
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1. Employment in technical personnel approved by the president upon endorsement of the department head concerned (i.e. the Secretary of Justice or under special laws, by the entity or office concerned, such as the Bureau of Industries, the Director of Mines and Geosciences. 2. Election of alien directors to the extent allowable and actual foreign equity participation.
Page 99 Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo