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SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2I. NEGOTIABLE INSTRUMENTS 3 LAW (NIL)


4 5NEGOTIABLE INSTRUMENT (NI)- it is a written 6contract for the payment of money which by its 7form and on its face is intended as a substitute 8for money and passes from hand to hand as 9money, so as to give the holder in due course 10(HDC) the right to hold the instrument free from 11defenses available to prior parties. 12 14 15 16 17 18 19 20

4. prior parties warrant payment (secondarily liability).

4. prior parties do not warrant payment but merely the legality of his title

13BRIEF HISTORY OF THE LAW:

Act No.2031, the Negotiable Instruments Law, took effect on June 2,1911, and is patterned after the U.S Uniform Negotiable Law, which in turn is copied from the English Bill of Exchange Act of 1882.

21TWO DISTINCTIVE FEATURES OR 22CHARACTERISTICS OF NI: 23


241. 25 26 27 28 29 30 312. 32 33 34 35 36 37 38 39 40 41

NEGOTIABILITY- it is that attribute or property whereby a bill or note or check may pass from hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and to collect the sum payable for himself free from defenses. ACCUMULATION OF SECONDARY CONTRACTS- secondary contracts are picked up and carried along with Negotiable Instruments as they are negotiated from one person to another; or in the course of negotiation of negotiable instruments, a series of juridical ties between the parties thereto arise either by law or by privity. The indorsers become secondarily liable to the holder.

67DISTINCTIONS:
Negotiable Instruments

43 44 45CLASSES OF NI: 46 471. PROMISSORY NOTE (PN)48 unconditional promise in writing by one 49 person to another signed by the maker 50 engaging to pay on demand or at a fixed 51 or determinable future time, a sum 52 certain in money to order or to bearer. 53 (Sec. 184, NIL) 542. BILL OF EXCHANGE (BE)55 an unconditional order in writing 56 addressed by one person to another, 57 signed by the person giving it, requiring 58 the person to whom it is addressed to 59 pay on demand or at a fixed or 60 determinable future time a sum certain 61 in money to order or to bearer (Sec. 62 126, NIL); and 633. CHECK- a bill of exchange drawn on a 64 bank payable on demand (Sec. 185, 65 NIL). 66

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

42DISTINCTIONS:
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
68 69 70

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 6Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 7(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 8Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 9Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 10Antonio, Jil, Reina, Macky Macaldo

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2DISTINCTIONS: PROMISSORY NOTE 1. unconditional promise 2. involves 2 parties 3. maker primarily liable 4. only one presentment: for payment 3 4DISTINCTIONS: 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.

BILL OF EXCHANGE 1. unconditional order 2. involves 3 parties 3. drawer is only secondarily liable 4. two presentments: for acceptance and for payment 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.

5 6ASSIGNMENT VS. NEGOTIATION 71. Assignment pertains to contracts in general; 8 Negotiation pertains to negotiable 9 instruments. 102. One who takes an instrument by assignment 11 takes the instrument subject to the defenses 12 obtaining among the original parties; 13 whereas a person who takes the instrument 14 by negotiation, who is a HDC, takes it free 15 from personal defenses available among the 16 parties. 17 18OTHER FORMS OF NEGOTIABLE 19INSTRUMENTS: 201. Certificate of deposit issued by banks, 21 payable to the depositor or his order, or to 22 bearer 232. Trade acceptance 243. Bonds, which are in the nature of promissory 25 notes

264. Drafts, which are bills of exchange 27 drawn by one bank upon another 28 29LEGAL TENDER 30 that kind of money which the law 31compels a creditor to accept in payment of 32his debt when tendered by the debtor in the 33right amount. 34NOTE: A negotiable instrument although 35intended to be a substitute for money, is 36generally not legal tender. Thus, a creditor is 37not bound to accept commercial papers, like 38a check, in satisfaction of his demand, 39because a check, even if good when 40offered, does not meet the requirements of a 41legal tender. 42 43INCIDENTS IN THE LIFE OF A NI: 441. Issue 452. Negotiation 463. Presentment for acceptance in certain 47 kinds of BOE 484. Acceptance 495. Dishonor by non-acceptance 506. Presentment for payment 517. Dishonor by non-payment 528. Notice of Dishonor 539. Protest in some cases 5410. Discharge 55 REQUISITES OF NEGOTIABILITY 56(SEC. 1): 571. Must be in writing and signed by the 58 maker or drawer; 592. Must contain an unconditional promise 60 or order to pay a sum certain in money; 613. Must be payable on demand, or at a 62 fixed or determinable future time; 634. Must be payable to order or to bearer; 645. When the instrument is addressed to a 65 drawee, he must be named or otherwise 66 indicated therein with reasonable 67 certainty. 68 69UNCONDITIONAL PROMISE OR ORDER70where the promise or order is made to 71depend on a contingent event, it is 72conditional, and the instrument involved is 73non-negotiable. The happening of the event 74does not cure the defect. 75 76 The unconditional nature of the promise or 77order is not affected by: 78a) An indication of a particular fund out of 79 which reimbursement is to be made, or 80 a particular account to be debited with 81 the amount; or 82b) A statement of the transaction which 83 gives rise to the instrument (Sec. 3, NIL) 84 But an order or promise to pay out of a 85particular fund is NOT unconditional. 86 87 88

4 Page 2 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

3DISTINCTIONS:
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.
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1 2

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.

38DETERMINABLE FUTURE TIME 39(Sec. 4, NIL) 40 41 An instrument is payable at

3. Indication in the instrument makes the promise or order conditional.

5CERTAINTY OF SUM (Sec. 2, NIL) 6


7 The instrument is still negotiable and it is 8payable-9a) With interest; or 10b) By stated installments; or 11c) By stated installments with an acceleration 12 clause; 13 ACCELERATION CLAUSE- renders whole 14 debt due and demandable upon failure of 15 obligor to comply with certain conditions. 16d) With exchange; or 17e) With cost of collection or attorneys fees. 18 19PAYABLE IN MONEY 20 21 if some other act is required other than 22payment of money, the instrument is not 23negotiable (Sec. 5, NIL). 24 25Exception: Gives option to creditor/holder to 26choose another in lieu of money. 27 28 PAYABLE ON DEMAND (Sec. 7, NIL) 29 30 an instrument is payable on demand: 31a) where expressed to be payable on demand, 32 at sight or on presentation; 33b) where no period of payment is stated; 34c) where issued, accepted, or indorsed after 35 maturity (only as between immediate 36 parties). 37

42determinable future time when payable: 43a) At a fixed period after date or sight; 44b) On or before a fixed or determinable 45 future time specified therein; or 46c) On or at a fixed period after the 47 occurrence of a specified event, which is 48 certain to happen, though the time of 49 happening be uncertain. 50 51PAYABLE TO ORDER (Sec. 8, NIL) 52 53 The instrument is payable to order 54where it is drawn payable to the order of a 55specified person or to him or to his order. 56 57PAYABLE TO BEARER (Sec. 9, NIL) 58 59 The instrument is payable to bearer: 60a) When it is expressed to be so payable; 61 or 62b) When it is payable to a person named 63 therein or to bearer; or 64c) When it is payable to the order of a 65 fictitious or non-existing person, and 66 such fact was known to the person 67 making it so payable; or 68d) When the name of the payee does not 69 purport to be the name of any person; or 70e) When the only or last indorsement is an 71 indorsement in blank. 72 73NOTE: An instrument originally payable to 74bearer can be negotiated by mere delivery 75even if it is indorsed specifically. If it is 76originally a BEARER instrument, it will 77always be a BEARER instrument. 78As opposed to an original order instrument 79becoming payable to bearer, if the same is 80indorsed specifically, it can NO LONGER be 81negotiated further by mere delivery, it has to 82be indorsed. 83 84REAL DEFENSE- those that attach to the 85instrument and are available against all 86holders, whether in due course or not. 87 88PERSONAL DEFENSE- or equitable 89defenses are available only against the 90holder not in due course who stands in 91privity with the party who is entitled to set it 92up or those who are not or do not have the 93rights of a holder in due course. 94

95EXAMPLES 96DEFENSES:
971. 98

OF

PERSONAL

Absence or failure of consideration, partial or total.

4 Page 3 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

35EXAMPLES OF REAL DEFENSES:


361. 372. 383. 394. 405. 416. 427. 43 448. 45 46 47 489. 4910. 50 5111. 52 53 5412. 55

12. 23. 3 4 5 6 74. 8 9 105. 116. 12 137. 14 158. 16 179. 1810. 19 2011. 2112. 2213. 23 24 25 26 2714. 28 2915. 30 31 3216. 33 34

Want of delivery of complete instrument. Insertion of wrong date in an instrument, where it is payable at a 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. Alteration Want of delivery of incomplete instrument. Duress amounting to forgery. Fraud in factum or fraud in esse contractus. Minority Marriage in the case of a wife Insanity where the insane person has a guardian appointed by the court. Ultra vires acts of a corporation, where the corporation is absolutely prohibited by its charter or statute from issuing any commercial paper under any circumstances. Want of authority of agent. Execution of instrument between public enemies. Illegality of contract where it is the contract or instrument itself which is expressly made illegal by statute. Forgery.

632. 64 653. 66 67

Completion within reasonable time and according to authority; and HDC can enforce such despite deficiency. MAKER 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;

1. engages that he will pay it according to is tenor;

2.admits the existence of the payee;

3. admits payees capacity to indorse

3. admits payees capacity to indorse

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.

72

68 69 70 71

B. EFFECTS OF INCOMPLETE AND UNDELIVERED NI (SEC. 15, NIL):

56EFFECTS OF DEFENSES 57
58 A. EFFECTS OF INCOMPLETE BUT 59 DELIVERED NI (SEC. 14, NIL): 60 611. Holder has prima facie authority to fill up the 62 instrument.

if completed and delivered without 73authority, not a valid contract against a 74person who has signed before delivery of 75the contract even in the hands of HDC but 76subsequent indorsers are liable. 77 78 C. EFFECTS OF COMPLETE BUT 79 UNDELIVERED NI (SEC. 16, NIL): 80 81 821. Between immediate parties and remote 83 parties not a HDC, must be an 84 authorized delivery. 852. As to HDC, all prior deliveries are 86 conclusively presumed valid; and 873. If instrument is not in the hands of 88 drawer/maker, valid and intentional 89 delivery is presumed.

4 Page 4 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

COMPARISON OF SECTIONS 14, 15 AND 16

Section 14 COMPLETENESS DELIVERY


a. b. wanting in any material particular blank paper with signature

Section 15
incomplete

Section 16
complete

delivered

undelivered

Undelivered 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

AUTHORITY OF PERSON IN POSSESSION WHEN ENFORCEABLE KIND OF DEFENSE RIGHTS OF HOLDER

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

No authority to complete and / or negotiate instrument

May negotiate if delivered to him by or under the authority of the party making, indorsing, drawing or accepting , as the case may be.

If filled up strictly in accordance with authority given and within a reasonable time Personal

Not enforceable

When delivery is made by or under authority of the party making, indorsing, drawing or accepting , as the case may be. Personal

Real

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.

4 Page 5 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

Personal defense to the prejudiced party 6and available against any person not HDC. 7 8 E. FORGERY 9 10 counterfeit making or fraudulent alteration of 11any writing, which may consist of: 121. signing of another name with intent to 13 defraud; or 142. alteration of an instrument in the name, 15 amount, name of payee, etc. with intent to 16 defraud. 17 18EFFECTS OF FORGERY (SEC. 23, NIL): 19 20 signature (not instrument itself and 21subsequent indorsers) is wholly inoperative, and 22no right to retain the instrument, or to give a 23discharge therefor, or to enforce payment 24thereof against any party to it, is acquired 25through or under such signature UNLESS the 26party against whom it is sought to enforce such 27right is precluded from setting up the forgery or 28want of authority. 29 30 Persons precluded from setting up forgery: 311. those who warrant or admit the genuineness 32 of the signature in question. This includes 33 indorsers, persons negotiating by delivery 34 and acceptors. 352. Those who by their acts, silence, or 36 negligence, are estopped from setting up the 37 defense of forgery. 38

1 2 3 4

D. EFFECT OF ABSENCE OR FAILURE OF CONSIDERATION (SEC. 28, NIL):

64 65

80RIGHTS AND LEGAL POSITION OF 81ACCOMODATION PARTY 82


831. 84 852. 86 87 88

person to whom instrument thus executed is 66subsequently negotiated has a right of recourse 67 68against the accommodation party inspite of the 69formers knowledge that no consideration 70passed between the accommodation and 71accommodated parties. 72 73NOTE: A corporation cannot act as an 74accommodation party. The issue or indorsement 75of negotiable instrument by a corporation without 76consideration and for the accommodation of 77another is ultra vires. (Crisologo vs. CA, 117 78SCRA 594). 79

AP is generally regarded as SURETY for the party accomodated When AP make payment to holder of the note, they have the right to sue the accomodated party for reimbursement

89LIABILITY OF ACCOMODATION PARTY 90 91 liable on the instrument to a holder for value


92notwithstanding such holder at the time of the 93taking of the instrument knew him to be only an 94accomodation party 95

96RIGHTS OF ACCOMODATION PARTY 97AGAINST EACH OTHER 99


98

39VALUABLE CONSIDERATION 40 41 In general, it is said to consist either in

42some right, interest, profit or benefit, accruing to 43the party who makes the contract, or some 44forebearance, detriment, loss, responsibility, 45act , labor, or service on the other side. 46 47ACCOMMODATION - legal arrangement 48under which a person called the accommodation 49party, lends his name and credit to another 50called the accommodated party without any 51consideration. 52

demand from principal debtor 100reimbursement of the amount which he had paid 101on the promissory note 102 demand contribution from his co103accomodation maker without first directing his 104action against the principal debtor provided: 105 1. he made the payment by virtue of 106 judicial demand 107 2. the principal debtor is insolvent 108

109 110 111

F. MATERIAL ALTERATION

53REQUISITES OF ACCOMMODATION 54(SEC. 29, NIL):


55 561. 57 582. 59 603. 61

accommodation party must signs as maker, drawer, acceptor, or indorser; no value is received by the accommodation party from the accommodated party; and purpose is to lend the name.

62EFFECTS OF ACCOMMODATION (SEC. 6329, NIL):

any alteration which changes the date, sum 112payable, time or place of payment, number or 113relation of parties, or medium or currency of 114payment, or adds a place of payment where 115none is specified or which alters the effect of the 116instrument in any respect. (PNB vs. CA) 117 118 EFFECTS OF MATERIAL ALTERATION 119 (SECS. 124 & 125, NIL): 120 121 avoids the instrument except as against the 122party who made, authorized, or assented to the 123alteration and subsequent indorsers. HDC can 124enforce it accordingly to its original tenor. 125

4 Page 6 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

4 5LIABILITIES OF PARTIES 6
71. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 262. 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

1 2 3

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. 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 of a 3rd person -liable to payee and subsequent parties (ii) instrument payable to maker or drawer

117KINDS OF INDORSEMENT 118


119A. 120 121 122B. 123 124 125 126 127 128

65 -liable to all parties subsequent to the 66 maker or drawer. 67 (iii) irregular indorser signs for 68 accommodation of payee. 69 70 71-liable to all parties subsequent to payee. 72 733. PARTIES WITH LIMITED LIABILITY (Sec. 74 65, NIL; METROPOL FINANCING VS. 75 SAMBOK, 120 SCRA 864). 76 77 a. QUALIFIED INDORSER- warrants that 78 (i) instrument is genuine and in all 79 respects what it purports to be; 80 (ii) he has good title to it; 81 (iii) all prior parties had capacity to 82 contract; 83 (iv) he has no knowledge of any fact 84 which would impair the validity of 85 the instrument or render it 86 valueless. 87 88 b. PERSONS NEGOTIATING BY 89 DELIVERY 90 91 (i) warranties same as those of 92 qualified indorsers; and 93 (ii) warranties extend to immediate 94 transferee only. 95 96INDORSEMENT - legal transaction effected by 97the writing of one's own name at the: 98 99 a. back of the instrument 100 b. upon a paper (allonge) attached 101 thereto with or without additional 102 words specifying the person to 103 whom or to whose order the 104 instrument is to be payable whereby 105 one not only transfers one legal title 106 to paper transferred but likewise 107 enters into an implied guaranty that 108 the instrument will be duly paid 109 (Section 31, NIL) 110 111GENERAL RULE: Indorsement must be of the 112entire instrument 113 EXCEPTION: Where instrument has 114been paid in part, it may be indorsed as to the 115residue (Section 32, NIL). 116

SPECIAL - specifies the person to whom or to whose order the instrument is to be payable (Section 34) 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)

4 Page 7 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

30REQUISITES BEFORE SECONDARY 31LIABILITY ATTACHES: 32


331. 34 35 362. 37 38 393. 40

1C. 2 3 4 5 6 7 8 9D. 10 11 12E. 13 14 15 16 17 18 19 20F. 21 22 23 24G. 25 26H. 27I. 28J. 29

ABSOLUTE - one by which indorser binds himself to pay: 1. upon no other condition than failure of prior parties to do so 2. upon due notice to him of such failure

CONDITIONAL - indorsement subject to the happening of a contingent event (Section 39) 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) 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. JOINT - indorsement payable to 2 or more persons (Section 38) SUCCESSIVE IRREGULAR FACULTATIVE

75 76HOLDER IN DUE COURSE (SEC. 52, NIL): 77


781. 79 802. 81 82 833. 844. 85 86

65a) 66 67b) 68 69c) 70 71 72 73 74

prohibits further negotiation of the instrument; or constitutes the indorsee the agent of the indorser; or 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.

87 88DISTINCTIONS:

Instrument is complete and regular upon its face; Became a holder before it was overdue and had no notice that it has been previously dishonored; For value and in good faith; and At the time he took it, he had no notice of any infirmity in the instrument nor defect in the title of the person negotiating it.

Negotiating by Mere delivery or by Qualified Indorsement 1. he has good title to it; 2. all prior parties had capacity to contract; 3. he has no know- ledge of any fact which would impair the validity of the instrument or render it valueless.
89

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 indorsemen t valid and subsisting.

presentment for payment in notes and presentment for acceptance and/or payment in bills of exchange. Dishonor by non-payment in notes and dishonor by non-acceptance and/or nonpayment in bills of exchange; and Notice of dishonor to secondary parties.

41RECOURSE- resort to a person secondarily


42liable after default of person primarily liable. 43 44NEGOTIATION- transfer of instrument from 45one person to another to constitute the 46transferee as holder thereof (Sec. 30, NIL). 47 48CONDITIONAL INDORSEMENT- right of the 49indorsee is made to depend on the happening of 50a contingent event. Party required to pay may 51disregard the conditions (Sec. 39, NIL). 52 53SPECIAL INDORSEMENT- name of indorsee 54specifed (Sec. 34, NIL). 55 56RESTRICTIVE INDORSEMENT- limits the 57right of indorsee by restricting further 58negotiation; giving the indorsee lesser right than 59those under a general indorsement when an 60instrument negotiable by delivery is indorsed to 61holder --- becomes liable as indorsee (Sec. 366237, NIL). 63 64 An indorsement is restrictive, which either:

90PRESENTMENT the production of a bill of


91exchange to the drawee for his acceptance, or 92to the drawee or acceptor for payment or the 93production of a p.n. to the party liable for the 94payment of the same. (Section 70, NIL) 95 96 Presentment for payment consists of: 971. personal demand for payment at the proper 98 place; 992. readiness to exhibit the instrument if 100 required, and to receive payment and to 101 surrender the instrument if the debtor is 102 willing to pay. 103

104WHEN PRESENTMENT 105MADE (Section 71, NIL) 106

SHOULD

BE

4 Page 8 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

8WHAT CONSTITUTES A SUFFICIENT 9PRESENTMENT


101. 11 12 132. 143. 154. 16 17 18

11. 2 32. 4 53. 6 7

Demand instrument within reasonable time after its issue Bill of exchange payable on demand: within reasonable time after its last negotiation Instrument payable on a specified date: on the date it falls due.

made by the holder or any person authorized to receive payment on his behalf; at a reasonable hour on a business day; at a proper place; to the person primarily liable or if he is absent or inaccessible, to any person found at the place where the presentment is made.

70WHEN DELAY IN MAKING 71PRESENTMENT OR OF GIVING NOTICE 72IS EXCUSED: 73


741. when caused by circumstances beyond the 75 control of the holder; and 76 782. not imputable to his default, misconduct, or 79negligence.

642. 65 66 67 68 69

in order to charge an indorser when the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

77

19PRESENTMENT FOR PAYMENT IS MADE 20AT A PROPER PLACE WHERE: 21


221. 232. 24 25 263. 27 28 29 304. 31 32 33 34

80 81WHEN PRESENTMENT FOR PAYMENT 82IS EXCUSED: 83


841. 85 862. 873. 88

it is presented at the place specified; no place is specified, and the address of the person to make payment is given, and it is there presented; no place specified, no address is given, presentment may be made at the usual place of business or residence of the person to make payment; in any other case, if presented to the person to make payment wherever he can be found, or if presented at his last known place of business or residence. (Section 73, NIL)

after exercise of reasonable diligence, it cannot be made; drawee is a fictitious person; express or implied waiver

89THE INSTRUMENT IS DISHONORED BY 90NON-PAYMENT WHEN: 91


921. 93 942. 95 96

It is duly presented for payment and payment is refused or cannot be obtained; Presentment is excused and the instrument is overdue and unpaid.

35THE PURPOSE OF EXHIBITION IS TO 36ENABLE THE DEBTOR TO : 37


381. 39 40 412. 42

43 44WHEN EXHIBITION EXCUSED


451. 46 47 482. 49

determine the genuiness of the instrument and the right of the holder to receive payment; and to enable him to reclaim possession upon payment. (Section 74, NIL)

When instrument is dishonored by non98payment, there is an immediate right of recourse 99by the holder against persons secondarily liable. 100However, notice of dishonor is generally 101required. 102 103 Every negotiable instrument is payable at 104the time fixed therein without grace. 105

97

when debtor does not demand to see the instrument but refuses payment on some other grounds, and when the instrument is lost or destroyed.

106REQUISITES OF PAYMENT IN DUE 107COURSE: 108


1091. 1102. 1113. 112 113

50

Instrument payable at a bank must be made 51during banking hours unless there are no funds 52to meet it at any time during the day, 53presentment at any hour before the bank is 54closed on that day is sufficient. 55 If the person liable is dead, presentment 56may be made to his personal representative. 57

Payment must be made at or after maturity. Payment must be made to the holder. Payment must be made in good faith and without notice that the holders title is defective. 114 Good faith refers to the maker or acceptor 115and not to the holder. 116

117

58PRESENTMENT FOR PAYMENT IS NOT 59REQUIRED: 60


611. in order to charge the drawer where he has 62 no right to expect or require that the drawee 63 or acceptor will pay the instrument;

118 119NOTICE OF DISHONOR- notice given by holder 120or his agent to party or parties secondarily liable 121that instrument was dishonored by non122acceptance by drawee of a bill, or by non123payment by acceptor of a bill or by non-payment 124by maker of a note. (Sec. 89, NIL). 125

4 Page 9 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

4 5REQUISITES OF NOTICE OF DISHONOR: 6


71. 8 9 102. 11 123. 13 144. 15 16

1 2 3

given by holder or his agent, or by an party who may be compelled by the holder to pay (Sec. 90, NIL). Given to secondary party or his agent (Sec. 97, NIL). Given within the periods provided by law (Sec. 102, NIL); and Given at the proper place (Sec. 103, 104, NIL).

17WHEN NOTICE OF DISHONOR IS 18DISPENSED WITH: 19

50WHERE INSTRUMENTS PAYABLE IN 51INSTALLMENTS: 52


531. No acceleration clause failure to give 54 notice of dishonor on a previous installment 55 does not discharge drawers and indorsers 56 as to succeeding installments. 572. With acceleration clause failure to give 58 notice as to previous installment will 59 discharge the persons secondarily liable as 60 to the succeeding installments. 61 62By whom given: 63 641. the holder

201. when party to be notified knows about the 21 dishonor, actually or constructively (Secs. 22 114-117, NIL); 232. if waived (Sec. 109, NIL); and 243. when after due diligence, it cannot be given 25 (Sec. 112, NIL). 26 27How given: 28 29 1. by bringing verbally or 30 2. by writing to the knowledge of the 31 person liable the fact that a specified 32 instrument, upon proper proceedings taken, 33 has not been accepted or has not been paid, 34 and that the party notified is expected to pay 35 it. 36 37To whom given: 38 39 1. Non-acceptance (bill) to persons 40 secondarily liable, namely, the drawer and 41 indorsers as the case may be. 42 2. Non-payment (both bill and note) 43 indorsers. 44 45 NOTE: Notice must be given to persons 46 secondarily liable. Otherwise, such parties 47 are discharged. Notice may be given to the 48 party himself or to his agent. 49

Notice of dishonor given by or on behalf of 72a holder inures to the benefit of: 73 74 1. all parties prior to the holder, who have 75 a right of recourse against the party to 76 whom the notice is given; and 77 2. all holders subsequent to the holder 78 giving notice. 79 80 81 82 Notice of dishonor given by or on behalf of 83a party entitled to give notice inures to the 84benefit of: 85 1. the holder; and 86 2. all parties subsequent to the party to 87 whom notice is given. 88 89 Where an instrument is dishonored in the 90hands of an agent, he can do either of the 91following: 92 1. directly give notice to persons 93 secondarily liable thereon; or 94 2. give notice to his principal. In such 95 case, he must give notice within the time 96 allowed by law as if he were a holder. 97 98 A party giving notice is deemed to have 99given due notice where: 100 1.the notice of dishonor is duly addressed, 101 and 102 2.deposited in the post-office, even when 103 there is miscarriage of mail. 104 105 Notice is deemed to have been deposited in 106the post office when deposited in any branch 107post-office or in any letter box under the control 108of the post office department. 109 Where a party receives notice of dishonor, 110he has, after the receipt of such notice, the 111same time for giving notice to antecedent parties 112that the holder has after the dishonor. 113 114 Notice may be waived either before the time 115of giving notice, or after the omission to give due 116notice. Waiver may be expressed or implied. 117 118 As to who are affected by an express waiver 119depends on where the waiver is written. 120 1. if it appears in the body or on the face 121 of the instrument, it binds all parties; but 122 2. if it is written above the signature of an 123 indorser, it binds him only. 124 125PROTEST- is the formal instrument executed 126usually by a notary public certifying that the legal

71

652. 663. 67 68 69 70

another on behalf of the holder any party to the instrument who may be compelled to pay it to the holder, and who would have a right to reimbursement from the party to whom the notice is given.

4 Page 10 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1steps necessary to fix the liability of the drawee 2and the indorsers have been taken. 3 Where protest is waived, presentment and 4notice of dishonor are also deemed waived. But 5where the notice of dishonor is waived, 6presentment is not waived. 7 8 Notice is dispensed with when, after the 9exercise of reasonable diligence, it cannot be 10given or does not reach the parties sought to be 11charged. 12 Notice of dishonor is not required to be 13given to the drawer in any of the ff. cases: 14 1. drawer and drawee are the same; 15 2. drawee is a fictitious person or not 16 having the capacity to contract; 17 3. drawer is the person to whom the 18 instrument is presented for payment; 19 4. the drawer has no right to expect or 20 require that the drawee or acceptor will 21 honor the instrument; 22 23 5. where the drawer has countermanded 24 payment. 25 26 Notice of dishonor is not required to be 27given to an indorser in either of the ff. cases: 28 29 1. drawee is a fictitious person or does not 30 have the capacity to contract, and 31 indorser was aware of that fact at the 32 time he indorsed the instrument; 33 2. indorser is the person to whom the 34 instrument is presented for payment; 35 3. instrument was made or accepted for his 36 accommodation. 37 38 If an instrument is not accepted by the 39drawee, there is no sense presenting it again for 40payment, and notice of dishonor must at once 41be given. If there was acceptance, presentment 42for payment is still required and if payment is 43refused, there is a need for notice of dishonor. 44 45 An omission to give notice of dishonor by 46non-acceptance does not prejudice the rights of 47a holder in due course subsequent to the 48omission. 49 50 Protest is necessary only in case of foreign 51bills of exchange which have been dishonored 52by non-acceptance or non-payment, as the case 53may be. If it is not so protested, the drawer and 54indorsers are discharged

63DISCHARGE OF NEGOTIABLE 64INSTRUMENT (Section 119, NIL): 65 66 Discharge of an instrument- means a


67release of all parties, whether primary or 68secondary, from the obligations arising 69thereunder. It renders the instrument without 70force and effect and, consequently, it can no 71longer be negotiated.

72 73WHEN A NEGOTIABLE INSTRUMENT IS 74DISCHARGED: 75


761. 77 782. 793. 804. 81 825. 83 84 85

By payment I due course by or on behalf of the principal debtor; Payment by accommodated party; Intentional cancellation by the holder; By any act which will discharge a simple contract for the payment of money; When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

86WHEN A PERSON SECONDARILY 87LIABLE IS DISCHARGED (Section 120, 88NIL): 89


901. 912. 92 933. 944. 95 965. 97 98 99 1006. 101 102 103 104

By any act which discharges the instrument; By the intentional cancellation of his signature by the holder; By the discharge of a prior party; By a valid tender of payment made by a prior party; By the release of the principal debtor, unless the holders right of recourse against the party secondarily liable is expressly reserved; By any agreement binding upon the holder to extend the time of payment or to postpone the holders right to enforce the instrument.

105

55 56FOREIGN BILL OF EXCHANGE: 57


581. 59 602. 61 62

In the following cases, the agreement to 106extend the time of payment does not discharge 107a party secondarily liable: 108 a) where the extension of time is 109 consented to by such party; 110 b) where the holder expressly reserves his 111 right of recourse against such party. 112 113 Payment at or after maturity by a party 114secondarily liable does not discharge the 115instrument. It only cancels his own liability and 116that of the parties subsequent to him. (Section 117121, NIL). 118

Drawn in the Philippines but payable outside the Philippines. Payable in the Philippines but drawn outside the Phillipines.

119EFFECT OF RENUNCIATION (Section 120122, NIL): 121


1221. 123 124 125

A renunciation in favor of a secondary party may be made by the holder before, at or after maturity of the instrument. The effect is to discharge only such secondary party

4 Page 11 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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Any form of reproduction of this copy is strictly prohibited!!!

9 10

1 2 32. 4 5 6 7 8

and all parties subsequent to him but the instrument itself remains in force. A renunciation in favor of the principal debtor may be effected at or after maturity. The effect is to discharge the instrument and all parties thereto provided the renunciation is made unconditionally and absolutely.

64 65 66 67 68ACCEPTANCE AND PRESENTMENT FOR 69ACCEPTANCE (Secs. 132-151, NIL) 70 71 Acceptance of a bill is the signification by
72the drawee of his assent to the order of the 73drawer. It is the act by which the drawee 74manifests his consent to comply with the request 75contained in the bill of exchange directed to him 76and it contemplated an engagement or promise 77to pay.

NOTE: In either case, renunciation does


not affect the rights of a holder in due course without notice.

14

11 12 13

Cancellation of an instrument includes 15tearing, erasure, obliteration, or burning. It is not 16limited to writing of the word cancelled, or 17paid, or drawing of criss-cross lines across the 18instrument (Section 123, NIL). 19 20MATERIAL ALTERATION - any change in 21the instrument which affects or changes the 22liability of the parties in any way.

78 79WHEN PRESENTMENT 80ACCEPTANCE IS REQUIRED: 81

FOR

23 24EFFECT OF ALTERATION: 25

261. Alteration by a party 27 material alteration by the holder is to 28 discharge the instrument and all prior parties 29 thereto who did not give their consent to 30 such alteration. 31 NOTE: Since no distinction is made, it does 32 not matter whether it is favorable or 33 unfavorable to the party making the 34 alteration. The intent of the law is to 35 preserve the integrity of the negotiable 36 instruments. 372. Alteration by a stranger 38 it is called spoliation. 393. The right of holder in due course 40 A material alteration avoids the 41 instrument in the hands of one who is not a 42 holder in due course as against any prior 43 party who has not assented to the alteration. 44 If an altered instrument is negotiated to 45 a HIDC, he may enforce payment thereof 46 according to its original tenor regardless of 47 whether the alteration was innocent or 48 fraudulent. 49

98 99FORM OF PRESENTMENT 100ACCEPTANCE: 101


1021. 1032. 1043. 1054. 106

821. where the bill is payable after sight, or when 83 it is necessary in order to fix the maturity of 84 the instrument; 85 862. where the bill expressly stipulates that it 87 88shall be presented for acceptance; 89 903. where the bill is drawn payable elsewhere 91 than at the residence or place of business of 92 the drawee. 93 94NOTE: In all the above cases, the holder must 95either present the bill for acceptance or 96negotiate it within a reasonable time; otherwise, 97the drawer and all indorsers are discharged.

FOR

107 108WHEN PRESENTMENT EXCUSED: 109


1101. 111 112 1132. 114 1153. 116 117 118

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.

50CHANGES IN THE FOLLOWING 51CONSTITUTES MATERIAL 52ALTERATIONS: 53


541. 552. 563. 574. 585. 59 606. 61 627. 63

date sum payable, either for principal or interest time or place of payment number or relations of the parties medium or currency in which payment is to be made that which adds a place of payment where no place of payment is specified any other change or addition which alters the effect of the instrument in any respect.

where the drawee is dead, or has absconded, or is a fictitious person not having capacity to contract by bill. after exercise of reasonable diligence, presentment cannot be made; although presentment has been irregular, acceptance has been refused on some other ground.

119WHERE BILL DISHONORED BY NON120ACCEPTANCE: 121


1221. when it is duly presented for acceptance and 123 such an acceptance is refused or cannot be 124 obtained; or

4 Page 12 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

12. when presentment for acceptance is 2 excused, and the bill is not accepted. 3 4 If bill is duly presented for acceptance and it 5is not accepted within the prescribed time, the 6person presenting it must treat the bill as 7dishonored by non-acceptance or he loses the 8right of recourse against the drawer and 9indorsers. 10 11 When a bill is dishonored by non12acceptance, an immediate right of recourse 13against the drawers and indorsers accrues to 14the holder and no presentment for payment is 15necessary. 16 17 There is implied acceptance if after 24 18hours, the drawee fails to return the instrument. 19He is also deemed to have accepted the 20instrument when he destroys the same. 21 22

64

73 74ACCEPTANCE FOR HONOR

Protest for better security- is one made by 65the holder of a bill after it has been accepted but 66before it matures, against the drawer and 67indorsers, where the acceptor has been 68adjudged a bankrupt or an insolvent, or has 69made an assignment for the benefit of the 70creditors. 71 72

23KINDS OF ACCEPTANCE: 24
251. 26 272. 28 29 30 31 32 33 34 35 36 37 38 39

75(Secs. 161-170) 76 77 Acceptance for honor- is an undertaking by 78a stranger to a bill after protest for the benefit of 79any party liable thereon or for the honor of the 80person for whose account the bill is drawn which 81acceptance inures also to the benefit of all 82parties subsequent to the persons for whose 83honor it is accepted, and conditioned to pay the 84bill when it becomes due if the original drawee 85does not pay it. 86

GENERAL- assents without qualification to the order of the drawer. 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.

87REQUISITES OF ACCEPTANCE FOR 88HONOR: 89


901. 91 92 932. 94 95 963. 97 98 994. 100 101

the bill must have been protested for dishonor by non-acceptance or for better security; the acceptor for honor must be a stranger and not a party already liable on the instrument; bill must not be overdue; acceptance for honor must be with the consent of the holder of the instrument.

40 41 42PROTEST (Secs. 152-160) 44PROTEST IS REQUIRED FOR 2 GOOD 45REASONS: 46


471. 48 492. 50 51 52 53 54 55 56 43

102FORMAL REQUISITES: 103


1041. 1052. 106 1073. 1084. 109 1105. 111 112

for uniformity in international transactions bec. most countries require it; and it furnishes authentic and satisfactory evidence of the dishonor to the drawer, who from his residence abroad, would experience difficulty in verifying the matter and thus be compelled to rely on the representation of the holder.

must be in writing; must indicate that it is an acceptance for honor; signed by the acceptor for honor; must contain an express or implied promise to pay money; the accepted bill for honor must be delivered to the holder.

113PAYMENT FOR HONOR (Secs.171114177) 115 116 Payment for honor- is payment made by a
117person, whether a party to the bill or not, after it 118has been protested for non-payment, for the 119benefit of any party liable thereon or for the 120benefit of the person for whose account it was 121drawn.

57PROTEST MAY BE MADE BY: 58


591. 602. 61 62 63

a notary public; or any respectable resident of the place where the bill is dishonored, in the presence of 2 or more credible witnesses.

122 123REQUISITES OF PAYMENT FOR HONOR: 124

4 Page 13 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

11. the bill has been dishonored by non2 payment; 32. it has been protested for non-payment; 43. payment supra protest (another term for 5 payment for honor because prior protest for 6 non-payment is required) is made by any 7 person, even by a party thereto; 84. the payment is attested by a notarial act of 9 honor which must be appended to the 10 protest or form an extension of it; 11 12 135. the notarial act must be based on the 14 declaration made by the payee for honor or 15 his agent of his intention to pay the bill for 16 honor and for whose honor he pays. 17 18NOTE: If the above formalities are no complied 19with, payment will operate as a mere voluntary 20payment and the payer will acquire no right to 21full reimbursement against the party for whose 22honor he pays. 23 24 In payment for honor, the payee cannot 25refuse payment. If he refuses, he cannot 26recover from the parties who would have been 27discharged had he accepted the same. In 28acceptance for honor, the holders consent is 29necessary. 30 31 The payer for honor is given the right to 32receive both the bill and the protest obviously to 33enable him to enforce his rights against the 34parties who are liable to him. 35 36BILLS IN SET (Secs. 178-183) 37 38BILL IN SET is one composed of several parts, 39each part being numbered and containing a 40 41reference to the other parts, the whole of the 42parts constituting but one bill. 43 44 Purpose: Are usually availed of in cases 45where a bill had to be sent to a distant place 46through some conveyance. If each part is sent 47by different means of conveyances, the chance 48that at least one part of the set would reach its 49destination would be greater. 50 51 Rights of holders where parts are 52negotiated separately: 53 1. if both are HIDC, the holder whose 54 title first accrues is considered the true 55 owner of the bill. 56 2. But the person who accepts or pays in 57 due course shall not be prejudiced. 58 59 Obligations of holder who indorses 2 or 60more parts of the bill in set: 61 62 1. the person shall be liable on every 63 such part;

64 65 66 67 68

2. every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills.

69LEGAL TENDER (R.A. 7653, NEW 70CENTRAL BANK ACT)


71 72Section 52. Legal Tender. All notes and coins 73issued by the Bangko Sentral shall be fully 74guaranteed by the Government of the Republic 75of the Philippines and shall be legal tender in the 76 77Philippines for all debts, both public and private. 78PROVIDED, however, That, unless otherwise 79fixed by the Monetary Board, coins shall be legal 80tender in amounts not exceeding Fifty pesos 81(P50.00) for denominations of Twenty-five 82centavos and above, and in amounts not 83exceeding Twenty pesos (P20.00) for 84denominations of Ten centavos or less. 85 86R.A. 8183 (Repealed R.A. 529, the Uniform 87Currency Act- Foreign currency as mode of 88payment) 89 90SECTION 1. All monetary obligations shall be 91settled in the Philippine currency which is legal 92tender in the Philippines. However, the parties 93may agree that the obligation or transaction shall 94be settled in any other currency at the time of 95payment. 96 97 98

99 100 101 102 103 104 105 106 107


108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125

4 Page 14 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2 3 4 5

6 7II. CORPORATION CODE 9CORPORATION- artificial being created by


10operation of law having the right of succession, 11and the powers, attributes and properties 12expressly authorized by law and incident to its 13existence (Sec. 2). 14 8

52 53 54 55 56 57

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.

2. It is deemed to vest in the corporation

15THEORIES ON THE FORMATION OF 16A CORPORATION: 17


181. 19 20 21 22 23 242. 25 26 27 28 293. 30 31 32 33 344. 35 36 37 38 39

CONCESSION THEORY juristic principle in the creation of corporation, under which a corporation is an artificial creature without any existence until it has received the imprimatur of the state acting according to law, through the SEC. THEORY OF CORPORATE ENTERPRISE OR ECONOMIC UNIT corporation not merely an artificial being, but more as an aggrupation of persons doing business, or an underlying business unit. ETHNOLOGICAL THEORY Corporate idea is the product of no one people, and no one country but on the contrary, developed more or less independently, in varying forms among the several ethnological units. IMITATIVE THEORY OF JURAL DEVELOPMENT the formation of private corporation for certain purposes is permitted on the condition that they did not operate in violation of laws of the state.

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.

59ATTRIBUTES OF A CORPORATION: 60
611. 622. 633. 644. 65 66 67

58

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.

40FRANCHISES OF CORPORATION 41
421. 43 442. 45 46 47 48

68CLASSES OF CORPORATION: 69
701. AS TO ORGANIZERS 71 a. public by State only; and 72 b. private by private persons alone or 73 with the State. 742. AS TO FUNCTIONS 75 a. public governmental and other 76 functions; and 77 b. private usually for profit-making 78 functions 793. AS TO GOVERNING LAW 80 a. public Special Laws; and 81 b. private Law on Private Corporations 824. AS TO LEGAL STATUS 83 a. de jure corporation corporation 84 organized in accordance with 85 requirements of law 86 b. de facto corporation a corporation 87 where there exists a flaw in its 88 incorporation (Sec. 20). Its existence 89 cannot be inquired collaterally. Such 90 inquiry may be made by the Solicitor 91 General in a quo warranto proceeding 92 (Sec. 20).

49 50DISTINCTIONS : 51

PRIMARY FRANCHISE the franchise to exist as a corporation. 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.

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

4 Page 15 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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MEMORY AID in COMMERCIAL LAW


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1 2 3 4 5

18

101. 11 122. 133. 144. 15 16 17 19 20 21 22 23 24

6 7REQUISITES OF DE FACTO 8CORPORATION: 9

The existence of a valid law under which it may be incorporated; An attempt in good faith to incorporate; Use of corporate powers; and Issuance of certificate of incorporation by the SEC as a minimum requirement of continued good faith.

c. corporation by estoppel groups of


persons which holds itself out as a corporation and enters into a contract with a 3rd person on the strength of such appearance. It cannot be permitted to deny its existence in an action under said contract (Sec. 21).

25 26

d. corporation by prescription body that


though not lawfully organized as a corporation, has been duly recognized by immemorial usage as a corporation, with rights and duties maintainable at law. AS TO EXISTENCE OF SHARES OF STOCK a. stock corporation a corporation in which capital stock is divided into shares and is authorized to distribute to holders thereof of such shares dividends or allotments of the surplus profits on the basis of the shares held. (Sec. 3). b. Non-stock corporation not issue stocks and not distribute dividends to their members, for public good and welfare. AS TO RELATIONSHIP OF MANAGEMENT AND CONTROL a. holding corporation - it is one which controls another as a subsidiary by the power to elect management. It is one which holds stocks in other companies for purposes of control rather than for mere investment. It has a passive portfolio merely holding securities for control and management, as distinguished from an active investment policy which has an active portfolio buying and selling securities

61TWO KINDS OF SUBSIDIARIES 62

27 28 29 30 31 325. 33 34 35 36 37 38 39 40 41 42 43 44 45 466. 47 48 49 50 51 52 53 54 55 56 57 58 59 60

109 110ACQUIRED ASSET CORPORATION


111 112(a) organized under general corporation law 113under private ownership where at least a 114majority of the shares of stock of which were 115conveyed to a government corporation in 116satisfaction of a debt incurred with a government 117financial institution, whether by foreclosure or 118otherwise; or 119(b) a subsidiary corporation of a government 120corporation organized exclusively to own and 121manage, or lease or operate specific physical 122assets acquired by a government financial 123institution in satisfaction of debts incurred 124therewith (PD 2029, Sec. 3 c).

631. 64 65 662. 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 907. 91 92 93 94 95 96 97 98 99 100 1018. 102 103 104 105 106 107 108

MAJORITY OWNED SUBSIDIARY where one corporation owns 51%-94% of the capital stock of another corporation. WHOLLY OWNED SUBSIDIARY where one corporation holds 95% to 100% of the capital stock of another corporation. 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 . 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). OTHER CORPORATIONS a. Close Corporation b. Special Corporation 1. educational corporation 2. religious corporation a. corporation sole b. religious societies

125 126RULE ON CONVERSION

4 Page 16 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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MEMORY AID in COMMERCIAL LAW


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1 21. STOCK CORPORATION TO NON-STOCK 3 An existing stock corporation may be 4converted into a non-stock corporation by mere 5amendments of its articles of incorporation. 6 7 8 92. CONVERSION OF NON-STOCK 10 CORPORATION TO STOCK 11 CORPORATION 12 13 Mere amendment of the articles would not 14suffice as it would change its very nature from 15non-profit to monetary gain. It is fundamental 16that the non-stock corporation be dissolved first. 17A non-stock corporation only holds its funds in 18trust for carrying out the objectives expressed in 19its charter. The conversion without dissolving it 20first would be tantamount to distribution of its 21assets or income to its members inasmuch as 22after its conversion, the asset of the non-stock 23corporation would now be treated as payment to 24the subscriptions of the members who will now 25become stockholders of the corporation. 26Moreover, the scheme might defraud the public 27 28who may have given donations not for the 29benefit of the stockholders but for organization 30purposes.

71 72INSTRUMENTALITY RULE- Where one


73corporation is so organized and controlled and 74its affairs are conducted so that it is in fact, a 75mere instrumentality or adjunct of the other, the 76fiction of the corporate entity of the 77instrumentality may be disregarded. The 78control necessary to invoke the rule is not mere 79majority or even complete stock control but such 80domination of finances, policies, practices that 81the controlled corporation has, so to speak, no 82separate mind, will or existence of its own, and 83is, but a conduit for its principal. 843. Equity cases when piercing the corporate 85fiction is necessary to achieve justice or equity 86 881. 892. 903. 914. 925. 93 946. 957. 96

641. 65 662. 67 68 69 70

Fraud Cases when a corporation is used as a cloak to cover fraud, or to do wrong Alter Ego Cases when the corporate entity is merely a farce since the corporation is an alter ego, business conduit or instrumentality of a person or another corporation

87COMPONENTS OF A CORPORATION:
incorporators; corporators; stockholders and members; promoter; board of directors; executive committee; and officers of the corporation.

31 32ADVANTAGES OF CORPORATION AS 33AGAINST UNREGISTERED 34ASSOCIATION 35


361. 37 382. 393. 404. 41 425. 43 446. 45 46

enjoys perpetual succession under corporate name and in an artificial form can take and grant property can contract obligations can sue and be sued in its corporate name as a juridical person capacity to receive and enjoy common grants of privileges and immunities no personal liability beyond value of their shares

They are those 98mentioned in the articles of incorporation as 99originally forming and composing the 100corporation, having signed the articles and 101acknowledged the same before a notary public. 102They have no powers beyond those vested in 103them by the statute. 104 105 Only natural persons can be incorporators 106except when otherwise allowed by law as in the 107case of incorporated cooperative which are 108allowed to be incorporators of rural banks.

97INCORPORATORS-

47DOCTRINE OF SEPARATE 48PERSONALITY 49 50 A corporation has a personality separate and


51distinct from that of its stockholders or members. 53

109 110NUMBER AND QUALIFICATION OF 111INCORPORATORS: (Sec. 10) 112


1131. 1142. 1153. 1164. 117 1185. 119 120

54PIERCING DOCTRINE OF THE VEIL OF 55CORPORATE FICTION 57


56

natural person; not less than 5 but not more than 15; of legal age; majority must be resident of the Philippines; and each must own or subscribe to at least one share.

62THREE CLASSES OF PIERCING:


63

Allows the state to disregard for certain 58justifiable reasons the fiction of juridical 59personality for the corporation, separate and 60distinct from the persons composing it. 61

121DISTINCTIONS :
122

INCORPORATORS 1. signatory to articles

CORPORATORS 1. stockholder of stock corporation

4 Page 17 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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MEMORY AID in COMMERCIAL LAW


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2. do not cease to be such


1 2 3

or member of non-stock corporation 2. cease to be such if they are no longer stockholders

55LIMITS ON THE USE OF CORPORATE 56NAME 57


581. 59 60 612. 623. 63 64

526. witnesses to and acknowledgment of the 53 articles. 54

3. number is limited t0 5-15 4. must have contractual capacity


4

3. no restriction as number 4. may be such through a guardian

Names which are identical, deceptively or confusingly similar to that of any existing corporation; a name already protected by law; a name which is patently deceptive, confusing or contrary to existing laws.

65DISTINCTIONS : 66
ARTICLES OF INCORPORATION
1. It is essentially a contract between the corporation and the stockholders/ members; between the stockholders/ member inter se, and between the corporation and the State; hence must be notarized themselves;

37WHAT CANNOT BE AMENDED IN THE 38ARTICLES OF INCORPORATION 39


40Those matters referring to facts existing as of 41the date of the incorporation such as: 42 431. names of incorporators; 442. names of original subscribers to the capital 45 stock of the corporation and their subscribed 46 and paid up capital; 473. treasurer elected by the original subscribers; 484. members who contributed to the initial 49 capital of a non-stock corporation; 505. date and place of execution of the articles of 51 incorporation;

81. 92. 10 113. 124. 135. 14 156. 16 177. 18 19 20 21 228. 23 24 259. 26 27 28 2910. 30 3111. 32 33 34 35 36

5CONTENTS OF ARTICLES OF 6INCORPORATION (SEC. 14): 7

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;

name of corporation; purpose/s, indicating the primary and secondary purposes; place of principal office; duration; names, citizenship and residences of incorporators; number, names, citizenship and residences of directors; if stock corporation, amount of capital stock, number of shares and in case of par value stock corporations, the par value of each share; names, residences, number of shares and amounts of subscription of subscribers which shall not be less than 25% of ACS; names, residences, and amount paid by each subscriber on their subscription, which shall not be less than 25% of total subscription; name of treasurer elected by subscribers; and if the corporation engages in a nationalized industry, a statement that no transfer of stock will be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required legal minimum.

2. It is executed before incorporation

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 5. Power to amend/repeal articles cannot be delegated by the stockholders/ members to the board of directors/

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 or repeal by-laws or adopt new bylaws may be delegated by the 2/3 of the outstanding

4 Page 18 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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MEMORY AID in COMMERCIAL LAW


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trustees.

capital stock or 2/3 of the members in the case of nonstock corporation.

58

2ELEMENTS OF A VALID BY-LAWS: 3


41. 5 6 72. 8 93. 10 114. 12 13 14 15 16 175. 18 19 20 21 22 236. 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

Must not be contrary to existing law nor inconsistent with the Code, else they have no binding effect; Must not be contrary to morals and public policy State will interfere if it is so; Must not impair contract obligations Art III Sec 10,1987 Constitution Must be general and uniform they must affect all alike, and operate equally as to all persons or matters standing in equal status or circumstances and without any unreasonable discrimination as to any particular person or thing of the class; Must be consistent with the charter or articles of incorporation charter is used here in its broadest sense without regard to whether the statutory right to be a corporation is obtained by special act or under general statutes; Must be reasonable ,not arbitrary or oppressive . Reasonableness depends upon: a. Facts and circumstances of the case b. Nature, Purpose, Object of the corporation c. Whether or not it is within the corporations power of adoption d. The relation which the person raising the question sustains to the corporation, i.e. whether he is a stockholder or member or stranger to the corporation. -Thus a by-law may be reasonable as to the corporation and as to the third persons contracting subsequently to its adoption with the corporation, and yet be invalid as to third persons sustaining at no time of its adoption, contractual relations with the corporation - If stockholders alone are affected, only they can attack.

68POWERS OF A CORPORATION

Strangers are not bound to know the by59 laws which are merely provisions for the 60 government of a corporation and notice to 61 them will not be presumed. 62 63Rationale: by-laws have no extra-corporate 64force and are not in the nature of legislative 65enactments so far as third persons are 66concerned. 67
69 70KINDS: 71 72 1. Express Powers granted by law , 73 Corporation Code and its Articles of 74 Incorporation or Charter 75 2. Inherent / Incidental Powers not 76 expressly stated but are deemed to be 77 within the capacity of corporate entities 78 3. Implied / Necessary exists as a 79 necessary consequence of the exercise 80 of the express powers of the corporation 81 or the pursuit of its purposes as 82 provided for in the Charter 83 85corporation is said to hold such powers as are 86not prohibited or withheld from it by general law 87(everything is allowed except when prohibited). 88

84THEORY OF GENERAL CAPACITY

89THEORY OF SPECIAL CAPACITY


90corporation cannot exercise powers except 91those expressly or impliedly given (everything is 92prohibited except when allowed). 93

94A. GENERAL CORPORATE POWERS 95AND CAPACITY (SEC. 36): 96


971. 982. 993. 1004. 1015. 1026. 103 104 105 1067. 107 108 109 110 1118. 1129. 113 114 115 116 117 118 119 120 121i

46BINDING EFFECTS OF BY-LAWS: 47


481. AS TO MEMBERS AND CORPORATIONThey have the same force and effect as the 50 provisions of the charter and articles of 51 incorporation. They have the force of 52 contract between the members themselves. 53 They are binding only upon the corporation 54 adopting them and on its members and 55 those having direction, management and 56 control of its affairs. 572. AS TO THIRD PERSONS

49

To sue and be sued; Of succession; To adopt and use of corporate seal; To amend Articles; To adopt by-laws; For stock corporations issue and sell stocks to subscribers and treasury stocks, for non-stock corporations admit members; Purchase; Receive } real property Grant } personal property Take } securities and Deal } bonds to enter into merger or consolidation; to make reasonable donations for: a. public welfare; b. hospital; c. charitable; d. cultural; e. scientific; f. civic; and g. similar purposes Prohibitions : no donation to i.political party;

4 Page 19 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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18

1ii ii.candidate; and 2 iii.partisan political activity. 3 410. to establish; 5 a. pension 6 b. retirement 7 c. and other plans for the benefit of 8 i. directors; 9 ii. trustees; 10 iii. officers; 11 iv.employees. 12 1311. Other powers essential or necessary to 14 carry out its purposes 15 16RESTRICTIONS ON THE POWER TO MAKE 17DONATIONS:
191. 20 21 222. 23 243. 25

75EFFECTS OF ULTRA VIRES ACT ON: 76


771. 78 792. 80 81 823. 83 84 854. 86 87 88

65 66 67 68 69 70 71 72 73 74

by the act of its creation, and are in violation of the trust reposed in the managing board by the shareholders that the affairs of the corporation shall be managed and the funds applied solely for carrying out business objectives. An illegal act however is one which is expressly prohibited by the charter or statute or which is immoral or against public policy.

26 27B. SPECIAL POWERS


28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

The donation must be reasonable, otherwise it would be tantamount to a conversion of corporate funds; That it must not be in aid of any political party or candidate; That it must not be for purposes of partisan political activity.

executed contract courts will not set aside or interfere with such contracts; executory contracts no enforcement even at the suit of either party (void and unenforceable); part executed and part executory principle of no unjust enrichment at expense of another shall apply; and executory contracts apparently authorized but ultra vires the principle of estoppel shall apply.

89WASTING ASSET DOCTRINE- It permits


90corporations solely or principally engaged in the 91exploitation of wasting assets to distribute the 92net proceeds derived from exploitation of their 93holdings such as mines, oil wells, patents and 94leaseholds, without allowance or deduction for 95depletion. 96 The justification of such rule is that as 97the business of wasting asset corporation is to 98exploit and exhaust its assets, no one can 99expect that its capital would be kept intact. 100Hence that dividends cannot be paid out of the 101capital but only from the profits must not be 102applied as a rule.

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: 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)

103 104NOTE: RELATION TO THE TRUST FUND 105DOCTRINE -

49MANAGEMENT CONTRACT one entered


50into between two corporations whereby one 51corporation undertakes to manage all or 52substantially all of the business of the other 53corporation for certain period of time, whether 54such be a service contract, operating agreement 55or otherwise. 56

112BOARD OF DIRECTORS REPOSITORY 113OF CORPORATE POWERS unless

106Under the Doctrine, no dividends can be 107declared out of capital except only in two 108instances: (1) liquidating dividends and (2) 109dividends from investments in wasting asset 110corporation. 111

57ULTRA VIRES ACT AND ILLEGAL ACTS 58 59 An ultra vires act is not necessary illegal 61
62 63 64 60

although an illegal act is always ultra vires. When the act of a corporation are spoken of as ultra vires, it is not intended that they are unlawful but merely those which are beyond the powers conferred upon the corporation

114otherwise provided by the Code, the corporate 115powers of all corporation shall be exercised, all 116business conducted and all property of such 117corporations controlled and held by the board of 118directors or trustees to be elected from among 119the members of the corporation, who shall hold 120office for one year and until their successors are 121elected and qualified. 122 123Except: 1241. Executive Committee; or 1252. The corporation enters into a management 126 contract. 127

4 Page 20 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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38THREE-FOLD DUTIES OF DIRECTORS;


39 40 41 42 43 44

41. He must own at least (1) share capital stock 5 of the corporation in his own name, and if he 6 ceases to own at least one share in his own 7 name, he automatically ceases to be a 8 director. For non-stock corporation, only 9 members of the corporation can be elected 10 to seat in the board of trustees (Sec. 23). 112. A majority of the directors/ trustees must be 12 residents of the Philippines 13 (Sec. 23). 143. He must not have been convicted by final 15 judgment of an offense punishable by 16 imprisonment for a period exceeding six (6) 17 years or a violation of the Corporation Code, 18 committed within five years from the date of 19 his election 20 (Sec. 27). 214. He must not have a substantial interest in a 22 competing corporation. 235. Only natural persons can be elected 24 directors/trustees. 256. Other qualifications as may be prescribed in 26 the by-laws of the corporation. 27 28BUSINESS JUDGMENT RULE.- The board of 29directors is the body usually entrusted with the 30general control and management of the 31business of the corporation having plenary 32power/ authority to transact all the ordinary 33business of the corporation within the scope of 34its charter power. The SEC, stockholders and 35the courts cannot overrule a pure business 36judgment. 37

1QUALIFICATIONS OF DIRECTORS/ 2TRUSTEES: 3

68SPECIAL FACT DOCTRINE director takes


69advantage of an information by virtue of his 70office to the disadvantage of the corporation. 71 72INHERENT POWER OF AMOTION - It is 73the power to remove directors, officer and 74trustees prior to the expiration of their term. 75

632. 64 65 66 67

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.

76DOCTRINE OF CORPORATE 77OPPORTUNITY if there is presented to a


78corporate officer or director a business 79opportunity which: 801. corporation is financially able to undertake; 812. from its nature, is in line with corporations 82 business and is of practical advantage to it; 83 and 843. one in which the corporation has an interest 85 or a reasonable expectancy. 86 87 By embracing the opportunity, the self88 interest of the officer or director will be 89 brought into conflict with that of his 90 corporation, the law will not permit him to 91 seize the opportunity. 92 93SELF-DEALING DIRECTORS- those who 94personally contract with the corporation in which 95they are directors. It is discouraged because 96there can be no real bargaining where the same 97is acting on both sides of the trade. 98

1. Duty of Obedience- they will direct the affairs of the corporation only in accordance with the purposes for which it was organized; 2. Duty of Diligence-

99REQUIREMENTS FOR THE VALIDITY OF 100CONTRACTS OF SELF-DEALING 101DIRECTORS: 102


103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126

45 3. Duty of Loyalty 46 47SOLIDARY LIABILITY OF DIRECTORS 48FOR DAMAGES(SEC. 31): 49


501. 51 52 532. 54 553.

1. All the requisites in Sec. 32, to wit: a) The presence of such director/trustee in the board meeting approving the contract was not necessary for constituting a quorum for such meeting; b) The vote of such director/trustee in the board meeting approving the contract was not necessary for the approval of the contract; c) The contract is fair and reasonable under the circumstances; In the case of an officer, there was previous authorization by the board of directors. 2. Although not all said conditions are present, the corporation elects not to attack or question the validity of the contract without prejudice to the liability of the consenting director/trustee for damages under Sec. 31.

56 57 58REMEDIES IN CASE OF 59MISMANAGEMENT: 60 611. receivership;

willfully and knowingly vote for and assent to patently unlawful acts of the corporation; and guilty of gross negligence or bad faith in directing the affairs of the corporation; acquire any personal or pecuniary interest in conflict of duty.

621. injunction, if the act has not yet been done;

4 Page 21 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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11INTERLOCKING DIRECTORS- They are


12those who sit in the boards of two or more 13corporations that transact business with one 14another or contract with each other whether on 15isolated or regular basis not only because one 16has big investments therein but also because 17his services may have been proven to be 18valuable, competent and efficient. 19

1 2 3 4 5 6 7 8 9 10

3.Where any of the first two conditions is absent, said contract must be ratified by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose, provided that full disclosure of the adverse interest of the director/ trustee involved is made at such meeting.

68DOCTRINE OF INDIVIDUALITY OF 69SUBSCRIPTION- A subscription is one entire


70and indivisible whole contract. It cannot be 71divided into portions. (Sec. 64) 72

65 66CORPORATE ACTS see table on page 35 . 67

73VALID CONSIDERATIONS IN 74SUBSCRIPTION AGREEMENT: (SEC. 62)

20REQUIREMENTS FOR VALIDITY OF 21CONTRACTS OF INTERLOCKING 22DIRECTORS: 23


241. 252. 26 273. 28 29 30 31 32 33 34 35 36 37 38 39 40 41

42 43LIMITATIONS ON THE POWERS OF 44EXECUTIVE COMMITTEE (SEC.35):


45 46It cannot act on the following: 471. matters needing stockholder approval; 482. filling up of board vacancies; 49 503. amendment, repeal or adoption of by-laws; 514. amendment or repeal of any resolution of 52 the Board which by its express terms is not 53 amendable or repealable and 545. cash dividend declaration

The contract is not fraudulent. The contract is fair and reasonable under the circumstances. If the interlocking directors interest in one corporation or corporations is nominal(not exceeding 20% of the outstanding capital stock), then all the conditions prescribed in Sec. 32 on self-dealing directors must be present with respect to the corporation in which he has 20% or less interest: a. the presence of the interlocking director in the board meeting in which the contract was approved was not necessary for the approval of the contract; b. the vote of such director is not necessary for the approval of the contract.

90PRE-INCORPORATION SUBSCRIPTION 91CONTRACT subscription of shares of stock


92of a corporation still to be formed shall be 93irrevocable for a period of at least 6 months from 94date of subscription, unless: 951. all of the other subscribers consent to the 96 revocation; 972. the incorporation of said corporation fails to 98 materialize with said period or within a 99 longer period as may be stipulated in the 100 contract of subscription; provided that no 101 pre-incorporation subscription may be 102 revoked after the submission of the articles 103 of incorporation to the SEC (Sec.61). 104

75 761. Cash; 772. Property; 783. Labor or services actually rendered to the 79 corporation; 804. Prior corporate obligations; 815. Amounts transferred from unrestricted 82 retained earning to stated capital, 836. Outstanding shares in exchange for stocks 84 in the event of reclassification or conversion. 85 86NOTE: shares of stock shall not be issued in 87exchange for promissory notes or future 88services. 89

105CAPITAL STOCK OR LEGAL STOCK OR 106STATED CAPITAL the amount fixed by the
107corporate charter to be subscribed and paid in 108cash, kind or property at the organization of the 109corporation or afterwards and upon which the 110corporation is to conduct its operation. 111 112CAPITAL actual property or estate of the 113corporation whether in money or property.

114 115AUTHORIZED CAPITAL STOCK total


116amount in the charter, which may be raised by 117the corporation for its operations. 118

55 56CORPORATE OFFICERS (SEC. 25): 57


581. 592. 60 613. 62 634. 64

President who shall be a director; Treasurer who may or may not be a director; Secretary who shall be a resident and citizen of the Philippines; and such other officers as may be provided in the by-laws.

119WAYS OF INCREASING THE CAPITAL 120STOCK: 121


1221. 123 1242. 125 1263. 127

by increasing the number of shares and retaining the par value; by changing the par value of existing shares without increasing the number of shares; by increasing the number of shares and increasing the par value.

4 Page 22 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

16DISTINCTIONS:

2 3 4 5 6SHARES OF STOCK interest or right which 7owner has in the management of the 8corporation, and its surplus profits, and, on 9dissolution, in all of its assets remaining after the 10payment of its debt. 11WORKING CAPITAL excess of current assets 12over current liabilities. 13CIRCULATING CAPITAL refers to the total 14amount of current assets. 15

The way of increase varies according to the reason for the increase, and is left to the sound judgment of the board of directors, subject to ratification by the stockholders.

unjust. b)To register the 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.

elsewhere.

19 20 21UNDERWRITING AGREEMENT- It is an
22agreement between a corporation and a third 23person, termed the underwriter, by which the 24latter agrees, for a certain compensation, to take 25a stipulated amount of stocks or bonds, 26specified in the underwriting agreement, if such 27securities are not taken by those to whom they 28are first offered. 29

CAPITAL STOCK
- the amount paid in or secured to be paid in by the stockholders upon which the corporation is to conduct its operation. It is the property of the corporation itself (monetary value).

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.

30DISTINCTIONS :

UNDERWRITING AGREEMENT
1. The signers obligate themselves to take the shares of stock which cannot be sold. 2. Underwriters are usually allowed a commission. 3. In pure underwriting agreement, the signer can refuse to become a stockholder/ member of the company in pursuance of his contract with the promoter. 31 32

STOCK SUBSCRIPTION AGREEMENT


1. The obligation of the signer to the purchasers and to the public is absolute. 2. There is no commission. 3. He becomes a stockholder of the company and is liable to pay the amount due on the stock.

17 18DISTINCTIONS :
SHARE OF STOCK
1. unit of interest in a corporation

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

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

33MINIMUM CAPITAL STOCK REQUIRED 34(SEC. 12) 35

36GENERAL RULE : NO minimum required for 37capital stock. 38 Except: 39 1. Domestic Insurance Corporations 40 P500T capital stock; 50% subscribed 41 and the balance payable in 12 months. 42 2. Private Development Banks 43 P4M for class A 44 P2M for class B 45 P1M for class C 46 3. Investment Companies paid up at 47 least P500T

4 Page 23 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2 3 4 6 7 8

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

9AMOUNT OF CAPITAL STOCK TO BE 10SUBSCRIBED AND PAID FOR 11PURPOSES OF CORPORATION 12(SEC. 13): 13 14 25% of ACS must be subscribed at time of 16
17 18 19 15

incorporation; and 25% of total subscription must be paid upon subscription but must not be less than P5,000

20CLASSIFICATION OF SHARES (SEC. 6): 21


221. 23 24 25 262. 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 463. 47 48 49 50 51 53 54 55 56 57 58 59 60 61 63

PREFERRED SHARES issued with par value and preference may be to (a) assets after dissolution, (b) distribution of dividends and other preferences; REDEEMABLE SHARES (SEC. 8) are those which permit the issuing corporation to redeem or purchase its own shares. LIMITATIONS ON THE ISSUANCE OF REDEEMABLE SHARES: 1. Redeemable shares may be issued only when expressly provided for in the articles of incorporation (Sec. 8). 2. The terms and conditions affecting said shares must be stated both in the articles of incorporation and in the certificate of stock representing such share (Sec. 8). 3. Redeemable shares may be deprived of voting rights in the articles of incorporation, unless otherwise provided in the Code. TREASURY SHARES (SEC. 9) shares which have been earlier issued as fully paid and have thereafter been acquired by the corporation by purchase, donation, redemption or through some lawful means. 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. IF BY DONATION FROM THE STOCKHOLDERS the act would amount

105 108

64 to a surrender of their stock without getting 65 back their investments which are instead, 66 voluntarily given to the corporation. 67 684. FOUNDERS SHARE (SEC. 7); 695. NON-VOTING SHARES; 706. VOTING SHARES 717. COMMON SHARE is the basic class of 72 stock ordinarily and usually issued without 73 extraordinary rights and privileges and the 74 owners thereof are entitled to a pro rata 75 share in the profits of the corporation and in 76 its assets upon dissolution and likewise in 77 the management of its affairs without 78 preference or advantage whatsoever. 798. PROMOTERS SHARES are those issued 80 by mining corporations to owners of mines 81 who transferred their mining rights to such 82 corporations or they are shares issued to 83 promoters of a corporation. 849. ESCROW STOCK deposited with 3rd 85 person to be delivered to S/H or his assign 86 after complying with certain conditions, 87 usually payment of full subscription price; 8810. OVER-ISSUED STOCK are those issued 89 in excess of the authorized capital stock. 9011. WATERED STOCK issued as fully paid 91 when in fact it is not (Sec.65); 92 93WATER IN THE STOCK- It represents the 94difference between the fair market value at the 95time of the issuance of the stock and the par or 96issued value of said stock. Both par and no-par 97stocks can thus be watered stocks. 98 9912. PAR VALUE SHARES- value in fixed in the 100 articles of incorporation 10113. NO PAR VALUE SHARES- shares having 102 no par value but have issued value stated in 103 the articles of incorporation or to be fixed by 104 the Board 106 107 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128

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.

52

62

4 Page 24 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

40MATTERS WHERE HOLDERS OF NON41VOTING SHARES MAY VOTE (SEC. 6): 42


431. 44 452. 463. 47 484. 495. 50 516. 527. 53 548. 55

1 214. 3 415. 5 6 716. 8 9 10 1117. 12 1318. 14 15 16 17 18 1919. 20 21 22 2320. 24 25 2621. 27 28 29 3022. 31 32 3323. 34 35 36 37 38 39

DEBENTURE charged on the net earning and profit of the corporation; DEFERRED SHARES are those which are entitled to dividends after the payment of holders of common share. STOCK WARRANT security which entitle holder the right to subscribe to, or purchase from, the unissued capital stock of a corporation in the future; SCRIP applied to certificates issued by trustee in a voting trust; 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 CUMMULATIVE PREFERRED SHARES which entitle the holder thereof to payment of current dividends as well as dividends in arrears. NON-CUMMULATIVE which entitle the holder thereof only to the payment of current and not past dividends. PARTICIPATING which entitle the holder thereof to participate with the holders of common shares after their preferred rights has been satisfied. NON-PARTICIPATING which entitle the holder to payment of the stipulated preferred dividends and no more. 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.

73REACQUISITION BY CORPORATION OF 74ITS STOCK (SEC. 41): 75


761. 772. 78 793. 804. 81

65 66capital stock of the corporation is a trust fund for 67the payment of debts of the corporation which 68the creditors have the right to look up to satisfy 69their credits. Corporation may not dissipate this 70and the creditors may sue stockholders directly 71for the unpaid subscription. 72

to eliminate fractional shares; to compromise an indebtedness arising out of unpaid subscription; to purchase delinquent shares; and to exercise its right of appraisal.

82RIGHTS OF STOCKHOLDERS: 83
841. 85 86 87 882. 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 1073. 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127

DIRECT OR INDIRECT PARTICIPATION IN MANAGEMENT a. voting rights (Sec. 6); and b. right to remove directors (Sec. 28) 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. 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, director, officer or 3rd 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

amendment of Articles of Incorporation; adoption and amendment of by-laws; increase or decrease of bonded indebtedness; increase or decrease of capital stock; sale or disposition of all or substantially all of corporate property; merger or consolidation of corporation; investments of funds in another corporation or another business purpose; and corporate dissolution.

56DOCTRINE OF EQUALITY OF SHARES57Where the articles of incorporation do not 58provide for any distinction of the shares of stock, 59all shares issued by the corporation are 60presumed to be equal and enjoy the same rights 61and privileges and are also subject to the same 62liabilities. 63 64TRUST FUND DOCTRINE the subscribed

4 Page 25 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

12OBLIGATIONS OF A STOCKHOLDER:

1 and not to the particular 2 stockholder bringing the suit. 3 4PREEMPTIVE RIGHT OF STOCKHOLDERS 5shareholders right to subscribe to all issues or 6dispositions of shares of any class in proportion 7to his present stockholdings, the purpose being 8to enable the shareholder to retain his 9proportionate control in the corporation and to 10retain his equity in the surplus. 11

13 141. Liability to the corporation for unpaid 15 subscription (Sec. 67-70) 162. Liability to the corporation for interest on 17 unpaid subscription if so required by the by18 laws (Sec. 66) 193. Liability to the creditors of the corporation for 20 unpaid subscription (Sec. 60) 214. Liability for watered stock (Sec. 65) 225. Liability for dividends unlawfully paid (Sec. 23 43) 246. Liability for failure to create corporation 25 (Sec. 10) 26 27UNKNOWN STOCKHOLDER- They are owners 28of stock who cannot be located or identified. A 29trust relation is created between them and the 30corporation and their shares shall stand in the 31name of the corporation as a trustee. 32 33 HOW IDENTIFIED: 34 Through a publication in a newspaper of 35 general circulation. If this proves futile, it is 36 nevertheless the fiduciary duty of the 37 corporation to continuously hold such shares 38 as trustees for the owners, unless otherwise 39 escheated in accordance with law. 40

65g. Stock held in escrow cannot be voted until 66 the performances of a certain condition or 67 the happening of a certain event as 68 contained in the agreement. (opinion) 69 70CUMULATIVE VOTING S/H, being entitled to 71that number of votes that his number of shares 72multiplied by the number of directors to be 73elected will bring, may give all said votes to one 74candidate or he may distribute them among as 75many candidates as he sees fit (Sec. 24). 76 77PROXIES S/H and members may vote in 78person of by proxy in all meetings of S/H or 79members (Sec. 58). 80 FORM in writing, signed by the S/H or 81 member and filed before the scheduled 82 meeting with the corporate secretary. 83 PERIOD OF VALIDITY unless 84 otherwise provided in the proxy, it 85 should be valid only for the meeting for 86 which it is intended. No proxy shall be 87 valid and effective for a longer period 88 than five years at any one time. 89 Proxies are also considered as corporate 90 devise for securing voting control of the 91 corporation.

41LIMITATIONS ON THE STOCKHOLDERS 42RIGHT TO VOTE:


43a. 44 45 46 47 48 49b. 50 51 52c. 53 54 55d. 56 57 58e. 59 60 61 62f. 63 64

Where the articles of incorporation provides for classification of shares pursuant to Sec. 6, non-voting shares are not entitled to vote except as provided for in the last paragraph of Sec. 6. Preferred or redeemable shares may be deprived of the right to vote unless otherwise provided in the Code (Sec. 6). Fractional shares of stock cannot be voted unless they constitute at least one full share (Sec. 41). Treasury shares have no voting rights as long as they remain in the treasury (Sec. 57). Holders of stock declared delinquent by the board of directors for unpaid subscription are not entitled to vote or a representation at any stockholders meeting (Sec. 67). A transferee of stock cannot vote if his transfer is not registered in the stock and transfer book of the corporation (Sec. 63).

105 106DISTINCTIONS:
VOTING TRUSTS

971. 98 992. 100 1013. 102 1034. 1045.

92 93INSTANCES WERE THE RIGHT TO VOTE 94BY PROXY ARE EXPLICITLY PROVIDED 95FOR: 96

election of the board of directors or trustees (Sec. 24). voting in case of joint ownership of stock (Sec. 56). voting by trustee under voting trust agreement (Sec. 59). pledged or mortgaged share (Sec. 55). as provided for in its by-laws (Sec. 47 (4).

PROXY
1. The proxy holder votes as agent 2. The proxy must vote in person

1. The trustee votes as owner rather than as mere agent 2. The trust may vote in person or by proxy unless the agreement provides otherwise 3. The beneficial owner ceases to be recognized as a shareholder of

3. The principal in a proxy does not cease to be a stockholder

4 Page 26 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

record and the trustee 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 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 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

9. A proxy is usually of shorter duration although under Sec. 58 it cannot exceed 5 years at any one time 10. The right to vote is inherent in or inseparable from the right to ownership of stock

49METHODS FOR COLLECTION 50UNPAID SUBSCRIPTION (SEC. 68):


511. 52 532. 543. 55 56 57

18 19 20APPRAISAL RIGHT right to withdraw from the 21corporation and demand payment of the fair 22value of his shares after dissenting from certain 23corporate acts involving fundamental changes in 24corporate structure (Sec.81) 25 26 INSTANCES WHERE IT MAY BE 27 EXERCISED: 28 1. extension of duration of corporate term; 29 2. change in the rights of S/H, authorize 30 preferences superior to those S/H, or 31 restrict the right of any S/H; 32 3. S/H authorized the board to invest 33 corporate funds in another corporation; 34 4. S/H authorized board to engage in a 35 purpose other than main purposes 36 stated in the Articles; and 37 5. corporation decides to sell or dispose of 38 all or substantially all assets of 39 corporation. 40 41STOCK OPTION privilege granted to a party 42to subscribe to a certain portion of the unissued 43capital stock of a corporation within a certain 44period and under the terms and conditions of the 45grant exercisable by the grantee at any time 46within the period granted. The grant is not 47covered by any provision of the Code. 48

OF

call delinquency and sale at auction of delinquent shares; ordinary court actions (Sec. 70); and collection from cash dividends and other amounts due to S/H, if allowed by the bylaws, or agreed by him.

58PROCEDURE FOR THE 59DELINQUENT STOCKS: 60


611. 62 63 64 65 662. 67 68 69 70 71 72 73 74 75 76 773. 78 79 80 81

SALE

OF

1 2VOTING TRUST one or more S/H of a stock 3corporation may create a voting trust for the 4purpose of conferring upon a trustee or trustees 5the right to vote and other rights pertaining to the 6shares for a period not exceeding 5 years at any 7one time. However, if the voting trust was a 8requirement for a loan agreement, period may 9exceed 5 years but shall automatically expire 10upon full payment of the loan (Sec. 59). 11 12DIVIDENDS unrestricted retained earnings set 13apart from the general mass of funds of the 14corporation and distributed among the S/H in 15proportion to their shares or interest in the 16corporation, in the form of cash, property or 17stocks.

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. 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. 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

4 Page 27 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

16BOOKS REQUIRED TO BE KEPT (SEC. 1774): 18

1 week for two consecutive weeks. Notice 2 shall state the amount due on each 3 subscription plus accrued interest, and the 4 date, time and place of the sale which shall 5 not be less than 30 days not more than 60 6 days from the date the stocks become 7 delinquent. (Sec. 67-70) 8 9EFFECT OF DELINQUENCY: No delinquent 10stock shall be voted for or be entitled to vote or 11to representation at any stockholders meeting, 12nor shall the holder thereof be entitled to any 13rights of the stockholder except right to 14dividends. (Sec. 71) 15

28

191. Book of Minutes; 20 a. minutes of S/H meetings; and 21 b. minutes of board meetings. 222. Book of all business transactions; 233. Stock and transfer book 24 25MERGER one corporation absorbs the other 26and remains in existence while the other is 27dissolved (Sec. 76). 29CONSOLIDATION a new corporation is 30created, and consolidating corporations are 31extinguished (Sec. 76). 32

33PROCEDURE FOR 34CONSOLIDATION: 35


36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

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 Vice-

110SHORTENING OF CORPORATE TERM. 111HOW DONE: 112 113 It refers to the dissolution of a corporation 116
117 118 119 114 115

65 President and certified by secretary or 66 assistant secretary setting forth: 67 (i) plan of merger or 68 consolidation 69 (ii) for stock corporation, the 70 number of shares 71 outstanding; for non-stock, 72 the number of members; 73 (iii) as to each corporation, 74 number of shares or 75 members voting for and 76 against such plan 77 respectively 78 79 5. Four copies of the Articles of Merger or 80 Consolidation shall be submitted to the 81 SEC for approval. Banks, insurance 82 companies, building and loan 83 associations, trust companies, public 84 utilities, educational institutions and 85 other special corporations favorable 86 recommendation of government agency 87 concerned. 88 89 GENERAL RULE when one 90 corporation buys all the shares of 91 another corporation, this will not operate 92 to dissolve the other corporation and as 93 the two corporations still maintaining 94 their separate corporate entities, one will 95 not answer for the debts of the other. 96 97 Exceptions: 98 1. if there is an express assumption of 99 liabilities; 100 2. there is a consolidation or merger; 101 3. if the purchase was in fraud of 102 creditors; and 103 4. if the purchaser becomes a 104 continuation of the seller. 105 106CORPORATE TERM 50 years which may be 107subject to extension for another 50 years by 108amendment of Articles (Sec.11). 109

120

prior to the expiration of its term as fixed in the articles of incorporation. This is done by following the formal requirements of Sec. 16 (not mere written assent) and the procedural requirements of Sec. 37 of the Corporation Code.

125 126REQUISITES FOR AN EXTENSION OF 127CORPORATE TERM:


128

121EXTENSION OF CORPORATE TERM- It refers 122to the continuation of a corporation beyond the 123term originally fixed in the articles of 124incorporation.

4 Page 28 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

23EFFECTS OF NON-USE OF CORPORATE 24CHARTER AND CONTINUOUS 25INOPERATION OF CORPORATION (SEC. 2622): 27

11) The extension cannot be made earlier than 2 five (5) days prior to the original or 3 subsequent expiry date unless warranted by 4 a justifiable reason to be determined by the 5 SEC- for evaluation purposes. 62) There can be no more extension after the 7 expiration of the corporate term of existence 8 because there is no more corporate life to 9 extend and promote in such case. 103) It should be approved by 2/3 of the 11 outstanding capital stock. 12 13DOCTRINE OF RELATION- Where the failure 14to issue a new charter before the expiration of 15the old one is due solely to the fault of the clerk 16to whom application therefore is reasonably 17made, the new charter, when issued will relate 18back, and will be treated as taking effect from 19the day the corporation was entitled to have the 20charter issued. (Also see article 1174 of the 21NCC on fortuitous events). 22

50 51MODES OF DISSOLUTION OF A 52CORPORATION: 53


541. 55 56 57 58 59 60 61 62

281. NON-USER FOR 2 YEARS when the 29 corporation does not fully organize and 30 commence the transaction of its business or 31 the construction of its works within 2 years 32 from the date of its incorporation, its 33 corporate powers cease and the corporation 34 shall be deemed dissolved. Suspension or 35 cancellation of corporate franchise is not 36 automatic. 372. NON-USER FOR 5 YEARS when the 38 corporation has commenced the transaction 39 of its business but subsequently becomes 40 continuously inoperative for a period of at 41 least 5 years EXCEPT if reason for non-use 42 43or inoperation is beyond the control of the 44corporation. 45 46 47DISSOLUTION OF A CORPORATION 48extinguishment of the franchise of a corporation 49and the termination of its corporate existence.

VOLUNTARY DISSOLUTION a. where no creditors are affected (Sec. 118) Procedure: 1) administrative application filed with the SEC by a majority vote of the BOD 2) notice thru registered mail or delivered 30 days prior to the meeting

63 3) Publication of the notice for 3 64 consecutive weeks in a newspaper of 65 general circulation 66 4) Resolution approved by 2/3 of the OCS 67 5) Copy of Resolution Certified by majority 68 of BOD countersigned by secretary 69 70 71 b. where creditors are affected (Sec 119); 72 73 Procedure: 74 1) Petition signed by majority of 75 BOD/trustees/officers verified by 76 President/ Secretary/ Director 77 2) Claims and demands must be stated in 78 the petition 79 3) Stockholders approval representing 2/3 80 OCS 81 4) SEC order setting date for objections 82 5) Publication of the order and Posting 83 6) Hearing 84 7) Appointment of Receiver (if necessary) 85 86 c. by shortening corporate term 87 (Sec. 120). 88 89 Procedure: 90 1) Amendment of AOI 91 2) Publication 92 3) Oath undertaking by majority of SH or 93 officers to personally answer for 94 obligations 95 4) BIR clearance of tax liability 96 5) Listing of creditors and Consent to the 97 shortening of the term 98 6) Affidavit of assumption of liability by SH 99 7) Latest audited financial statement of 100 corporation 101 102 d. expiration of corporate term 103 1042. INVOLUNTARY DISSOLUTION (Sec. 121), 105 106 Procedure: 1071) Verified Complaint 1082) Proper Notice and Hearing in SEC 1093) Grounds 1104) failure to organize and commence business 111 within 2 years from incorporation;(Sec 22) 112 1135) Continuously inoperative for 5 years ( Sec 114 22) 1156) may be dissolved by SEC on grounds 116 provided by existing laws, rules and 117 regulations: 118 failure to file by-laws within 30 days from issue 119of certificate of incorporation. 120 Continuance of business not feasible as found 121by Management Committee or Rehabilitation 122Receiver 123 Fraud in procuring Certificate of Registration 124 Serious Misrepresentation 125 Failure to file required reports 126

4 Page 29 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1SEQUESTRATION- It means taking into


2custody or placing under the commissions 3control or possession any asset, fund or 4property as well as relevant records or 5documents, to prevent their concealment, 6destruction, impairment or dissipation pending 7determination of whether said asset, fund or 8property is ill-gotten wealth under EOs 1 and 2. 9 10FREEZE ORDER- It is an order intended to 11stop or prevent any act or transaction which may 12affect the title, possession, status, condition, 13integrity or value of the asset of property which 14is or which might be the object of any action or 15proceeding under EOs number 1 and 2. 16

64 65 66 67 68 69 70 71 72 74

a. with license : may sue and be sued in the Philippines; b. without license : cannot sue but may be sued in the Philippines. 2. Foreign corporation not doing business in the Philippines, on isolated transaction may sue and be sued.

73CLOSE CORPORATIONS 75REQUIREMENTS FOR CLOSE 76CORPORATIONS (SEC. 96): 77


781. 792. 80 813. 82 83 84 86 87 88 90 91 92 93 94 95 96 97 98 99

17LIQUIDATION:
18 19Process by which all the assets of the 20corporation are converted into liquid assets 21(cash) in order to facilitate the payment of 22obligations to creditors, and the remaining 23balance if any is to be distributed to the SH or 24members. 25 26Three Modes of Liquidation: 27 28 1. By BOD / Trustee 29 2. Conveyance to a trustee made within 30 three year period 31 3. By management committee or 32 rehabilitation receiver

number of stockholders not to exceed 20; restriction on the transfer ; preemption in favor of the stockholder or the corporation; the stocks cannot be listed in the stock exchange nor should they be publicly offered. Special type of close corporation 2/3 of the voting stocks or voting rights is owned or controlled by another corporation which is not a close corporation. The following cannot be a close corporation: a. mining companies; b. oil companies; c. stock exchanges; d. banks; e. insurance companies; f. public utility; g. education institution; h. other corporation declared to be vested with public interest.

85

89

33 34FOREIGN CORPORATION corporation


35formed, organized or existing under any law 36other than those of the Philippines, and whose 37laws allow Filipino citizens and corporations to 38do business in its own country or state (Sec. 39123). 40 41 DOING BUSINESS implies a community 42 of commercial dealings and arrangements, 43 and contemplates to some extent the 44 performance of acts or works or the exercise 45 of some functions normally incident to and in 46 progressive prosecution of, the purpose and 47 object of its organization. (Continuity Test) 48 49 DOCTRINE OF ISOLATED TRANSACTION 50 Foreign corporation can sue or be sued on a 51 transaction or series of transaction set apart 52 53 from the common business of a foreign 54 enterprise in the sense that there is no 55 intention to engage in a progressive pursuit 56 of the purpose and object of business 57 transaction

100RESTRICTIONS ON TRANSFERS the


101restrictions in the transfer of the stocks must 102appear (Sec. 98): 103 1041. in the articles; 1052. in the by-laws; and 1063. on the stock certificates. 107 108 Restriction on the transfer must not be 109 onerous than granting the existing SH or 110 corporation the option to purchase the 111 shares 112

113 114PREEMPTIVE RIGHT IN CLOSE 115CORPORATIONS shall extend to all stocks


116to be issued, including re-issuance of treasury 117share, whether for money or property or 118personal services, or in payment or corporate 119debts, unless the articles of incorporation 120provide otherwise (Sec. 102). 121

58 59 60 61

SUABILITY OF FOREIGN CORPORATIONS:


1. Foreign corporation doing business in the Philippines

62 63

122CHARACTERISTICS 123CORPORATIONS: 124

OF

CLOSE

1251. S/H act as directors without need of election 126 and therefore are liable as directors;

4 Page 30 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

12. 23. 3 4 54. 6 7 8 95. 106. 11 127. 13 14 16

Quorum may be greater than mere majority; Transfers of stocks to others, which would increase the number of S/H to more than the maximum are invalid; 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; Preemptive right extends to all stock issues; Deadlocks in board are settled by the SEC, on the written petition by any S/H; and S/H may withdraw and avail of his right of appraisal.

63RELIGIOUS CORPORATIONS 65KINDS (SEC. 109): 66


671. 68 69 70 71 72 732. 74 75 76 77 64

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 RELIGIOUS SOCIETIES non-stock corporation governed by a board but with religious purposes.

15NON-STOCK CORPORATIONS 17DEFINITION- corporation where no part of its


18income is distributable as dividends to (Sec. 87): 19 a. members; 20 b. trustees; and 21 c. officers. 22 Except at dissolution. 23 24DISPOSITION OF PROFITS- for furtherance 25of purpose or purposes of the corporation. 26 27CONDITIONS: necessary and proper (Sec. 88) 28

78SECURITIES AND EXCHANGE 79 COMMISSION 80 REORGANIZATION 81 DECREE (P.D. 902-A)


82 83 84Sec. 2,4, 8 repealed by RA 8799:

29PURPOSES:
30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

a. b. c. d. e. f. g. h. i. j. k.

charitable; religious; educational; professional; cultural; fraternal; literary; scientific; social; civic service; and similar purposes, such as chambers or combinations for i. trade; ii. industry; iii. agricultural.

46DISTRIBUTION OF ASSETS ON 47DISSOLUTION OF NON-STOCK 48CORPORATION (SEC. 94): 49

106GROUNDS FOR SUSPENSION OR 107CANCELLATION OF CERTIFICATE OF 108REGISTRATION (SEC. 6 (L)): 109


1101. 1112. 112 1133. 1144. 1155. 116 1176. 1187. 119

921. 93 94 952. 96 97 983. 99 1004. 101 102 103 104 105

85 86ORIGINAL AND EXCLUSIVE 87JURISDICTION OF THE COURTS OF 88GENERAL JURISDICTION/ RTC (SEC. 5 89PD 902-A IN RELATION TO SEC. 5.2 RA 908799): 91

fraudulent devices and schemes employed by directors detrimental to the public interest and to other firms; intra-corporate dispute and with the state in relation to their franchise and right to exist as such; controversies in election, appointment of directors or trustees; and petition to be declared in state of suspension of payments. -SEC HAS JURISDICTION TO PETITIONS FILED AS OF JUNE 30, 2000.

62

501. all its creditors shall be paid; 512. assets held subject to return on dissolution, 52 shall be delivered back to their givers; 533. assets held for charitable, religious, etc., 54 without a condition for their return on 55 dissolution, shall be conveyed to one or 56 57more organizations engaged in similar activities 58as dissolved corporation; and 594. all other assets shall be distributed to 60 members, as provided for in the Articles or 61 by-laws.

fraud in procuring registration; serious misrepresentation as to objectives of corporation; refusal to comply with lawful order of SEC; continuous inoperation for at least 5 years; failure to file by-laws within required period; failure to file reports; and other similar grounds.

120 121 122


123

REPUBLIC ACT 8799 THE SECURITIES REGULATION CODE

4 Page 31 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1PURPOSES OF SECURITIES ACT


21. 3 42. 5 63. 74. 85. 96. 10 117. 12 13 14

establish a socially conscious self-regulating free market encourage the widest participation of ownership in enterprises enhance democratization of wealth promote development of capital market protect investors enhance full and fair disclosure about securities minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices

15POWERS AND FUNCTIONS OF THE 16SEC (SEC. 5)


17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

1. 2. 3. 4. 5. 6. 7.

8.

9. 10.

11.

jurisdiction/supervision over corporations, partnerships, and grantees of primary franchise approve, reject registration statements/licensing applications Suspend, revoke, after notice and hearing primary franchise on grounds regulate/supervise activities of persons to ensure compliance Supervise monitor, suspend or take over, exchanges, clearing agencies and SROs Recommend policies, advise, propose legislation to Congress on securities market Prepare, approve, amend or repeal rules, regulations, issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code. Issue cease and desist orders to prevent fraud or injury to the investing public Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision.

86
87 88 89 90 91 92 93 941. 952. 96

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85

13.

Commission and in appropriate cases, order the examination, search and seizure of all documents, papers and files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws 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.

Securities shall not be sold and offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission may prescribe, shall be made available to each prospective purchaser. (Sec. 8.1) EXCEPTIONS: Exempt securities; and Exempt Transactions

97EXEMPT SECURITIES (SEC. 9): 98


991. 100 101 102 103 104 1052. 106 107 108 109 110 111 112 1133. 114 115 1164. 117 118 119 120 121 1225. 123

12.

Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the

124 125EXEMPT TRANSACTIONS (SEC. 10): 126

Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by and acting as an instrumentality of said Government. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision or agency thereof on the basis of reciprocity: Provided, That the Commission may require compliance with the form and content of disclosures the Commission may prescribe. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and land Use Regulatory Board, or the Bureau of Internal Revenue. Any security issued by a bank except its own shares of stock.

4 Page 32 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

11. 2 3 42. 5 63. 74. 85. 9 106. 11 12 13 14 15 167. 17 18 198. 20 21 229. 2310. 24 2511. 26 2712. 2813. 29 3014. 3115. 32 33 34 35 36 3716. 3817. 39 40

Judicial sale by executor, administrator, guardian/receiver in insolvency or bankruptcy. Sale of pledged or foreclosed property to liquidate debts. sale on isolated transactions by owner . Distribution of stock dividends. Sale of capital stock to stockholders where no commission is paid 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. Issuance of security in exchange of any security from same issuer pursuant to right of conversion. Brokers transactions, executed upon customers orders on any registered Exchange or other trading market. Pre-incorporation subscription. Exchange of securities by issuer with securities holders exclusively Sale to less than 20 persons during any 12 month period Sale of securities to banks Sale of securities to registered investment houses Sale of securities to insurance company 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 Sale of securities to investment company Sale of securities to such other person as the Commission may rule determine as qualified buyers

82 83SUSPENSION OF REGISTRATION 84(SEC. 15): 85


861. 87 88 89 902. 91 92 933. 94 95 96 97 984. 99 100

65 662. 67 68 69 70 713. 72 73 74 75 76 77 78 794. 80 81

The registration statement is on its face incomplete or inaccurate or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein. 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 Any issuer who refuses to permit the examination to be made by the Commissioner.

If any time, the information contained in the registration statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect; or The sale or offering for sale of the security registration there under may work or tend to work a fraud; Pending investigation of the security registered to ascertain whether the registration of such security should be revoked on any ground specified in this Code; and Refusal to furnish information required by the Commission.

101UNLAWFUL ACTS: 102


1031. For any beneficial owner, director, or officer 104 to sell any security if the seller or his 105 principal does not own or does not deliver it 106 within 20 days from sale. (Sec. 23.3) 1072. Manipulation of security prices. (Sec. 24.1) 1083. Employment of manipulative or deceptive 109 device or contrivance in connection with 110 purchase and sale of authorities. Short sale, 111 stop loss order be effected only in 112 accordance with rules of SEC. (Sec. 24.2) 113 114SHORT SALE when seller does not own or 115control the securities he is selling, and therefore, 116cannot himself supply the securities for delivery. 117 118STOP-LOSS ORDER an order to broker to 119sell or buy stock as soon as the market price 120reaches a designated figure. 121 1224. For any member of Exchange directly or 123 indirectly endorse or guarantee the 124 performance of any put, call, straddle, option 125 or privilege in relation to any security 126 registered. (Sec. 25) 127

41 42GROUNDS FOR REJECTION AND 43REVOCATION OF REGISTRATION (SEC. 4413): 45


461. 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

The issuer: a) Has been judicially declared insolvent b) Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the Commission of which the issuer has notice in connection with the offering for which a registration statement has been filed. c) Has been or is engaged or is about to engage in fraudulent transactions. d) Has made any false or misleading representations of material facts in any prospectus concerning the issuer or its securities e) Has failed to comply with any requirement that the Commission may impose as a condition for registration of the security for which registration statement has been filed

4 Page 33 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1PUT an option that, in consideration of


2premium paid, gives the purchaser the right top 3make the seller take from him a given number of 4 5shares of a named stock between a given time 6at a stipulated price, which is usually below a 7prevailing market price of the stock at the time 8the put is purchased.

9 10CALL an option that in consideration of


11premium paid entitles buyer the right to compel 12seller to deliver to him a certain number of share 13of named stock within a given time at a 14stipulated price which is usually higher than the 15prevailing market price at the time the call is 16bought. 17 18STRADDLE double privilege of a put and a 19call, and secures to holder the right to demand 20of seller at a certain price within a certain time a 21certain number of shares of specified stock, or to 22require him to take, at the price within the time, 23the same shares of stock. 24 25WASH SALE- to effect any transaction in any 26security which involves no change in the 27beneficial ownership thereof. 28 29SHORT SWING TRANSACTION one where 30a person buys securities and sells the same 31within a period of six months. 32 335. Fraudulent transactions (Sec.26); 346. insider trading (Sec. 27) 35 36 INSIDER TRADING it shall be unlawful 37 for an insider to sell or buy a security of the 38 issuer, while in possession of material 39 information with respect to the issuer or the 40 security that is not generally available to the 41 public unless: 42 (a) The insider proves that the 43 information was not gained from 44 such relationship, or 45 (b) If the other party selling to or buying 46 from the insider (or his agent) is 47 identified, the insider proves: 48 (i) that he disclosed the information 49 to the other party, or 50 (ii) that he had reason to believe that 51 the other party otherwise is also 52 in possession of the information. 53 54INSIDER means: 55 a. The issuer 56 b. A director or officer (or person 57 performing similar functions) of, or a 58 person controlling the issuer 59 c. A person whose relationship or former 60 relationship to the issuer gives or gave 61 him access to material information about 62 the issuer or the security that is not 63 generally available to the public

78

64 65 66 67 68 69 70 71 72 73 74 757. 76 77

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 e. A person who learns such information by a communication from any of the foregoing insiders. (SEC. 3.8)

For insider to communicate material nonpublic information about issuer or security. (SEC 27.3)

79 MATERIAL NON-PUBLIC INFORMATION 80 a. If It has not been generally disclosed 81to the public and would likely to affect the market 82price of the security after being disseminated to 83the public and the lapse of a reasonable time for 84the market to absorb the information; or 85 b. Would be considered by a reasonable 86person important under the circumstances in 87determining his course of action to buy, sell or 88hold security. (SEC 27.2) 89 908. Unlawful Tender Offer (Sec 27.4) 919. Use of Extensive Credit (Sec48.1) 92 93MARGIN sum of money, or its equivalent, 94placed in the hands of a stockbroker by principal 95or persons on whose account the purchase is to 96be made, as a security to the former against 97losses to which he may be exposed by a 98subsequent depression in the market value of 99the stock. 100 Credit extended must not be 101greater than which ever is higher of 102 103 a.65% of current market price of 104 the security 105 b. 100% of lowest market price 106 of security during preceding 36 107 calendar months but not greater 108 than 75% of the current market 109 price.

4 Page 34 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

2 3 4 CORPORATE ACT NUMBER OF VOTES FOR BOD


Majority Vote

CORPORATE ACTS
NUMBER OF VOTES OF SHAREHOLDERS
Vote or written assent of 2/3 OCS SH or Members

PROCEDURE / OTHER REQUIREMENTS

1. Amendment of AOI (Sec 16)

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

2. Election of Directors or Trustees ( Sec 24 )

Majority of OCS / members

Candidates with a highest number Cumulative voting: No. of shares x No. of directors to be elected Non-voting shares cannot vote

3. Removal of Directors or Trustees (Sec 28)

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)

2/3 of OCS or members

The contract must be fair and reasonable under circumstances Full disclosure of adverse interest of directors or trustees involved

4 Page 35 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2

5.

Extension or shortening of corporate term (Sec 37 )

Majority vote

2/3 OCS or members

Non-voting can vote Appraisal Right available Notice requirement Meeting for the amendment of AOI

6. Election of officers (Sec 25) 7. Increase or decrease of capital stock ( Sec 38 )

Majority vote of all the members of BOD Majority vote 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

8. Incur, Create , Increase Bonded Indebtedness

Majority vote

2/3 OCS or members

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

2/3 OCS or members

3
4 Page 36 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2 3 4 5

10. Investment of Corporate Funds to another Corporation or business for any other purpose other than primary purpose (Sec 42)

Majority Vote

2/3 OCS or members

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

11. Issuance of Stock Dividends ( Sec 43 )

Majority of the quorum

2/3 OCS

Out of unrestricted retained earnings

12. Management Contract ( Sec 44)

Majority of the vote of BOD of both managing and managed corporation

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 Non-voting can vote Delegation can be revoked by majority OCS Non-voting cannot vote

13. Adoption of By- laws (Sec 46) 14. Amendment or repeal of By laws or Adoption of New By-Laws ( Sec 48) 15. Delegation of the Power to Amend, Repeal or Adopt New By Laws to BOD (Sec 48 ) 16. Fixing the issued Price of No- Par Value shares (Sec 62, last paragraph)48) Majority of Quorum of BOD Majority vote

Majority of OCS 2/3 OCS

Majority of OCS if BOD not authorized by AOI

4 Page 37 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

if authorized by AOI
1 2 3 4

17. Merger or Consolidation (Sec 77 )

Majority of BOD of constituent corporation Majority Vote

2/3 OCS / members of constituent corporation 2/3 OCS / members

Non-voting can vote Appraisal right available but if plan is abandoned right is extinguished Read Sections 117-122 Non-voting can vote

18. Dissolution of Corporation (Sec 118 and 119 )

19. Adoption of plan or distribution of assets of non-stock corporation ( Sec 95 par 2) 20. Ratification of act of disloyal director 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 23. Denial of pre-emptive right

Majority Vote of Trustees

2/3 of members having voting rights 2/3 OCS

Majority vote of remaining directors if quorum still exists Directors action 2/3 OCS approval

If no quorum stockholders to elect

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

24. Fixing compensation for directors

4 Page 38 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON (EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie 6Parafina, Joanne Tatel, Darius Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone Japson, Jinky Manguntalao, Lenie Basilio, Wilfred 7Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle Antonio, Jil, Reina, Macky Macaldo 8

1III. INSURANCE LAW 3INSURANCE


2

9REQUISITES OF INSURANCE: 10

contract whereby one 4undertakes for a consideration to indemnify 5another against loss, damage or liability arising 6from an unknown or contingent event (Sec. 2, 7par. 2). 8

67II. UBERRIMA FIDES CONTRACT 69


70 71 72 73 74 76 77 78 79 68

64 65 66

themselves have employed clear and unambiguous words.

27DOING AN INSURANCE BUSINESS OR 28TRANSACTING AN INSURANCE 29BUSINESS (Sec. 2, par. 4) INCLUDES: 30


311. 32 332. 34 35 36 373. 38 394. 40

111. existence of an insurable interest (Secs. 1212 14); 132. risk of loss (Sec. 51, par. 9); 143. assumption of risks ( Sec. 2); 154. scheme to distribute losses; and 165. payment of premiums (Sec. 77). 17 18GENERAL RULE: a future event is the only 19event that can be covered by an insurance 20contract. 21 22Exception: a past event may be covered by a 23marine insurance if the loss of the vessel in 24the past could not have been known by ordinary 25means of communication. 26

75

Contract of insurance is one of perfect good faith not for the insured alone, but equally so for the insurer; in fact it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility. It requires the parties to the contract of insurance to disclose any material fact, which the applicant knows, or which he ought to know.

80III. RIGHT OF SUBROGATION 81 82 Insurer who pays shall be subrogated to 85


86 87 88 89 90 91 92 93 94 83 84

41 42PRINCIPLES: 43 44I. CONTRACT OF ADHESION OR FINE 45PRINT RULE 46 47 Insurance is a contract of adhesion
48 49 50 51 52 53 54 55 56 57 59 60 61 62 63

making or proposing to make as insurer, any insurance contract; making or proposing to make, as surety any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety; doing any insurance business like reinsurance and similar acts and; doing or proposing to do any business equivalent to above.

95

110IV. INDEMNITY 112


111

96 97 98 99Exceptions: there can be no subrogation if: 100 1011. The insured by his own act releases the 102 wrongdoer/third person liable for the 103 loss. (Manila Mahogany 104 Manufacturing Corporation vs. CA) 1052. Where the insurer pays the insured for a 106 loss or risk not covered by the policy. 107 (Pan Malayan Insurance Company vs. 108 CA, 184 SCRA 54) 109

the rights of insured against wrongdoer or person who has violated contract. The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer an assignee in equity (Article 2207, NCC). However, the insurer can only recover from the third person what the insured could have recovered.

considering that the most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may adhere if he chooses but which he cannot change. Hence, in case of doubt, the contract shall be interpreted strictly against the insurer and liberally in favor of the accused. However, if the terms of the contract are clear, there is no room for interpretation and the courts are bound to adhere to the insurance contract although the contract maybe rather onerous. Courts cannot make a new contract for the parties where they

58

The contract of insurance is a contract 113 of indemnity. It is the basis of all 114 property insurance. It simply means 115 that the insured that has insurable 116 interest over a property is only entitled 117 to recover the amount of actual loss 118 sustained and the burden is upon him to 119 establish the amount of such loss. Any 120 contract of property insurance that gives 121 to the insured more than indemnity 122 against his actual loss that may be 123 suffered by reason of designated perils 124 is wagering policy. 125 126NOTE: Applicable only to property 127insurance, except creditor insuring the life of 128his debtor.

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

2TYPES OF INSURANCE CONTRACTS: 3


41. 5 6 7 8 9 102. 11 12 13 14 153. 16 17

LIFE INSURANCE; a. individual life (Secs. 179 183, 227); b. group life ( Sec. 50, last paragraph, 228); and c. industrial life (Secs. 229 231). NON-LIFE INSURANCE a. Marine (Secs. 99 166); b. Fire (Secs. 167 173); and c. Casualty (Sec. 174). CONTRACTS OF SURETYSHIP (Secs. 175 178).

18PARTIES TO INSURANCE CONTRACT: 19


201. 21 222. 23 24 253. 26 27 28i. 29 30 31 32 33 34ii. 35 36 37 38iii. 39 40

INSURER person who undertakes to indemnify another; INSURED person with capacity to contract and having an insurable interest in the life or property of the insured; and BENEFICIARY person designated to receive proceeds of policy when risk attaches. Beneficiary of one who insures his own life as a general rule, may designate any person as the beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured. Exception: Art. 739 of the Civil Code Beneficiary of life insurance on the life of another person person who procured the insurance on the life of another must have an insurable interest. Beneficiary of property insurance must have an insurable interest.

41EFFECTS OF IRREVOCABLE 42DESIGNATION OF BENEFICIARY:


43 44Insured cannot: 45 1. assign the policy 46 2. take the cash surrender value of the 47 policy 48 3. allow his creditors to attach or execute 49 on the policy; 50 4. add new beneficiary; or 51 5. change the irrevocable designation to 52 revocable, even though the change is 53 just and reasonable. 54 55INSURABLE INTEREST interest which the 56law requires a person making a contract of 57insurance to have in the person or thing insured 58to prevent the contract from becoming a 59wagering contract. 60 61INSURABLE INTEREST IN LIFE interest 62which a person has in his life, or interest which

63he may have in the lives of other persons 64(Sec. 10): 651. on whom he depends wholly or in part 66 for education or support; 672. under legal obligation to him to pay 68 money, to deliver property, or to render 69 service; or 703. upon whose life any estate or interest 71 vested in him depends. 72 73GENERAL RULE: In life insurance, there is 74no limit in the amount the insured can insure 75his life. 76 77Exception: in creditor-debtor relationship 78where the creditor insures the debtor, the 79limit of insurable interest is equal to the 80amount of the debt. 81 82NOTE: Insurable interest in the life of 83another need exist only at the time of 84perfection of the contract and need not exist 85thereafter. 86 87INSURABLE INTEREST IN PROPERTY 88every interest in property whether real or 89personal, or any relation thereto, or liability 90in respect thereof, of such nature that the 91contemplated peril might directly damnify the 92insured (Sec. 13), which may consist in 93(Sec. 19): 94 95 1. an existing interest; 96 2. any inchoate interest founded 97 on an existing interest; or 98 3. any expectancy coupled with an 99 existing interest in that out of 100 which the expectancy arises. 101 102NOTE: Expectancy is not insurable unless 103coupled with an interest in the thing from 104which it shall arise. 105 106 Example: an owner of a business can 107 insure against a contingency which may 108 cause loss of profits resulting from the 109 cessation or interruption of his business. 110 (See Sec. 14, ICP) 111 112NOTE: Insurable interest must exist in the 113same person both at the perfection of the 114contract as well as the time of loss. In 115between, the effect of loss of insurable 116interest is merely to suspend the policy. 117(Sec. 20, ICP) 118 119Exceptions: 1201. in case of life, health and accident 121 insurance (Sec. 20); 1222. change in interest results after 123 occurrence of an injury which results in 124 a loss (Sec. 21)

4 Page 41 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

19DISTINCTIONS:
Insurable interest in Life Insur ance 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).
20

13. 2 3 44. 5 65. 7 8 9 106. 11 12 13 147. 15 16 17 18

change in interest in one or more several distinct things separately insured by one policy (Sec. 22); change in interest by will or succession on death of insured (Sec. 23); transfer of interest by one of several partners, joint partners, or owners in common who are jointly insured, to others (Sec. 24). 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); 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).

41DEVICES USED FOR ASCERTAINING 42AND CONTROLLING RISK AND 43LOSS: 44

40

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. 3. insurable interest limited to value of interest in property insured (Sec. 19).

21INSURABLE INTEREST OF 22MORTGAGOR AND MORTGAGEE OVER 23MORTGAGED PROPERTY. 25


26 27 28 30 31 32 33 24

29

34 35 36 37 38 39

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.

80CONCEALMENT

451. CONCEALMENT: A neglect to 46communicate that which a party knows and 47ought to communicate (Sec. 26, ICP) 482. REPRESENTATION: are factual 49statements made by the insured at the time 50of or prior to the issuance of the policy to 51give information to the insurer and other 52wise induce him to enter into the insurance 53contract. 543. WARRANTIES: are statements or 55promise by the insured set forth in the policy 56itself or incorporated in it by proper 57reference, the untruth or nonfulfillment of 58which in any respect and without reference 59to whether the insurer was in fact prejudiced 60by such untruth or nonfulfillment. The same 61may be expressed, implied, affirmative or 62promissory. 634. CONDITION: The insurer must also 64protect himself against fraudulent claims of 65loss and this he attempts to do by inserting 66in the policy various conditions which take 67the form of conditions precedent. For 68instance, there are conditions requiring 69immediate notice of loss or injury and 70detailed proofs of loss within a limited 71period. 72 73Exceptions: It makes more definite the 74coverage indicated by the general 75description of the risk by excluding certain 76specified risk that otherwise would be 77included under the general language 78describing the risks assumed. 79 81 82TEST OF MATERIALITY: determined not by 83the event, but solely by the probable and 84reasonable influence of the facts upon the 85party to whom the communication is due, in 86forming his estimate of the disadvantages of 87the proposed contract, or in making his 88inquiries (Sec. 31).

4 Page 42 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

28 29WARRANTY 31
32 33 34 35 36 37 38 30

1 2EFFECTS OF CONCEALMENT: vitiates the 3contract and entitles insurer to rescind, even if 4the death or loss is due to a cause not related to 5the concealed matter (Sec. 27). 6 7REPRESENTATION oral or written statement 8of a fact or condition affecting the risk, made by 9insured to insurer, tending to induce insurer to 10assume risk (Sec.36). 11 12KINDS (Sec.39): 13 141. AFFIRMATIVE affirmation of a fact when 15the contract begins; and 162. PROMISSORY promise to be performed 17after policy was issued. 18 19TEST OF MATERIALITY: determined by the 20probable and reasonable influence of the facts 21on the party on whom communication is due, in 22forming his estimate of the contract, risks and 23premium (Sec. 31) 24 25EFFECTS OF MISREPRESENTATION: injured 26party entitled to rescind from the time when the 27representation becomes false.

53INCONTESTABILITY CLAUSE - After a


54policy of life insurance made payable on the 55death of the insured shall have been in force 56during the lifetime of the insured for a period 57of two years from the date of its issue or of 58its last reinstatement, the insurer cannot 59prove that the policy is void ab initio or is 60rescindible by reason of the fraudulent 61concealment or misrepresentation of the 62insured or his agent. 63

52

64REQUISITES FOR 65INCONTESTABILITY CLAUSE:

77DEFENSES NOT BARRED BY 78INCONTESTABILITY CLAUSE:


79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

66 671. It is payable on the death of the insured 682. It has been in force during the lifetime of 69the insured for at least 2 years from its date 70of issue or of its last reinstatement (Sec. 48, 71ICP) 72 73NOTE: The period of 2 years may be 74shortened but it cannot be extended by 75stipulation. 76

statement or promise set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable.

39KINDS (Sec. 67): 40


41 1. EXPRESS; and 42 2. IMPLIED only found in marine insurance, 43deemed included in the contract, although not 44expressly mentioned. 45 46EFFECT OF BREACH OF WARRANTY 47gives insurer the right to rescind (Secs. 74-76).

48 49DISTINCTIONS: 50
WARRANTY

1. That the person taking the insurance lacked insurable interest as required by law; 2. That the cause of the death of the insured is an excepted risk; 3. That the premiums have not been paid (Secs. 77,227[b], 228[b], 230[b].); 4. That the conditions of the policy relating to military or naval service have been violated (Secs. 227[b], 228[b].); 5. That the fraud is of a particularly vicious type; 6. That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; or 7. That the action was not brought within the time specified.

101POLICY OF INSURANCE written


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.

1. Part of the contract. 2. written on the policy, actually or by reference 3. conclusively presumed material. 4. must be strictly complied with.
51

104 105CONTENTS OF POLICY (Sec.51): 106


1071. 1082. 109 1103. 1114. 1125. 113

102instrument in which a contract of insurance 103is set forth (Sec. 49)

parties amount of insurance, except in open or running policies; rate of premium; property or life insured; interest of the insured in the property if he is not the absolute owner;

4 Page 43 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

21GROUNDS FOR CANCELLATION OF 22POLICY (EXCEPT LIFE INSURANCE 23POLICY) (SEC. 64): 24
251. 262. 27 283. 29 304. 31 32 335. 34 356. 36 37 38

16. risk insured against; and 27. duration of the insurance. 3 4BINDING RECEIPT merely an 5acknowledgment on behalf of the company that 6their branch office had received from the 7applicant the insurance premium and had 8accepted the application subject to processing 9by the head office. 10 11COVER NOTE a concise and temporary 12written contract issued to the insurer through its 13duly authorized agent embodying the principal 14terms of an expected policy of insurance. It is 15intended to give insurance protection coverage 16to the applicant pending the acceptance or 17rejection of his application. Not exceeding 60 18days unless a longer period is approved by 19Insurance Commissioner (Sec. 52). 20

69INSURED ENTITLED TO RETURN OF 70PREMIUMS PAID: 71


721. 73 742. 75 763. 774. 78 79 805. 81 82 836. 84 857. 86 87

64Exceptions: 65 1. Credit agreement 66 2. Acknowledgement in the policy 67 (Sec. 78) 68

If thing insured was never exposed to the risks insured against (Sec. 79); Contract is voidable due to the fraud or misrepresentation of insurer; Insurer never incurred liability (Sec. 81); When the insurance is for a definite period and the insured surrenders his policy before the termination thereof; Contract is voidable because of the existence of facts of which the insured was ignorant without his fault; When there is over-insurance (Sec. 82) and; When rescission is granted due to the insurers breach of contract.

non-payment of premium; conviction of a crime out of acts increasing the hazard insured against; discover of fraud or material misrepresentation; discovery of willful or reckless acts of omissions increasing the risk nsured against; physical changes in property making the property uninsurable; and determination by the Insurance Commissioner that the policy would violate the Insurance Code.

88DOUBLE INSURANCE exists where


89same person is insured by several insurers 90separately in respect to same subject and 91interest 92(Sec. 93).

39KINDS OF POLICIES: 40
411. 42 43 442. 45 46 473. 48 49 50 51

OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained at time of loss (Sec.60); VALUED POLICY definite valuation is agreed by both parties, and written on the face of policy (Sec. 61);and RUNNING POLICY contemplates successive insurances and which provides that the subject of the policy may from time to time be defined (Sec. 62).

52PREMIUM consideration paid an insurer for


53undertaking to indemnify the insured against a 54specified peril (Sec. 77). 55 56NOTE: Notwithstanding any agreement to the 57contrary, no policy or contract of insurance 58issued by an insurance company is valid and 59binding unless and until the premium thereof has 60been paid, except in the case of a life or an 61industrial life policy whenever the grace period 62provision applies. 63

971. The person insured is the same; 982. Two or more insurers insuring 99 separately; 1003. The subject matter is the same; 1014. The interest insured is also the same; 1025. The risk or peril insured against is 103 likewise the same. 104 105EFFECTS OF DOUBLE INSURANCE: 106where double insurance is allowed, but over 107insurance results, he can claim in case of 108loss only up to the agreed valuation or up to 109the full insurable value from any, some or all 110insurers, without prejudice to the insurers 111ratably apportioning the payments. Insured 112can also recover before or after the loss, 113from both insurers the excess premium he 114has paid (Sec. 94). 115 116REINSURANCE a contract by which the 117insurer procures a 3rd person to insure him 118against loss or liability by reason or such 119original insurance (also known as 120Reinsurance Cession) (Sec. 95).

93 94REQUISITES OF DOUBLE 95INSURANCE: 96

121 122

In every reinsurance, the original 123contract of insurance and the contract of 124reinsurance are covered by separate 125policies.

4 Page 44 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

2DISTINCTIONS : 3

41MARINE

DOUBLE INSURANCE (Sec. 93)

REINSURANCE (Sec. 95)


1. insurance of different interest 2. insurer becomes an insured in relation to reinsurer. 3. original insured has no interest in reinsurance contract. 4. subject of insurance is the original insurers risk. 5. consent of original insured, not necessary

1. involves same interest 2. insurer remains in such capacity 3. insured in the 1st contract is a party in interest in the 2nd contract 4. subject of insurance is property 5. insured has to give his consent
4

48COVERAGE OF MARINE INSURANCE

INSURANCE insurance 42against risks connected with navigation, to 43which a ship, cargo, freightage, profits or 44other insurable interest in movable property, 45may be exposed during a certain voyage or 46a fixed period of time (Sec. 99). 47

5LOSS - injury or damage sustained by insured


6from perils insured against. 7 8PROXIMATE CAUSE active efficient cause 9which sets in motion a train of events which in 10turn brings about a result without intervention of 11any force operating and working actively from a 12new and independent force. 13

49(SEC. 99): 50 511. vessels, goods, freight, cargo, 52 merchandise, profits, money, valuable 53 papers, bottomry and respondentia, and 54 interest in respect to all risks or perils of 55 navigation; 562. persons or property in connection with 57 marine insurance; 583. precious stones, jewels, jewelry and 59 precious metals whether in the course of 60 transportation or otherwise; and 614. bridges, tunnels, piers, docks and other 62 aids to navigation and transportation. 63 64 Cargo can be the subject of marine 65 insurance, and once it is entered into, 66 the implied warranty of seaworthiness 67 immediately attaches to whoever is 68 insuring the cargo, whether he be the 69 shipowner or not. (Roque vs IAC, 139 70 SCRA 596). 71

72IMPLIED WARRANTIES IN MARINE 73INSURANCE: 74


751. 76 77 782. 79 80 813. 82 834. 84 85 86 87 885. 89

14LOSS FOR WHICH INSURER IS LIABLE: 15


16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

1. loss the proximate cause of which is the peril insured against (Sec. 84); 2. loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril; 3. loss through negligence of insured except where there was gross negligence amounting to willful acts; and 4. loss caused by efforts to rescue the thing from peril insured against; 5. if during the course of rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. 85).

that the ship is seaworthy at the inception of the insurance (Sec.113,ICP) that the ship will not deviate from agreed voyage unless deviation is proper (Sec. 123, 124, 125, ICP) that the ship will not engage in an illegal venture 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 presence of insurable interest.

90INSURABLE INTEREST IN MARINE 91INSURANCE: 92


931. 94 95 96 97 98 99 100 101 102

32LOSS FOR WHICH INSURER IS NOT 33LIABLE: 34


35 36 37 38 39

40

1. loss by insureds willful act; 2. loss due to connivance of the insured (Sec. 87); and 3. loss where the excepted peril is the proximate cause.

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.

4 Page 45 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

7PERILS OF THE SEA extend only to losses


8caused by sea damage, or violence of the 9elements, and does not embrace all losses 10happening at sea. Include only such losses as 11are extraordinary in nature, or arise from 12overwhelming power, which cannot be guarded 13against by ordinary exertion of human skill and 14prudence (Sec. 99). 15

12. 2 33. 4 5 6

Cargo owner over the cargo and expected profits (Sec. 105). Charterer over the amount he is liable to the shipowner, if the ship is lost or damaged during t he voyage (Sec. 106).

69MATTERS ALTHOUGH CONCEALED, 70WILL NOT VITIATE THE CONTRACT 71EXCEPT WHEN THEY CAUSED THE 72LOSS (SEC. 110): 73
741. 752. 76 773. 78 794. 805. 81

631. 64 652. 663. 67 68

negligence of the captain, engineers, etc. explosions, breakage of shafts; and latent defect of machinery or hull.

16PERILS OF THE SEA VS. PERILS OF THE 17SHIP 18 19 Perils of the sea or perils of navigation
20 21 22 23 24 25 26 27 28 29 30 31 32 34 35 36 37 38 39 40 41 42 43

national character of the insured; liability if insured thing to capture or detention; liability to seizure from breach of foreign laws; want of necessary documents; and use of false or simulated papers.

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. Perils of the ship is a loss which in the ordinary course of events, results: 1. from the natural and inevitable action of the sea 2. from the wear and tear of the ship 3. from the negligent failure of the ships owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.

82DEVIATION departure of vessel from


83course of voyage, or an unreasonable delay 84in pursuing voyage, to the commencement 85of an entirely different voyage (Sec. 123). 86

87DEVIATION IS PROPER WHEN 88(SEC. 124): 89


901. 91 922. 933. 944. 95 96

33

if due to circumstances outside the control of the ship captain or ship owner; if done to comply with a warranty; if made in good faith to avoid a peril; if made to save human life or another distressed vessel.

97LOSS: 98
991. TOTAL LOSS that which may be: 100 a. actual loss, involving (Sec. 130) 101 (i) total destruction; 102 (ii) loss by sinking 103 (iii) damage rendering the thing 104 valueless; or 105 (iv) total deprivation of owner of 106 possession of thing insured. 107 b. constructive total loss (Sec. 131, in 108 relation to Sec. 139), involves --109 (i) actual loss of more than 110 of the value of the object; 111 (ii) damage reducing value by 112 more than of the value of 113 the vessel and of cargo; and 114 (iii) expense of transhipment 115 exceed of value of cargo. 116 117 In case of constructive total loss, 118 insured may abandon goods or vessel 119 to the insurer and claim for whole 120 insured value, or he may, without 121 abandoning vessel, claim for partial 122 actual loss. 123

44BARRATRY willful misconduct on the part of


45the master or crew in pursuance of some 46unlawful or fraudulent purpose without consent 47of owners, and to the prejudice of owners 48interest.

49 50INSURANCE AGAINST ALL RISKS


51insurance against all causes of conceivable loss 52or damage, except as otherwise excluded in the 53policy or due to fraud or intentional misconduct 54on the part of the insured. 55 56 The insurer can avoid coverage upon 57 demonstrating that a specific provision 58 excludes the loss from the coverage. (Choa 59 Tiek Seng vs CA, 183 SCRA 223).

60 61INCHAMAREE CLAUSE covers loss or


62damage to the hull or machinery through:

4 Page 46 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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4GENERAL AVERAGE LOSS VS. 5PARTICULAR AVERAGE LOSS

11. PARTIAL LOSS that which is not total 2 (Sec. 128). 3

27REQUISITIES OF GENERAL AVERAGE 28CONTRIBUTION: 29


301. 31 322. 33 343. 35 364. 37 385. 39 406. 41 427. 43

6 7 GENERAL AVERAGE LOSS include damages 8and expenses which are deliberately caused by 9the master of the vessel or upon his authority, in 10order to save the vessel, her cargo, or both at 11the same time from real or known risk. it must be 12borne equally by all of the interests concerned in 13the venture. 14 15PARTICULAR AVERAGE LOSS it includes all 16damages and expenses caused to the vessel or 17to her cargo which have not inured to the 18common benefit and profit of all persons 19interested in the vessel and her cargo. It refers 20to those losses which occur under such 21circumstances as do not entitle the unfortunate 22owners to receive contribution from other 23owners concerned in the venture as where a 24vessel accidentally runs aground and goes to 25pieces after the cargo is saved. 26

70CO-INSURANCE (Sec. 157, ICP) - A


71marine insurer is liable upon a partial loss, 72only for such proportion of the amount 73insured by him as the loss bears to the value 74of the whole interest of the insured in the 75property insured. 76 Co-Insurance in Co-insurance in Marine Property Insurance

636. 64 65 667. 67 68 69

It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).

the only requirement is partial loss even if there is full coverage


77

there must be a stipulation and it must comply with the following requisites: partial loss and underinsurance

78FIRE INSURANCE contract by which


79the insurer for a consideration agrees to 80indemnify the insured against loss of, or 81damage to, property by fire, but may include 82loss by lightning, windstorm, tornado or 83earthquake and other allied risks, when such 84risks are covered by extension to fire 85insurance policies or under separate policies 86(Sec. 167).

there must be a common danger to the vessel or cargo part of the vessel or cargo was sacrificed deliberately the sacrifice must be for the common safety or for the benefit of all it must be made by the master or upon his authority it must be not be caused by any fault of the party asking the contribution it must be successful, i.e. resulted in the saving of the vessel or cargo. It must be necessary

87 88ALTERATION- An alteration in the use or


89condition of a thing insured from that to 90which it is limited by the policy made without 91the consent of the insurer, by means within 92the control of the insured, and increasing the 93risks, entitles the insurer to rescind a 94contract of fire insurance (Sec. 168, ICP). 95

44ABANDONMENT is the act of the insured by


45which, after a constructive total loss, he declared 46the relinquishment to the insurer of his interest in 47the thing insured (Sec. 138). 48

96WHEN ALTERATION IN THING 97INSURED ENTITLES INSURER TO 98RESCIND: 99


1001. 101 102 1032. 104 1053. 106 1074. 108 1095.

49REQUISITES FOR VALID 50ABANDONMENT: 51


521. 53 54 552. 56 573. 58 594. 60 61 625.

There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138); There must be a constructive total loss (Sec. 139); The abandonment be neither partial nor conditional (Sec. 140); It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141); It must be factual (Sec. 142);

110 111ALTERATION NOT RESULTING IN 112RESCISSION: 113


1141. Alteration not increasing the risk; and

The use or condition of the thing is specifically limited or stipulated in the policy; Such use or condition as limited by the policy is altered; The alteration is made without the consent of the insurer; The alteration is made by means within the control of the insured; and The alteration increases the risk.

4 Page 47 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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14COMPULSORY MOTOR 15LIABILITY (Sec. 373):

12. Alterations increasing the risk but not 2 violating the contract. 3 4FALL-OF-BUILDING CLAUSE clause in 5fire insurance policy that if the building or any 6part thereof falls, except as a result of fire, all 7insurance by the policy shall immediately cease. 8 9CASUALTY INSURANCE insurance 10covering loss or liability arising from accident of 11mishap, excluding those falling under other 12types of insurance as fire or marine (Sec. 174). 13

VEHICLE

16METHOD OF COVERAGE: 17 1.Insurance Policy; 18 2.Surety Bond; and 19 3.Cash Bond. 20 21NON-FAULT CLAUSE any claim for death 22or injury shall be paid up to PHP 5,000.00 23without necessity of proving fault or negligence, 24provided the following proofs of loss under oath 25are submitted (Sec. 378): 261. death certificate and evidence sufficient to 27 establish proper payee; 282. police report; and 293. medical report and evidence of medical or 30 hospital disbursement. 31 32 Claim is collected from insurer of vehicle 33 where claimant is riding, mounting, or 34 dismounting from. In any other case, claim 35 shall lie against the insurer of the directly 36 offending vehicle. 37 38AUTHORIZED DRIVER CLAUSE The 39clause means that it indemnifies the insured 40owner against loss or damage to the car but 41limits the use of the insured vehicle to the 42insured himself or any person who drives on his 43order or with his permission (Villacorta vs. 44Insurance Commissioner; Perla Compania de 45Seguro vs. CA) 46 47 The requirement that the person driving the 48 insured vehicle is permitted in accordance 49 with the licensing laws or other laws or 50 regulations to drive the motor vehicle. It is 51 applicable only if the person driving is other 52 than the insured. 53 54COOPERATION CLAUSE clause in an 55automobile insurance policy which provides in 56essence that the insured shall give all such 57information and assistance as the insurer may 58require, usually requiring attendance at trials or 59hearings. 60 61THIRD PARTY LIABILITY INSURANCE 62insurance secured by the assured to protect

63third parties up to the limit stated in the 64policy, but third party victim is not at all 65affected by the limitation in the schedule of 66indemnity which binds only the contracting 67party [Sec. 378, (iii)]. 68 69PASSENGER, (CMVLI)any fare paying 70person being transported and conveyed in 71and by a motor vehicle for transportation of 72passenger for compensation, including 73persons expressly authorized by law or by 74the vehicles operator or his agents to ride 75without faire (Sec. 373{b}, CMVLI) 76 77THIRD PARTY is any person other than the 78passenger as defined in 373 of CMVLI and 79shall also exclude a member of the 80household or a member of the family within 81the second degree of consanguinity or 82affinity, of a motor vehicle owner or land 83transportation operator, as likewise defined 84herein, or his employee in respect of death 85or bodily injury arising out of and in the 86course of employment (Sec. 373{c}, 87CMVLI). 88 89SURETYSHIP agreement whereby 90surety guarantees the performance by 91another of an undertaking or an obligation in 92favor of a 3rd party (Sec. 175). 93 Essentially a credit accommodation. 94 95FIDELITY BOND contract of insurance 96against loss from misconduct. 97 98FIDELITY GUARANTY INSURANCE 99a contract whereby one, for a consideration, 100agrees to indemnify the assured against loss 101arising from the want of integrity, fidelity or 102honesty of employees or other persons 103holding positions of trusts. 104 105LIFE INSURANCE insurance on human 106life and insurance appertaining thereto or 107connected therewith which includes every 108contract or pledge for the payment of 109endowments or annuities (Sec. 179). 110 111 Effect of death of insured through 112 suicide the insurer in a life insurance 113 contract shall be liable in case of suicide 114 by the insured committed after the policy 115 has been in force for a period of two 116 years from the date of its issue or its last 117 reinstatement, unless the policy 118 provides a shorter period: provided, 119 however, that suicide committed in a 120 state of insanity shall make the insurer 121 liable regardless of the date of the 122 commission of the suicide (Sec. 180123 A).

124

4 Page 48 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1KINDS:
2 31. 4 5 6 72. 8 9 10 11 123. 13 14 15 164. 17 18 19 20 21 225. 23 24 25 266. 27 28 29 30 31 32 33

ORDINARY LIFE, GENERAL LIFE OR OLD LINE POLICY - insurer pays a premium every year until he dies. Surrender value after 3 years. 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. 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. TERM INSURANCE insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. INDUSTRIAL LIFE _ life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener; and 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.

69INSURANCE AS A 70DISTRIBUTING DEVICE: 71

64from negligent or careless acts (Pan 65Malayan Insurance Corp. vs. CA, 184 66SCRA 54). 67 68

RISK

85LIABILITY OF INSURER IF INSURED 86WAS COMMITTING A FELONY

72 The devices of insurance serves to 73distribute the risk of economic loss among 74as many as possible of those who are 75subject to same kind of risk. By paying a 76pre-determine amount into a general fund 77out of which payment will be made for an 78economic loss of a defined type, each 79member contributes to a small degree 80toward compensation for losses suffered by 81any member of the group. This broad 82sharing of economic risk is the principle of 83risk-distribution. 84

34INTENTIONAL VS. ACCIDENTAL AS 35USED IN INSURANCE:


36 37INTENTIONAL as used in an accident policy 38excepting intentional injuries inflicted by the 39insured or any other person implies the exercise 40of the reasoning faculties, consciousness and 41volition. Where a provision of the policy excludes 42intentional injury, it is the intention of the person 43inflicting the injury that is controlling. If the 44injuries suffered by the insured clearly resulted 45from the intentional act of the third person, the 46insurer is relieve from liability as stipulated 47(Biagtan vs. the Insular Life Assurance Co. 48Ltd. 44 SCRA 58, 1972) 49 50ACCIDENTAL - The terms accident and 51accidental as used in insurance contract, have 52not acquired any technical meaning. They are 53construed by the courts in the ordinary and 54common acceptation. Thus, the terms have 55been taken to mean that which happens by 56chance or fortuitously, without intention or 57design, which is unexpected, unusual and 58unforeseen. The terms do not without 59qualification, exclude events resulting in damage 60or loss due to fault, recklessness or negligence 61of third parties. The concept is not necessarily 62synonymous with no fault. It maybe utilized 63simply to distinguish intentional or malicious acts

100PRESCRIPTION PERIOD 101(SEC. 63, 384, ICP). 102 In the absence of an express stipulation
103 104 105 106 107 108 109 110 111

87 Liabilities arising out of acts of 88negligence, which are also criminal, are also 89insurable on the ground that such acts are 90accidental. Thus, a motor insurance policy 91covering the insureds liability for accidental 92injury caused by his negligence, even 93though gross and attended by criminal 94consequences such as homicide through 95reckless imprudence, will not be void as 96against public policy. But liability 97consequences of deliberate criminal acts are 98not insurable. 99

112 113 114 115 116 117 118 119 120 121 122 123 124

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.

4 Page 49 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22IV. TRANSPORTATION LAWS 25CONTRACT


23 24

OF

TRANSPORTATION-

85CHARACTERISTICS OF A COMMOM 86CARRIER: 87


881. 89 90 91 922. 93 94 95 963. 97 984. 99

61A. 62 63 64 65 66 67 68B. 69 70 71 723 734 74 75 76 77 78 79 80 81 82 83 84

Coastwise 1) New Civil Code (Art. 1732-1766) primary law 2) Code of Commerce suppletory law NOTE: COGSA inapplicable even if the parties expressly provide for it Foreign Ports to Philippine Ports 1) New Civil Code primary law 2) Code of Commerce 3) Carriage of Goods by Sea Act C. Philippine Ports to Foreign Ports laws of the country to which the goods are to be transported. (Eastern Shipping vs. IAC, 150 SCRA 463, American Home Assurance vs. CA, 208 SCRA 343, NDC vs. CA, 164 SCRA 593)

26contract whereby, a person, natural or juridical, 27obligates, to transport persons, goods or both, 28from one place to another by land, air or water 29for a price or compensation. 30 31COMMON CARRIER- one that holds itself out 32as ready to engage in the transportation for hire 33as a public employment and not as a casual 34occupation. 35 36 persons, firms, corporations or associations 37 engaged in the business of carrying or 38 transporting passengers or goods or both, 39 by land, water, or air, for compensation, 40 offering their services to the public . 41 (Art.1732, New Civil Code) 42 43 Art. 1732 of the New Civil Code avoids any 44 distinction between a person or enterprise 45 offering transportation service on a regular 46 or scheduled basis and one offering such 47 service on an occasional, episodic or 48 unscheduled basis. 49 50 Neither does the law distinguish between a 51 carrier offering its services to the general 52 public that is the general community or 53 population and one who offers services or 54 solicits business only from a narrow 55 segment of the general population. (De 56 Guzman vs. CA, September 15, 1993) 57

undertakes to carry for all people indifferently and thus, is liable for refusal without sufficient reason (Lastimoso vs. Doliente, October 20, 1961) cannot lawfully decline to accept a particular class of goods for carriage to the prejudice of the traffic in these goods no monopoly is favored (Batangas Trans vs. Orlanes, 52 PHIL 455) provides public convenience

100PRIVATE CARRIER- not engaged in


101business of carrying as a public 102employment, undertakes to deliver goods or 103passengers for compensation (requires only 104ordinary diligence) (Home Insurance Co. 105vs. American Steamship Agency, 23 106SCRA 24) 107

108DISTINCTIONS :

109 COMMON CARRIER

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

58GOVERNING LAWS: 59(in the order mentioned)


60

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

4 Page 50 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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5. presumption of fault or negligence applies

5. no fault or negligence is presumed

1 2CASO FORTUITO
3 4Requisites: 5 61. event independent of human will; 72. occurrence makes it impossible for debtor 8 to fulfill the obligation in a normal manner; 93. obligor must be free of participation in, or, 10 aggravation of, the injury to the debtor; and 114. impossible to foresee or impossible to avoid. 12 (Juntilla vs. Fontanar, 136 SCRA 624; 13 Vasquez vs. CA, 138 SCRA 553) 14 15 A common carrier is held liable for the flaws 16 of its equipment (tire blow-out, knuckles 17 failure) if such defects are discoverable and 18 such cannot be considered a caso fortuito. 19 This is because the passenger has no privity 20 with the manufacturer of the defective 21 equipment and thus, has no remedy against 22 him while the carrier has. (Necessito vs. 23 Paras, 104 Phil 75) 24 25 Hijacking of the carrier truck does not fall 26 among the five categories of exempting 27 causes. The common carrier is presumed to 28 be at fault or to have acted negligently 29 unless there is proof of extraordinary 30 diligence on the part of the common 31 carrier. The duty of extraordinary diligence 32 is reached where the goods are lost as a 33 result of robbery attended by grave or 34 irresistible threat, violence or force. (De 35 Guzman vs. CA, September 15, 1993). 36 37NOTE: In Quisumbing Sr. vs. CA, 189 SCRA 38213, an action against an airline company to 39recover damages for the loss of certain 40valuables belonging to passengers after a(n) 41hijacking robbery was dismissed. The Court 42considered hijacking robbery a caso fortuito. It 43ruled: the mandatory use of the most 44sophisticated electronic detection devices, the 45imposition of severe penalties, the development 46of screening procedures, the compilation of 47hijackers behavioral profiles, the assignment of 48sky marshalls, and the weight of outraged world 49opinion may have minimized hijackings but all 50these proved ineffective against truly determined 51hijackers.

62

60 61

52 53KABIT SYSTEM: VOID AND INEXISTENT 54UNDER ART. 1409, NEW CIVIL CODE 55 56 This is a system whereby a person who has
57 58 59

been granted a certificate of public convenience allows other persons who own motor vehicles to operate under such

120 121CONTRACT OF ADHESION- one that is


122unilaterally drafted and printed in advance

63 64 65 66 67 68 69 70 71 72 73EFFECTS OF THE SYSTEM AND 74LIABILITIES OF THE REGISTERED 75OWNER AND THE ACTUAL OWNER OF 76THE MOTOR VEHICLE: 77 78 791. The transfer, sale, lease or assignment 80 of the privilege granted is valid between 81 the contracting parties but not upon the 82 public or third persons. (Gelisan vs. 83 Alday, 154 SCRA 388) 842. The registered owner is primarily liable 85 for all the consequences flowing from 86 the operations of the carrier because to 87 rule otherwise would be utterly 88 subversive to the thrust of public policy 89 herein involved. The public has the right 90 to assume that the registered owner is 91 the actual or lawful owner thereof. It 92 would be very difficult and often 93 impossible, as a practical matter, for the 94 public to enforce their rights of action 95 that they may have for injuries inflicted 96 by the vehicle if they should be required 97 who the actual owner is. It would also 98 open the door to collusion between the 99 registered owner and the actual owner 100 and to shifting liability from the carrier to 101 one without financial capability to meet 102 the resulting damages. (Benedicto vs. 103 IAC, 187 SCRA 547) 1043. The registered owner cannot recover 105 from the actual owner and the latter 106 cannot obtain transfer of the vehicle to 107 himself, both being in pari delicto. The 108 Court will not aid either party to enforce 109 an illegal contract, but will leave them 110 both where it find them. Where the 111 parties are in pari delicto, no affirmative 112 relief of any kind will be given to one 113 against the other. (Teja Marketing vs. 114 IAC, 148 SCRA 347 ) 1154. For the better protection of the public, 116 both the registered owner and the actual 117 owner are jointly and severally liable 118 with the driver. (Zamboanga 119 Transportation Co. vs. CA)

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)

4 Page 51 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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6 7 NEW CIVIL CODE PROVISIONS ON 8 COMMON CARRIERS 9 (ART. 1732-1766)


10

1by monopolies, insurance companies, carriers 2and money lenders and the only participation of 3the carrier party is the signing of his signature or 4his adhesion thereto (Eastern Shipping 5Lines vs. Margarine, 93 SCRA 257)

61
62 63 64 65 66 67 68 69 70 72 73 74 75 76

The mere fact that the bus was inspected the day before the accident is not sufficient to rebut the presumption of negligence, where the bus was overloaded in spite of the fact that its route consisted of mountainous, circuitous and ascending roads. (Landingin vs. Pangasinan, 33 SCRA 284) Where a vessels departure was delayed by repairs, and on managements instruction, the first port of call was bypassed, the event is not fortuitous to be exempt from liability. (Sweet Lines vs. CA, 121 SCRA 769)

111. REQUIREMENT OF 12 EXTRAORDINARY DILIGENCE 13 Common carriers, from the nature of their
14 15 16 17 18 19 20 21 23 24 25 26 27 28 29 30 31 32 33 34 36 37 38 39 40 41 42 43 44 46 47 48 49 50 51 52 54 55 56 57 58 59 60

71

business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods and for the safety of the passengers transported by them according to all the circumstances of each case (Art. 1733, in relation to Art. 1755) 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 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) When the officers and the crew were aware of the typhoon but decided to proceed with the voyage believing that the weather was still good, although, according to the weather forecast, they were already within the typhoon zone, the sinking of the vessel proves that required extraordinary diligence was not duly observed. (Vasquez cs. CA, 138 SCRA 553) A common carrier neglects its duty to transport its passengers safely when a passenger died because the floor of its bus gave way after a tire blow out caused by overcrowding, overspeeding and weak flooring. (M. Ruiz Highway Transit, Inc. vs. CA, 11 SCRA 98) The announcement by a train conductor of the next flag stop, three minutes ahead of time, causing the passengers to rise from their seats, and the subsequent fall by them as a consequence of the jerking, resulting in deaths and injuries to them, is negligence. (Brinas vs. People, 125 SCRA 687)

772. RULES ON PRESUMPTION OF 78 NEGLIGENCE


79A. 80 81 82 83 84

22

85

35

45

53

118 1193. DEFENSE 120 CARRIERS

86 87 88 89 90 91 92 93 94B. In the carriage of passengers. The 95same presumption applies. 96 97 The courts need not make an express 98 finding of fault or negligence of common 99 carriers, the law imposes upon common 100 carriers strict liability, as long as it is 101 shown that there exists a relationship 102 between the passenger and the 103 common carrier and that injury or death 104 took place during the existence of the 105 contract. 106 107Reason for the presumption: Because as 108to when and how goods were damaged in 109transit is a matter peculiarly within the 110knowledge of the carrier and its employees. 111(Mirasol vs. Dollar, 53 PHIL 124) Also, the 112contract between the passenger and the 113carrier imposes on the latter to transport the 114passenger safely, hence the burden of 115explaining should fall on the carrier. 116NOTE: The doctrine of res ipsa loquitor 117applies.

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

OF

COMMON

4 Page 52 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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23A. NATURAL DISASTER

Common carriers are responsible for the 3 loss, destruction, or deterioration of the 4 goods, unless the same is due to any of the 5 following causes only: 61. Flood, Storm, earthquake, lighting, or other 7 natural disaster or calamity. 82. Act of the public enemy in war, whether 9 international or civil 103. Act or omission of the shipper or the owner 11 of goods 124. The character of the goods or defects in the 13 packing or in the containers. 145. Order or act of competent authority 15 (Art1734, NCC). 16 17Reason for the exceptions: Because the 18carrier is not an insurer of the safety of its 19passengers and is not absolutely and at all 20events to carry them safely and without injury. 21(Santos vs. Dela Cruz, December 2, 1959) 22
24 25Requisites for the Defense: 261. must be the proximate and only cause of the 27 loss 282. carrier must exercise due diligence to 29 prevent or minimize the loss before, during 30 or after the occurrence of the disaster (Art. 31 1739, NCC) 323. carrier had not negligently incurred in delay 33 in transporting the goods (Art. 1740, NCC) 34 36 37Requisites for the Defense: 381. the act must be the proximate and only 39 cause of the loss 402. carrier must exercise due diligence to 41 prevent or minimize the loss before, during 42 or after the act causing the loss, 43 deterioration or destruction of the goods 44 (Art. 1739, NCC) 45

66D. CHARACTER OF THE GOODS OR 67 DEFECTS IN THE PACKING OR IN 68 THE CONTAINER 69 Even if the damage should be caused
70 71 72 73 75 76 77 78 79 80 81

63 64 65

contributory negligence. (Compania Maritima vs. CA, 164 SCRA 685)

74

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)

82E. ORDER/ACT OF PUBLIC 83 AUTHORITY 84 Said public authority must have the
85 power to issue the order. Consequently, 86 where the officer acts without legal 87 process, the common carrier will be held 88 liable. 89 90NOTE: Diligence in the selection and 91supervision of employees under Articles 922180-2181, NCC, cannot be interposed by 93the common carrier to prevent damages 94because the liability of the carriers arises 95from the breach of the contract of carriage. 96The defense under said articles is applicable 97to negligence in quasi-delicts. (Del Prado 98vs. Manila Electric Co., 52 PHIL 900) 99

35B. ACTS OF PUBLIC ENEMY

100F. 101 102


103 1041. 105 106 107 108 109 110 111 112 113 114 115 116 117 118 120 121 1221. 123

STIPULATIONS LIMITING LIABILITY OF COMMON CARRIERS


IN THE CARRIAGE OF GOODS- the common carrier and the shipper may agree 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). The following stipulations are considered unjust, unreasonable and contrary to public policy: the goods are transported at the risk of the owner or shipper

46C. CONTRIBUTORY NEGLIGENCE OF 47 THE SHIPPER 48 If the shipper or owner merely contributed to
49 50 51 52 53 55 56 57 58 59 60 61 62

54

the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the carrier, the carrier shall still be liable for damages, but such shall be equitably reduced. When the shipper declared an inaccurate weight of the equipment transported causing it to fall when it is being unloaded, the carrier was still held liable for damages because such accident could have been avoided if the carrier had exercised reasonable attention in overseeing the unloading of the equipment. However, the liability was reduced as the shipper was liable for

119

4 Page 53 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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12. the carrier will not be liable for any loss, 2 destruction or deterioration of the goods 33. the carrier need not observe any diligence in 4 the custody of the goods 54. the carrier shall exercise a degree of 6 diligence less than that of a good father of a 7 family over the movable transported 85. the carrier shall not be responsible for the 9 acts or omissions of his or its employees 106. the carriers liability for acts committed by 11 thieves or robbers who do not act with grave 12 or irresistible threat, violence or force is 13 dispensed with or diminished 147. the carrier is not responsible for the loss, 15 destruction or deterioration of the goods on 16 account of the defective condition of the car, 17 vehicle, ship or other equipment used in the 18 contract of carriage. 19 20Other Valid stipulations limiting the carriers 21liability: 221. A stipulation that the common carriers 23 liability is limited to the value of the goods 24 appearing in the bill of lading unless the 25 shipper or owner declares a greater value 26 (HEACOCCK VS MACONDRAY, 42 PHIL 27 205) 282. A contract fixing the sum to be recovered by 29 the owner or shipper for the loss, destruction 30 or deterioration of the goods, if it is 31 reasonable and just under the 32 circumstances and has been fairly and freely 33 agreed upon (Art. 1750, NCC) 343. An agreement limiting the common carriers 35 liability for delay on account of strikes or 36 riots (Art. 1748, NCC) 37 38 392. IN THE CARRIAGE OF PASSENGERS 40 The extraordinary responsibility of a 41 common carrier for the safety of passengers 42 imposed by law cannot be dispensed with or 43 lessened by stipulation, by posting of 44 notices, by statements on tickets or 45 otherwise (Art. 1757, NCC). 46 When a passenger is carried gratuitously, a 47 stipulation limiting the common carriers 48 liability for negligence is valid, but not for 49 willful acts on gross negligence (Art. 1758, 50 NCC). 51 52NOTE: The diligence required in the carriage of 53the goods may be reduced by only one degree, 54from extraordinary to ordinary diligence or 55diligence of a good father of a family. (Art. 1744, 56Art. 1745, no.4, NCC) 57 In the transport of passengers, the diligence 58 required may be reduced by two degrees 59 from extraordinary to ordinary diligence or 60 even to simple negligence but ot to gross 61 negligence. (Art. 1758, NCC)

63G. DURATION OF RESPONSIBILITY 64 OF COMMON CARRIERS


65 661. GOODS. 67 The extraordinary responsibility of the 68 common carrier lasts from the time the 69 goods are unconditionally placed in the 70 possession of, and received by the 71 carrier for transportation until the same 72 are delivered actually or constructively 73 by the carrier to the consignee or to the 74 person who has the right to receive 75 them. (Art. 1736, NCC) 76 It remains in full force and effect even 77 when they are temporarily unloaded or 78 stored in transit unless the shipper or 79 owner has made use of the right of 80 stoppage in transitu. (Art. 1737, NCC) 81 It continues to be operative even during 82 the time the goods are stored in a 83 warehouse of the carrier at the place of 84 destination until the consignee has bee 85 advised of the arrival of the goods and 86 has had reasonable opportunity 87 thereafter to remove them or otherwise 88 dispose of them. (Art. 1738, NCC) 89 902. PASSENGERS. 91 Once created, the relationship will not 92ordinarily terminate until the passenger has, 93after reaching his destination, safely alighted 94from the carriers conveyance or had a 95reasonable opportunity to leave the carriers 96premises. 97 All persons who remain on the premises 98within a reasonable time after leaving the 99conveyance are to be deemed passengers, 100and what is a reasonable time or a 101reasonable delay within this rule is to be 102determined from all the circumstances, and 103includes a reasonable time to see after his 104baggage and prepare for his departure. (La 105Mallorca vs CA, July 27 1966; Abiotiz 106Shipping Corporation vs CA, November 1076, 1989) 108 In case of flight diversion due to bad 109weather or other circumstances beyond the 110pilots control, the relation between the 111carrier and the passenger continues the 112latter has been landed at the port of 113destination and has left the carriers 114premises. The carrier should necessarily 115exercise extraordinary diligence in 116safeguarding the comfort, convenience and 117safety of its stranded passengers until they 118have reached their final destination. 119(PHILIPPINE AIRLINES VS CA, 226 SCRA 120423)

62

121 122H. LIABILITY OF THE CARRIER FOR 123 ACTS OF ITS EMPLOYEES AND 124 OTHER PASSENGERS

4 Page 54 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

3
4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21

1 21.

For acts of Employees Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the formers employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. 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) The liability of the carrier for the personal violence of its employees or agents upon its passengers extends only to those acts that the carrier could foresee or avoid through the exercise of the degree of diligence required. The carrier is not liable for acts of employee not on duty or in the line of duty. (DE GILLACO VS MRR, 97 PHIL884; MARANAN VS PEREZ, 20 SCRA 412) For acts of other Passengers A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carriers employees, through the exercise of the diligence of a good father of a family could have prevented or stopped the act. (1763, NCC) The carrier is liable when its personnel allowed a passenger to drive the vehicle causing it to collide with another vehicle resulting to the injuries suffered by the other passengers.(MRR VS BALLESTEROS, 16 SCRA 641)

63

61 62

15

22
23 24 25 26 272. 28 30 31 32 33 34 35 36 38 39 40 41 42 43

29

37

100LIABILITY OF SUCCESSIVE AIR 101CARRIERS: 102 103 An airline ticket providing that carriage
104 105 106 107 108 109 110 111 112

64 65 66 67 68 69 702. BAGGAGE NOT IN SUCH CUSTODY, 71 BUT IN THAT OF THE CARRIER 72 (Article 1733 to 1573 of the NCC) 73 carrier who has in his custody the 74 baggage of a passenger to be carried 75 like any other goods is required to 76 observe extraordinary diligence. In 77 case of loss or damage the carrier is 78 presumed negligent. 79 808) CAUSE OF ACTION ARISING FROM 81 THE NEGLIGENT ACT OF THE 82 CARRIER 83 84 The injured passenger can avail of any 85of the three causes of action arising from the 86negligent act of the common carrier: 87 881)culpa contractual Art.1759, NCC only 89 the carrier could be held liable, not the 90 driver because the there is no privity 91 between the driver and the passenger 922)culpa acquiliana Art. 2180, NCC the 93 carrier and driver are solidarily liable as 94 joint tortfeasors 953)culpa criminal Art. 100, Revised Penal 96 Code the carrier could be held liable 97 only if driver be convicted and declared 98 insolvent, making him subsidiarily liable. 99

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)

44I. RULES ON PASSENGERS 45 BAGGAGES 46 As to baggage of passengers, the law


47 makes a distinction between: 48 491. BAGGAGE IN THE CUSTODY OF THE 50 PASSENGERS OR THEIR EMPLOYEE 51 52 under this, the baggage is in the personal 53 custody of the passenger or his employee in 54 that the baggage while in transit will be 55 considered as necessary deposits. The 56 common carrier shall be responsible for the 57 baggage as depositaries, provided that 58 notice was given to them or its employees 59 and the passenger took the necessary 60 precautions which the carrier has advised

by successive air carriers is to be regarded as a single operation is to make the (issuer carrier) liable for the tortious conduct of the other carrier. A printed provision in the ticket limiting liability only to its own conduct is not enough to rebut that liability (KLM ROYAL DUTCH AIRLINES VS. CA)

113BILL

OF LADINGwritten 114acknowledgment of receipt of goods and 115agreement to transport them to a specific 116place to a person named or to his order. It 117is not indispensable for the creation of a 118contract of carriage (COMPANIA 119MARITIMA vs. INSURANCE CO. OF 120NORTH AMERICA, 12 SCRA 213) 121

4 Page 55 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1ON BOARD BILL OF LADING- issued when


2the goods have been actually placed aboard the 3ship with very reasonable expectation that the 4shipment is as good as on its way. 5

63
64 65 66 67 68 69 70

6FUNCTIONS OF A BILL OF LADING:

17LIMITATIONS AS TO CARRIERS 18LIABILITY 20


21 22 23 24 25 26 28 29 30 31 32 19

7(MAGELLAN, MANUFACTURING vs. CA 201 8SCRA 2021) 9 101. best evidence of the existence of the 11 contract of carriage of cargo; 122. commercial document whereby, if 13 negotiable, ownership may be transferred by 14 negotiation; and 153. receipt of cargo. 16

Filing of claim is not condition precedent, but an action must be filed against the carrier within a period of 1 year from discharge; if there is no delivery, the undelivered or lost cargo), or from delivery to the arrastre (in case of damaged cargo).

71 EXEMPTION FROM LIABILITY 72 73 A common carrier may be freed from


74 liability for loss or damage if it proves 75 any of the following circumstances: 76 a. natural disaster; 77 b. act of the public enemy in war; 78 c. act or omission of the shipper; 79 d. character of the goods and defect in 80 packaging; 81 e. order of competent public authority 82 (MARITIME CO. VS. CA 171 SCRA 83 61). 84 85DOCTRINE OF COMBINED/CONNECTING 86CARRIERS Under Art. 373, Code of 87Commerce, the original carrier that entered 88into the contract of carriage shall be liable 89for damages caused by its connecting 90carriers. Such carrier is liable if connecting 91carriers refuse to carry passengers. (KLM 92VS CA, 65 SCRA 237)

A stipulation in the bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight is valid (ORG. VS. CA AND PAL, 91 SCRA 223). However, the carrier cannot limit is liability for injury to, or loss of, goods shipped where such injury or loss was caused by its own negligence (SHEWARAM VS. PAL, 17SCRA 606).

27

33RECOVERY OF DAMAGES FROM 34CARRIER FOR CARRIAGE OF GOODS35


361. 37 38 39 40 41 42 43 45 46

93 94MARITIME COMMERCE 96MERCHANT VESSEL 97 vessel engaged in maritime commerce, 99


100 101 102 103 104 98 95

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 The filing of claim under either (1) or (2) is a condition precedent for recovery. If the claim is filed, but the carrier refuses to pay: enforce carriers liability in court by filing a case a. within 6 year, if no bill of lading has been issued; or b. within 10 years, if a bill of lading has been issued.

44 47

105 106CHARACTERISTICS OF MARITIME 107TRANSACTION:


1081) Real- similar to transactions over 109 property with respect to effectively 110 against third persons which is done 111 through registration as shown by the 112 limitation of the liability of the agents to 113 the actual value of the vessel and the 114 freight money; and the right to retain the 115 cargo and embargo and detention of the 116 vessel; and 1172) Hypothecary- the liability of the owner 118 of the value of the vessel is limited to 119 the vessel itself (Doctrine of Limited 120 Liability) 121 122PREFERENCE OF CREDITS - Mortgage of 123a vessel properly registered becomes of

whether foreign or otherwise. constitutes property which may be acquired and transferred by any of the means recognized by law. They shall continue to be considered as personal property. (Art. 573, 585, Code of Commerce)

48 49 50 51 52 53 54 552. 56 57 58 59 60 61 62

OVERSEAS- where goods arrived in a damaged condition from a foreign port to a Philippine port of entry; a. upon discharge of goods, if the damage is apparent , claim should be filled immediately; or b. if damage is not apparent, claim should be filled within 3 days from delivery.

4 Page 56 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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1preferred mortgage lien which shall have priority 2over all claims against the vessel in an 3extrajudicial foreclosure for: 4 a. credit in favor of the public treasury; 5 b. judicial costs of the proceedings; 6 c. pilotage and tonnage charges and other 7 sea and port charges; 8 d. salaries of depositaries and keepers of 9 the vessel 10 e. captain and crews wages; 11 f. general average; 12 g. salvage, including contract salvage; 13 h. maritime liens arising prior in time to the 14 recording of the preferred mortgage; 15 i. damages arising out of tort; and 16 j. preferred mortgage registered prior in 17 time. 18 19DOCTRINE OF LIMITED LIABILITY- Because 20of real and hypothecary nature of maritime law, 21liability of ship owners is limited to the amount of 22interest in said vessel such that where vessel is 23entirely loss, obligation is extinguished. (LUZON 24STEVEDORING VS. CA AND ESCANO, 156 25SCRA 169) The interest extends to vessels 26appurtenances and equipment, freightage and 27insurance proceeds. (CHUA VS. IAC, 166 28SCRA 183) 29 30Exceptions: 31 1) injury or damage due to shipowners 32 fault 33 2) claims under Workmens 34 Compensation; 35 3) repair on vessel before loss; 36 4) vessels not abandoned; 37 5) the vessel is insured.

69POWERS, FUNCTIONS AND 70LIABILITIES OF THE SHIP AGENTS: 71


72 73 74 75 76 77 78 79 80 81 82 83 84 85 86

61 62 63 64 65 66 67 68

1) For acts of the captain and for the obligations contracted to repair, equip and provision the vessel 2) Indemnities in favor of third persons arising from the conduct of the captain in the care of the goods loaded in the vessel

1) Capacity to trade 2) Discharge duties of the captain, in case of the latters absence 3) Contract in the name of the owners with respect to repairs, details of equipment, armament, and all that relate to the requirements of navigation 4) Order a new voyage, make a new charter or insure the vessel after obtaining authorization from the shipowners 5) Render an account of the results of each voyage

87 88 89 90 91 94

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

92 93

38 39PARTICIPANTS IN MARITIME 40COMMERCE 41 1. shipowners and ship agents 42 2. captains and masters of the 43 vessel 44 3. officers and crew of the vessel 45 4. supercargoes 46 47A. SHIPOWNERS AND SHIP AGENTS
48 49 50 51 52 53 54 55 56

57 58CIVIL LIABILITIES OF THE SHIPOWNER 59AND THE SHIP AGENTS: 60

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;

107B. CAPTAINS AND MASTERS OF THE 108VESSEL 110THREE-FOLD CHARACTER OF THE 111CAPTAIN:
112 113 114 115 116 118 119 120 121 122 109

95 96 97 98 99 100 101 102 103 104 105 106

1) general agent of the shipowner; 2) technical director of the vessel; 3) representative of the government of the country whose flag he navigates 1) Filipino citizen; 2) legal capacity to contract; 3) passed the required physical and mental examinations required for licensing him as such

117QUALIFICATIONS OF THE CAPTAIN:

4 Page 57 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

2INHERENT POWERS OF THE CAPTAIN:


3 4 5 6 7 8 9 10 11 12 13 14 15 16

1) appoint crew in the absence of ship agent; 2) command and direct crew; 3) impose correctional punishment on those who, while on board vessel, fail to comply with his orders or are wanting in discipline; 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.

72NO LIABILITY FOR THE FOLLOWING: 73


741) damages caused to the vessel or to 75the cargo by force majeure 762) obligations contracted for the repair, 77equipment, and provisioning of the vessel 78unless he has expressly bound himself 79personally or has signed a bill of exchange 80or promissory note in his name

635. 646. 657. 668. 67 68 69 70 71

damages due to misuse of power for deviations for arrivals under stress damages due to non-observance of marine regulations

17SOURCES OF FUNDS TO COMPLY WITH 18THE INHERENT POWERS OF THE 19CAPTAIN: 20


21 22 23 24 25 26

27 28DUTIES OF THE CAPTAIN: 29


30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

(in successive order) 1) from the consignee of the vessel 2) from the consignee of the cargo 3) by drawing on the ship agent 4) by a loan on bottomry 5) by sale of part of the cargo

81 82GROUNDS FOR DISCHARGE OF A 83CAPTAIN:


84 851) 862) 873) 884) 895) 90 91

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) bring on board the proper certificate and documents and a copy of the Code of Commerce 2) keep a Log Book, Accounting Book and Freight Book 3) examine the ship before the voyage 4) stay on board during the loading and unloading of the cargo 5) be on deck while leaving or entering the port 6) protest arrivals under stress and in case of shipwreck 7) follow instructions of and render an accounting to the ship agent 8) leave the vessel last in case of wreck 9) hold in custody properties left by deceased passengers and crew members 10) comply with the requirements of customs, health, etc. at the port of arrival

52LIABILITIES OF THE SHIP AGENT/SHIP 53OWNER FOR ACTS DONE BY THE 54CAPTAIN TOWARDS PASSENGERS AND 55CARGOES, MAKING THEM SOLIDARILY 56LIABLE TO THE LATTER: 57
581. 59 602. 613. 624.

96The following are the officers and crew of 97the vessel: 98 1) Sailing Mate/First Mate 99 2) Second Mate 100 3) Engineers 101 4) Members of the crew 102 103 1) SAILING MATE/FIRST MATE 104 second chief of the vessel who 105 takes the place of the captain in 106 case of absence, sickness, or death 107 and shall assume all of his duties, 108 powers and responsibilities. 109 QUALIFICATIONS OF THE 110 SAILING MATE: 111 1) have the qualifications required 112 by the marine or navigation laws 113 and regulations 114 2) not to be disqualified in 115 accordance therewith for the 116 discharge of his duties 117

92 93B. OFFICERS AND CREW OF THE 94 VESSEL 95

118 119

DUTIES MATE:

OF

THE

SAILING

damages to vessel and to cargo due to lack of skill and negligence thefts and robberies of the crew losses and fines for violation of laws damages due to mutinies

120 121 122 123 124

1) provide himself with maps and charts with astronomical tables necessary for the discharge of his duties 2) keep the Binnacle Book

4 Page 58 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1 2 3 4 5 6 7 8 9 10 11 12 13 145 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

3) change the course of the voyage on consultation with the captain and the officers of the boat, following the decision of the captain in case of disagreement 4) responsible for all the damages caused to the vessel and the cargo by reason of his negligence

2) SECOND MATE take command of the vessel in case of the inability or disqualification of the captain and the sailing mate, assuming in such case their powers and responsibilities. DUTIES OF THE SECOND MATE: 1) preserve the hull and rigging of the vessel 2) arrange well the cargo 3) discipline the crew 4) assign work to crew members 5) inventory the rigging and equipment of the vessel, if laid up 3) ENGINEERS C officers of the vessel but have no authority except in matters referring to the motor apparatus. When two or more are hired, one of them shall be the chief engineer.

30

51

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

DUTIES OF THE ENGINEERS: 1) in charge of the motor apparatus, spare parts, and other instruments pertaining to the engines 2) keep the engines and boilers in good condition 3) not to change or repair the engine without authority of the captain 4) inform the captain of any damage to the motor apparatus 5) keep an Engine Book 6) supervise all personnel maintaining the engine 4) MEMBERS OF THE CREW hired by the ship agent, where he is present and in his absence, the captain hires them, preferring Filipinos, and in their absence, he may take in foreigners, not exceeding 1/5 of the crew.

52 53 54 55 56 57 58CLASSES OF SEAMANS CONTRACTS: 59 1. by the voyage 60 2. by the month; and 61 3. by share of profits or freightage 62 63 JUST CAUSES FOR THE DISCHARGE

64 OF SEAMAN WHILE CONTRACT 65SUBSISTS: 66 67 1) perpetration of a crime 68 2) repeated insubordination, want 69 of discipline 70 3) repeated incapacity and 71 negligence 72 4) habitual drunkenness 73 5) physical incapacity 74 6) desertion 75 76CAUSES OF REVOCATION OF VOYAGE: 77 78 1) war 79 2) blockade 80 3) prohibition to receive cargo at 81 destination 82 4) embargo 83 5) inability of the vessel to navigate 84 85RULES IN CASE OF DEATH OF A 86SEAMAN: 87 88 The seamans heirs are entitled to 89 payment as follows: 90 1) if death is natural 91 a) compensation up to time of 92 death if engaged on wage 93 b) if by voyage-half of amount 94 if death occurs on voyage 95 out; and full, if on voyage in 96 c) if by shares-none, if before 97 departure; full, if after 98 departure 99 2) if death is due to defense of 100 vessel, full payment 101 3) if captured on defense of vessel, 102 full payment 103 4) if captured due to carelessness, 104 wages up to the date of the 105 capture 106 107 NO LIABILITY UNDER THE 108 FOLLOWING CIRCUMSTANCES: 109 110 1) if, before beginning voyage, 111 captain attempts to change it, or 112 a naval war with the power to 113 which the vessel was destined 114 occurs 115 2) if disease break out and be 116 officially declared an epidemic in 117 the port of destination 118 3) if the vessel should change 119 owner or captain 120 121COMPLEMENT OF THE VESSEL all 122persons on board, from the captain to the 123cabin boy, necessary for the management, 124maneuvers, and service, thus including the 125crew, the sailing mates, engineers, stokers 126and other employees on board not having

4 Page 59 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1specific designations, but shall not include the 2passengers or the persons whom the vessel is 3transporting. 4 5D. SUPERCARGOES 6D person who discharges administrative 7 duties assigned to him by ship agent or 8 shippers, keeping an account and record of 9 transaction as required in the accounting 10 book of the captain. 11 12CHARTER PARTY- contract by virtue of 13which owner or agent binds himself to transport 14merchandise or persons for a fixed price. 15 contract by which an entire ship, or 16some principal part thereof is let by the owner to 17another person for a specified time or use . 18(PUROMINES VS. CA 220 SCRA 281) 19

64 65 67 69
66 68 70 71 72 74

2) to observe represented capacity 3) to unload cargo clandestinely


placed

4) to substitute another vessel if


load is less than 3/5 of capacity

5) to leave the port if the charterer


does not bring the cargo within the lay days and extra lay days allowed 6) to place in a vessel in a condition to navigate 7) to bring cargo to nearest neutral port in case of war or blockade B. OF THE CHARTERER 1) to pay the agreed charter price 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

73 75

20CLASSES OF CHARTER PARTY

30

21(PLANTERS PRODUCT Case: LITONJUA 22SHIPPING CO. INC. vs. NATIONAL 23SEAMENS BOARD, 176 SCRA 189) 24 251. BAREBOAT OR DEMISE- charterer 26 provides crew, food and fuel, charterer is 27 liable as if he were the owner, except when 28 such arises from the unworthiness of the 29 vessel.

31OWNER PRO HAC VICE a bareboat charterer, 32to whom full possession and control of the 33vessel is delivered, for a period of time; 34charterer is considered as owner of the vessel 35for the voyage or service stipulated. The master 36of the vessel is the agent of the charterer and 37not of the shipowner. The charterer, and not the 38general owner of the vessel is held liable for the 39expenses of the voyage including the wages of 40the seamen. 41 422. TIME CHARTER vessel is chartered for a 43 period of time or duration of voyage; owner 44 retains possession and control of the 45 vessel; charterer acquires the right to use 46 the carrying capacity, facilities of the vessel 47 and could designate destinations. 48 493. VOYAGE OR TRIP CHARTER- contract for 50 hire of vessel for one or series of voyages 51 usually for purposes of transporting goods 52 for charterer. 53 544. CONTRACT OF AFREIGHTMENT- owner 55 leases the boat or part of it for the carriage 56 of goods. 57 58 RIGHTS AND OBLIGATIONS IN A 59 CHARTER PARTY 60 A. OF THE SHIP OWNER OR SHIP 61 AGENT 62 1) if the vessel chartered wholly, not to 63 accept cargo from others

108 109 112

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107

PRIMAGE- bonus to be paid to the


captain after the successful voyage.

110 111 113 114 115 116 117 118 119 121 122 123 124

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.

120

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

4 Page 60 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

11USUAL FORMS OF CONSUMMATING 12CONTRACTS:


13 141. 152. 163. 174. 18

1 either abandoned in distress at sea, or are 2 unable to protect or secure. 3 4CONTRACT OF TOWAGE - contract whereby 5one vessel, usually motorized, pulls another, 6whether loaded or not with merchandise, form 7one place to another, for a compensation. It is a 8contract for services rather than a contract of 9carriage. 10

C.I.F cost, insurance and freight; F.O.B.- free on board; F.A.S.- free alongside ship; and C and F- cost and freight.

19TRANSHIPMENT OF GOODS- act of taking


20cargo from one ship and loading it in another, if 21done without legal excuse, however, competent 22and safe the vessel into which the transfer is 23made is a violation of contract and infringement 24of right of shipper and subjects carrier to liability 25if freight is lost event by cause otherwise 26excepted (MAGELLAN MANUFACTURING vs. 27CA , 201 SCRA 102) 28 29LOAN OF BOTOMMRY- loan made by 30shipowner or shipagent guaranteed by vessel 31itself and repayable upon arrival of vessel at 32destination.

81 82DISTINCTIONS :
83

63 4) amount of the loan and the premium 64 stipulated 65 5) time for repayment 66 6) goods pledged to secure repayment 67 7) voyage during which the risk is run 68 69WHO MAY CONTRACT: 70 71 1) Bottomry general rule: the owner; if 72owner is absent; captain; 73 2) Respondentia only the owner of the 74 cargo. 75 76 77 78 79 80

33

34LOANS ON RESPONDENTIA loan, taken on 35security of cargo laden on a vessel, and 36repayable upon safe arrival of cargo at 37destination. 38 39COMMON ELEMENTS OF LOANS ON 40BOTTOMRY AND RESPONDENTS: 41 42 1) Exposure of security to marine peril 43 2) Obligation of the debtor conditioned only 44 upon safe arrival of the security at the 45 point of destination. 46 47FORMS OF A LOAN ON 48BOTTOMRY/RESPONDENTIA: 49 50May be executed by means of: 51 1) public instrument 52 2) policy signed by the contracting parties 53 and the broker taking part therein 54 3) private instrument 55 56CONTENTS OF THE LOAN CONTRACT: 57 58 1) kind, name and registry of the vessel 59 2) name, surname and domicile of the 60 captain 61 3) names, surnames and domiciles of the 62 borrower and the lender

104ACCIDENTS IN MARITIME 105COMMERCE (Averages, Arrival Under 106Stress, Collision, Shipwreck): 107
1081. 109 110 111 112

LOANS ON ORDINARY LOAN BOTTOMRY/RESPON DENTIA 1. Not subject to Usury 1. Subject to Usury Law Law 2. Liability of the 2. Not subject to any borrower is contingent contingency on the safe arrival of the vessel or cargo at destination 3. The last lender is a 3. The first lender is a preferred creditor preferred creditor 84 85NOTE: Under existing laws, the parties to a 86loan, whether ordinary or maritime, may 87agree on any rate of interest. (CB Circular 88905). 89 90EXCEPTIONS TO THE HYPOTHECARY 91NATURE OF BOTTOMRY AND 92RESPONDENTIA: 93 94 1) loss due to inherent defect; 95 2) loss due to the barratry on the part of 96 the captain; 97E 3) loss due to the fault of malice of the 98 borrower; 99F 4) that the vessel was engaged in 100 contraband; and 101G 5) that the cargo loaded on the vessel 102 be different in form that agreed upon.. 103

AVERAGES- an extra-ordinary or accidental expense incurred during the voyage in order to preserve the cargo, vessel or both; and all damages or deteriorations suffered by the vessel

4 Page 61 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 from departure to the port of destination, 2 and to the cargo from the port of loading to 3 the port consignment. 4 5CLASSES: 6 7 a. Particular or Simple Average 8 - expenses or damage cause to vessel 9 or cargo not inured to common benefit 10 and borne by respective owners. 11 - The owner of the goods which gave 12 rise to the expense or suffered the 13 damage shall bear this average. 14 15 b. Gross or General Average 16 - damage and expenses deliberately 17 caused in order to save the vessel, its 18 cargo or both from renal and known risk. 19 - All the persons having an interest in 20 the vessel and the cargo therein at the 21 time of the occurrence of the average 22 shall contribute to satisfy this average. 23 24REQUISITES: 251) common danger 262) deliberate sacrifice 273) success 284) proper formalities and legal steps 29 30PROCEDURE FOR RECOVERY: 31 32 1) There must be a resolution of the 33 captain, adopted after a deliberation with 34 the other officers of the vessel and after 35 hearing all persons interested in the 36 cargoes. If the latter disagree, the 37 decision of the captain should prevail but 38 they shall register their objections. 39 2) The resolution must be entered in the 40 logbook, stating the reasons and 41 motives for the dissent, and the 42 irresistible and urgent causes if he acted 43 in his own accord. It must be signed, in 44 the first case, by all persons present in 45 the hearing. In the second case, by the 46 captain and all the officers of the vessel. 47 3) The minutes must also contain a detail 48 of all the goods jettisoned and those 49 injuries caused to those on board. 50 4) The captain shall deliver it to the 51 maritime judicial authority of the first port 52 he may make, within 24 hours after his 53 arrival, and to ratify it immediately under 54 oath. 55 56ORDER OF GOODS TO BE CAST 57OVERBOARD IN CASE OF JETTISON: 58 59 1) those which are on the deck, 60 preferring the heaviest one with the 61 least utility and value 62 2) those which are below the upper 63 deck, beginning with the one with

64 greatest weight and smallest 65 value 66 672. ARRIVAL UNDER STRESS- arrival of 68 vessel at a port of destination on 69 account of lack of provision, well 70 founded fear of seizure, pirates, or 71 accidents of sea disabling navigation. 72 73 When not lawful: 74 75 a. lack of provisions due to negligence 76 to carry according to usage and 77 customs; 78 b. risk of enemy not well known or 79 manifest 80 c. defect of vessel due to improper 81 repair; and 82 d. malice, negligence, lack of foresight 83 or skill of captain. 84 85 Who bears expenses: 86 The ship owner bears all the expenses 87 except when it is unlawful arrival, the 88 ship owner also answers for damages to 89 the owners of the cargo and the 90 passengers. 91 923. COLLISIONS- impact of 2 vessels both 93of which are moving. 94 95 ZONES OF TIME IN THE COLLISSION 96 OF VESSELS (URRUTIA AND CO. 97 VS. BACO RIVER PLANTATION CO., 98 26 PHIL 632). 99 100 1. 1ST ZONE all time up to the 101 moment when risk of collision 102 begins; 103 2. 2ND ZONE time between moment 104 when risk of collision begins and 105 moment it becomes a practical 106 certainty; 107 3. 3RD ZONE time when collision is 108 certain and time of impact. 109 110RULES ON COLLISSION OF VESSELS 111(Arts. 826, 827, 828, 830, 831, and 832, 112Code of Commerce) 113 1141. The collision may be due to the fault, 115 negligence or lack of skill of the captain, 116 sailing mate, or any other member of the 117 complement of the vessel. The owner 118 of the vessel at fault be liable for losses 119 or damage (826 Code of Commerce) 120 1212. The collision may be due to the fault of 122 both vessels. Each vessel shall suffer 123 its own losses, but as regards the 124 owner of cargoes both vessels shall be 125 jointly and severally liable. (827, CC) 126

4 Page 62 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

13. If it cannot be determined which vessel is at 2 fault. Each vessel shall also suffer its own 3 losses and both shall be solidarily liable for 4 losses o damages on the cargoes. (828, 5 CC) 6 74. The vessels may collide with each other 8 through fortuitous event or force majeure. 9 In this case each shall bear its own damage. 10 (830, CC). 11 125. Two vessels may collide with each other 13 without their fault by reason of a third vessel. 14 The third vessel will be liable for losses and 15 damagea (831, CC) 16 176. A vessel which is properly anchored and 18 moored may collide with those nearby 19 reason of storm or other cause of force 20 majeure. The vessel run into shall suffer its 21 own damage and expense (832, CC) 22 23PREQUISITE TO RECOVERY: 24 25 Protest should be made within 24 26 hours before the competent authority at the 27 point of collision or at the first port of arrival, 28 if in the Philippines and to the Philippine 29 consul, if the collision took place abroad. 30 Injuries to persons and damage to 31 cargo of owners not on board on collision 32 time, need not be protested. 33 34DOCTRINE OF INSCRUTABLE FAULT 35 36 In a collision, the vessel at fault shall 37indemnify the damages sustained or losses 38incurred (Article 826, Code of Commerce), and 39if both vessels were at fault, each shall suffer its 40own damages, and both Articles 827-828, 41Code of Commerce). This solidarity 42expressed in Article 827 of the Code of 43Commerce has been held to preclude a 44common carrier operating a vessel from 45interposing the defense of due diligence in the 46selection and supervision of its employees in an 47action against it by a shipper of the other 48colliding vessel as distinguished from the 49ordinary rule in liabilities for tort or culpa 50aquiliana. Under the doctrine of inscrutable 51fault, where fault is established but it cannot be 52determined which of the two vessels were at 53fault , both shall be deemed to have been at 54fault. 55 56NOTE: The Doctrine of Limited Liability 57applies in case of collisions, but it shall be 58limited only to the value of the vessel with all its 59appurtenances and freightage earned during the 60voyage. When the latter is not sufficient to cover 61all the liabilities, the indemnity due by reason of 62the death or injury of persons shall have 63preference. (Art. 837,838, Code of Commerce)

64 65 66ALLISION- impact between a moving vessel 67and a stationary one. 68 69ERROR IN EXTREMIS- sudden movement 70made by a faultless vessel during the 3 rd 71zone of collision with another vessel which is 72at fault during the 2nd zone. Even if such 73sudden movement is wrong, no 74responsibility will fall on said faultless vessel 75(URRUTIA CASE) 76 77 784. SHIPWRECK- loss of the vessel at sea 79as a consequence of its grounding, or 80running against an object in sea or on the 81coast. 82 83 If the wreck was due to malice, 84negligence or lack of skill of the captain, the 85owner of the vessel may demand indemnity 86from said captain. 87 88 89 90 91 92

93CARRIAGE OF GOODS BY SEA 94ACT (COM. ACT NO. 65) 95 97


98 99 100 101 102 96

COGSA is suppletory to the Civil Code and the Code of Commerce in the Carriage of goods from foreign parts to the Philippines (EASTERN SHIPPING VS. IAC, 150 SCRA 463).

103PRESCRIPTIVE PERIODS suit for loss


104 or damage to the cargo should be 105 brought within one year after. 106a. delivery of the goods; or 107b. the date when goods should be deliver 108

109NOTICE OF DAMAGE 110 If the damage is externally

111apparent, it should be given on receipt of the 112goods; if the damage is externally visible, 113then within three days from receipt. Failure 114to give notice however, does not bar the 115filing of the suit if made within one year. 116

117PUBLIC SERVICE LAW


118 119PURPOSES 120 1) to protect the public against 121 unreasonable charges and poor, 122 insufficient service 123 2) to protect and secure investments in 124 public services 125 3) to prevent ruinous competition

4 Page 63 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2PUBLIC SERVICE 3 includes every person that now or hereafter 4 may own operate, manage or control in the 5 Philippines for hire or compensation, with 6 general or limited clientele, whether 7 permanent, occasional or accidental, and 8 done for general business purposes, any 9 common carrier or public utility, ice plants, 10 power and water supplies communication 11 and similar public services. 12 13CERTIFICATE OF PUBLIC CONVENIENCE 14(CPC) 15 an authorization issued by the PSC for the 16 operation of public services for which no 17 franchise, either municipal or legislative, is 18 required by law, e.g., common carriers 19 20CERTIFICATE OF PUBLIC CONVENIENCE 21AND NECESSITY- authorization issued by the 22PSC for the operation of PS for which a prior 23franchise is required by law. e.g. telephone and 24other services. 25 26NOTE: A certificate of public convenience 27constitutes neither a franchise nor a contract, 28confers no property right, and is a license or a 29privilege. The holder of said certificate does not 30acquire a property right in the route covered 31thereby. Nor does it confer upon the holder any 32proprietary right or interest or franchise in the 33public highways. Revocation of this certificate 34deprives him of no vested right. New and 35additional burdens, alteration of the certificate, 36or even revocation or annulment thereof is 37reserved to the State. (LUQUE VS. VILLEGAS, 3830 SCRA 408) 39 40CONDITIONS THAT MUST CONCUR IN THE 41GRANT OF CERTIFICATE OF PUBLIC 42CONVENIENCE AND NECESSITY (VDA. DE 43LAT VS. PSC):

44

45 1) grantee must be a citizen of the 46 Philippines or a corporation or entity 47 60% of the capital of which is owned by 48 such citizens. 49 2) grantee must have sufficient financial 50 capability to undertake the services 51 3) the service will promote public interest 52 and convenience in a proper and 53 suitable manner 54 55NOTE: primordial considerations: public interest, 56necessity, and convenience. 57 58GROUNDS FOR THE REVOCATION OF THE 59CERTIFICATE: 60 61 When the holder:

62 1) violates or contumaciously refuses 63 to comply with any order, rule or 64 regulation of the commission 65 2) is a mere dummy 66 3) ceases operations by placing his 67 buses in storage 68 4) abandons the service 69 70GROUND FOR SUSPENSION: When the 71operator willfully or contumaciously refuses 72to comply with any order, rule or regulation. 73But such can only be suspended upon prior 74notice and hearing. The only exception is 75when it is necessary to avoid serious and 76irreparable damage or inconvenience to the 77public or private interest, in which case, a 78suspension not more than 30 days may be 79ordered, prior to the hearing. (Soriano vs. 80Medina, 164 SCRA 36) 81 82POWERS REQUIRING PRIOR NOTICE 83AND HEARING: 84 85 1) issuance of certificate of public 86 convenience and certificate of 87 public convenience and necessity 88 2) fixing of standards and 89 qualifications 90 3) fixing of standards for measuring 91 quantity 92 4) establishment of rules to secure 93 accuracy of all meters and all 94 measuring appliances 95 5) compel operators to furnish proper 96 service 97 6) extension of facilities 98 99POWERS EXERCISABLE WITHOUT 100PRIOR NOTICE AND HEARING: 101 102 1) investigation of public utility 103 companies 104 2) require public services to pay 105 expenses of investigation 106 3) valuation of properties of public 107 utilities 108 4) examination and test of measuring 109 appliances 110 5) grant of special permits to make 111 extra or special trips in territories 112 specifdied in the certificate 113 6) uniform accounting system and 114 furnishing of annual reports 115 7) investigation of accidents 116 8) compel compliance with the laws 117 and regulations 118 119UNLAWFUL ACTS OF PUBLIC UTILITY 120COMPANIES: 121 122 1) engage in public service business 123 without first securing the proper 124 certificate

4 Page 64 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

29

1 2) provide or maintain unsafe, improper or 2 inadequate service as determined by 3 the proper authority 4 3) commit any act of unreasonable and 5 unjust preferential treatment to any 6 particular person, corporation or entity 7 as determined by the proper authority 8 4) refuse or neglect to carry public mail 9 upon request 10 11ACTS REQUIRING PRIOR APPROVAL: 12 13 1) establish and maintain individual or joint 14 rates 15 2) establish and operate new units 16 3) issue free tickets 17 4) issue any stock or stock certificates 18 representing an increase of capital 19 5) capitalize any franchise in excess of the 20 amount actually paid to the Government 21 6) sell, alienate, mortgage or lease 22 property, certificates or franchise 23 NOTE: Under Sec. 20g of C.A. 146, the 24 sale, etc. may be negotiated and completed 25 before the approval by the proper authority. 26 Its approval is not a condition precedent to 27 the validity of the contract. The approval is 28 necessary only to protect public interest.

63 64 65 66 67 68 69
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

30PRIOR OPERATOR RULE 31 32 rule allowing an existing franchised 33operator to invoke a preferential right within the 34authorized territory as long as he renders 35satisfactory and economical service. It 36subordinates the PRIOR APPLICANT RULE 37which gives the first applicant priority only if 38things and circumstances are equal. 39 The granting of preference to an old 40operator applies only when said operator has 41made an offer to meet the increase in traffic or 42demand for service and not when another 43operator, even a new one, has made the offer to 44serve the new line or increase the service on 45said line. The rule of preference protects only 46those who are vigilant, in meeting the needs of 47the travelling public. (TIONGSON VS. PSC, 36 48SCRA 241) 49 50PRIOR APPLICANT RULE 51 52 presupposes a situation when two 53interested persons apply for a certificate to 54operate a public utility in the same community 55over which no person has as yet granted any 56certificate. If it turns out, after the hearing, that 57the circumstances between the two applicants 58are more or less equal, then the applicant who 59applied ahead of the other, will be granted the 60certificate. 61 62

96 V. INTELLECTUAL 97 PROPERTY 99INTRODUCTION to Intellectual Property 100Law (R. A. 8293 - Intellectual Property 101Code or IPC; effective Jan. 1, 1998) 102 103 Intellectual Property 104 105 those property rights which result from the 106physical manifestation of original thought. 107(Ballantine's Law Dictionary) 108 109 refers to the totality of all rights which the 110law recognizes in favor of the author, 111composer, painter, artist, scientist, or any 112other person with respect to the creations or 113product of his intellect, and consists of 114principally, in his right to;(1) authorize; or 2) 115refuse; the publication or production of 116such creations or products (De Leon; 117Comments and Cases on Property). 118 119NOTE: There are no property rights 120protected by law in mere ideas or mental 121conceptions. When creations of mind are
98

4 Page 65 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

6THE TERM "INTELLECTUAL 7PROPERTY" CONSISTS OF (SEC. 4)


81. 92. 103. 114. 125. 13 146. 15 16

1put in tangible form, however, there is 2appropriate subject of property 3that is protected by the law (63A Am Jur. 3d, 4Property, Section 5; TRIPS). 5

COPYRIGHT AND RELATED LAWS TRADEMARKS AND SERVICE MARKS Geographic indications PATENTS Layout - Designs (Topographies) of Integrated Circuits; and Protection of Undisclosed Information (TRIPS)

627. 63 64 65 668. 67 68 69 70 71 73

Coordinate with other government agencies and the private sector to strengthen the protection of intellectual property rights in the country; Custody of all records, books, drawings, specifications, documents, and other papers and things relating to the intellectual property rights applications filed with the Office.

72LAW ON COPYRIGHT 74COPYRIGHT 75 It is that system of legal protection an


76 author enjoys in the form of expression of 77 ideas. (World Intellectual Property 78 Organization - WIPO) 79 the exclusive right (or rights) of an author 80 to the work of his authorship (1987 81 Constitution).

17INTERNATIONAL CONVENTION AND 18RECIPROCITY (SEC. 3) 19 Any person who is a national or who is
20domiciled or has a real and effective industrial 21establishment in a country which is: 22 (1) A party to any convention, treaty, or 23 agreement relating to intellectual 24 property rights or the repression of 25 unfair competition to which the 26 Philippines is also a party, or; 27 (2) Extends reciprocal rights to nationals of 28 the Philippines by law, shall be entitled 29 to benefits to the extent necessary to 30 give effect to any provision of such 31 convention, treaty, or reciprocal law, in 32 addition to the rights to which any 33 owner of an intellectual property right is 34 otherwise entitled by this act. 35

82 83DEFINITIONS 84 "Author" - is the natural person

36 37 38 39 40FUNCTIONS OF THE INTELLECTUAL 41PROPERTY OFFICE (IPO) (SEC. 5) 42


431. 44 45 462. 47 48 493. 50 51 524. 53 545. 55 56 57 58 596. 60 61

.Examine applications for grant of letters patent for inventions and register utility models and industrial designs; Examine applications for the registration of marks, geographic indications, integrated circuits; Register technology transfer arrangements and settle disputes involving technology transfer payments; Promote the use of patent information as a tool for technology development; Publish regularly in its own publication the patents, marks, utility models and industrial designs, issued and approved, and the technology transfer arrangements registered; Administratively adjudicate contested proceedings affecting intellectual property rights; and

85who has created the work. 86 87 "Collective Work" - is a work 88which has been created by two (2) or more 89natural persons at the initiative and under 90the direction of another with the 91understanding that it will be disclosed by the 92latter under his own name and that 93contributing natural persons will not be 94identified. 95 96 "Joint Work" - is a work prepared 97by two or more authors with the intention 98that their contributions be merged into 99inseparable or interdependent parts of a 100unitary whole. i.e. medical textbook that is 101jointly authorized by two or three experts. 102 103 "Work of applied art" - is an 104artistic creation with utilitarian functions or 105incorporated in a useful article, whether 106made by hand or produced on an industrial 107scale. 108 109 "Performers" - are actors, 110singers, musicians, dancers, and other 111persons who act, sing, declaim, play in, 112interpret, or otherwise perform literary and 113artistic work. 114

115CONSTITUTIONAL BASIS
116

117 The State shall protect and secure the


118exclusive rights of SCIENTISTS, 119INVENTORS, ARTISTS AND OTHER 120GIFTED CITIZENS to their intellectual 121property and creation, particularly when 122beneficial to the people, for such period as

4 Page 66 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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3

MEMORY AID in COMMERCIAL LAW


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4CIVIL CODE PROVISIONS


5

1may be provided by law. (Art. XIV, Sec. 13, 21987 Constitution) 3

61Conferment of rights 62 The rights conferred by the IPC insofar as


63COPYRIGHT is concerned subsists from 64the moment of creation (Sec. 172.1). 65 Under Philippine Law, NO FORMALITY IS 66REQUIRED that the author be vested with 67the rights of copyright. 68

6 By Intellectual creation, the following persons


7acquire ownership: 81. The author with regard to his literary, 9 dramatic, historical, legal, philosophical, 10 scientific or other work; 112. The composer, as to his musical 12 composition; 133. The painter, sculptor, or other artist, with 14 respect to the product of his art; 154. The scientist or technologist or any other 16 person with regard to his discovery or 17 invention. (Art. 721, NCC) 18 19 Letters and other private communications in 20writing are owned by the person to whom they 21are addressed and delivered, BUT they cannot 22be published or disseminated without the 23consent of the writer or his heirs. (Art. 723, 24NCC) 25

69CREATION OF A WORK: 70 71 A copyrightable work is created when the

26SIGNIFICANT PROVISIONS OF THE 27AGREEMENT ON TRADE-RELATED 28ASPECTS OF INTELLECTUAL 29PROPERTY RIGHTS (TRIPS) IN REGARD 30TO COPYRIGHTS: 31
32a) 33 34 35b) 36 37c) 38 39 40 41 42 43 44 45 46 47 48 49d) 50 51 52 53 54 55 56 57 58

Compliance with the provisions of the Paris convention (1967) is made compulsory to members. Obligations under the Paris, Berne and Rome conventions remain, 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 of performers, producers of phonograms and broadcasting organizations (RECIPROCITY RULE). 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.

110DURATION OF COPYRIGHT FOR 111VARIOUS WORKS: (CHAP. XIV, SEC. 112213) 113
114A. 115 116 117 118 119 120 121 122

72two requirements are met: 731. ORIGINALITY- does not mean novelty 74 or ingenuity, neither uniqueness nor 75 creativity, it simply means that the work 76 "owes its origin to the author". 77 The work is an independent 78 creation of the author. 79 80 2. EXPRESSION-there must be "Fixation"; 81 to be "fixed" a work must be embodied 82 in a medium sufficiently: 83 a) PERMANENT; or 84 b) STABLE; 85 to permit it to be perceived, 86 reproduced, or otherwise 87 communicated for a period of more 88 than transitory duration. 89 Strictly speaking there is no work for 90 copyright purpose, unless there is 91 something tangible. 92 -It is fixation that defines the time from 93 when copyright subsists. Before the 94 time of fixation there can be no 95 infringement. 96 -Crucial event or act that allows the 97 author to invoke the law: 98 - It must be when a work of authorship 99 is at least expressed in some 100 determinate form, i.e. fixation. 101 102NOTE : CONTRARY VIEW - The new 103Intellectual Property Code is silent on the 104requirement of fixation. Absent this 105requirement of fixation, then copyright would 106attach to bear ideas which is excluded by 107universal principles of copyright. 108 109

59SUBSISTENCE OF THE RIGHTS


60

LITERARY ARTISTIC WORKS AND DERIVATIVE WORKS OF A SINGLE CREATOR-the rights subsist during the lifetime of the creator and for fifty (50) years after his death. (For purposes of reckoning the start of the fifty (50)-year period, the first day of January of the year following the event which gives rise to them is the starting point - Sec. 214)

4 Page 67 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

38THE SUBJECT OF COPYRIGHT


39 40A. LITERARY AND ARTISTIC WORKS 41 42 1. Books, pamphlets, articles and other 43 writings; 44 2. Periodicals and newspapers; 45 3. Lectures, sermons, addresses, 46 dissertations prepared for oral delivery, 47 whether or not reduced in writing or 48 other material form; 49 4. Letters; 50 5. Dramatic or dramatico-musical 51 compositions; choreographic works or 52 entertainment in dumb shows; 53 6. Musical compositions, with or without 54 words; 55 7. Works of drawing, painting, architecture, 56 sculpture, engraving, lithography or 57 other works of art; models or designs for 58 works of art; 59 8. Original ornamental designs or models 60 for articles of manufacture, whether or 61 not registrable as an industrial design, 62 and other works of applied art;

1b. 2 3 4 5 6 7c. 8 9 10 11 12 13d. 14 15 16E. 17 18 19 20 21F. 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

In case of JOINT CREATION-the economic rights shall be protected during the life of the last surviving author and for fifty years after his death (the fifty-year period is counted from the death of the last surviving cocreator). When an ANONYMOUS OR A PSEUDONYMOUS WORK- is published, the copyright lasts till the end of fifty years following the date of their first publication. (commencing from January 1 following the date of publication - Sec. 214) A work of APPLIED ART enjoys protection for twenty-five (25) years from the date of making. PHOTOGRAPHIC WORKS- are protected for fifty (50) years from the publication of the work, or from making the same term is given to audiovisual works produced by photography or analogous processes. A NEWSPAPER ARTICLE- will therefore enjoy a term of protection equal to that enjoyed by other literary works: the lifetime of the author and fifty years thereafter. Important, however, relative to newspapers and periodicals is the denial of copyright protection to "news of the day and other miscellaneous facts having the character of mere items of press information." (Sec. 175) A pure news report will no longer find protection under the new law, BUT a column or published comment will. When newspapers and periodicals include works enjoying independent copyrights, the works so included continue enjoying the rights for a duration proper to them.

63 9. Illustrations, maps, plans, sketches, 64 charts and three (3) dimensional 65 works relative to geography, 66 topography, architecture or science; 67 10. Drawings or plastic works of a 68 scientific or technical character; 69 11. Photographic works including works 70 produced by a process analogous to 71 photography; lantern slides; 72 12. Audiovisual works and 73 cinematographic works and works 74 produced by a process analogous to 75 cinematography or any process for 76 making audiovisual recordings; 77 13. Pictorial illustrations and 78 advertisements; 79 14. Computer programs; and 80 15. Other literary, scholarly, scientific 81 and artistic works. (Sec. 172) 82 83 NOTE: The author of speeches, 84lectures, sermons, addresses, and 85dissertations shall have the exclusive right 86of making a collection of his works. (Sec. 87176.2) 88 89B. DERIVATIVE WORKS 90 91The following derivative works shall also be 92protected by copyright. 93 1. Dramatizations, translations, 94 adaptations, abridgments, 95 arrangements, and other alterations of 96 literary or artistic works; and 97 2. Collections of literary, scholarly or 98 artistic works, and compilations of data 99 and other materials which are original 100 by reason of the selection or 101 coordination or arrangement of their 102 contents (Sec. 173). 103 104 An important innovation of the new law is 105the distinct copyright that the publisher of a 106work enjoys. The code provides - "In 107addition to the right to publish granted by the 108author, his heirs, or assigns, the publisher 109shall have a copyright consisting merely of 110the right of reproduction of the typographical 111arrangement of the published edition of the 112work." (Sec. 174) 113

114 115 116 117WORKS NOT PROTECTED: 118


1191. 120 121 122 123 124 125

No protection shall extend, under this law, to any idea, procedure, system, method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; (Sec. 175)

4 Page 68 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

News of the day and other miscellaneous facts having the character of mere items of press information; (Sec. 175) or Any official text of a legislative, administrative or legal nature, as well as any official translation thereof. (Sec. 175) Any work of the Government of the Philippines; 9 However, prior approval of the government 10 agency or office wherein the work is created 11 shall be necessary for exploitation of such 12 work for profit. Such agency or office may, 13 among other things, impose as a condition 14 the payment of royalties. 15 No prior approval or conditions shall be 16 required for the use of any purpose of 17 statutes, rules and regulations, and 18 speeches, lectures, sermons, addresses, 19 and dissertations, pronounced, read or 20 rendered in courts of justice, before 21 administrative agencies, in deliberative 22 assemblies and in meetings of public 23 character. (Sec. 175) 245. Pleadings; 256. Although not explicitly mentioned, 26 DECISIONS OF COURTS AND 27 TRIBUNALS are likewise non-copyrightable. 28 They may therefore be freely used or 29 quoted. 30 NOTE: This pertains to the "original 31 decisions" not the SCRA PUBLISHED 32 VOLUMES WITH ANNOTATIONS since 33 these are protected under derivative works 34 as "collections of literary, scholarly, or 35 artistic works and compilations of data and 36 other materials which are original by reason 37 of the selection or coordination or 38 arrangement of their contents." (Sec. 173.1 39 b) 40

12. 2 3 43. 5 6 74. 8

64B. Moral Rights


65 66The author of a work shall, independent of 67economic rights or the grant of an 68assignment or license with respect to such 69right, have the right: 70 1. Require that the authorship of the 71 works be attributed to him, in a 72 prominent way on the copies, and 73 with the public use of the work; 74 2. Make any alterations of his work 75 prior to, or to withhold it from 76 publication; 77 3. Object to any distortion, mutilation 78 or other modification of, or other 79 derogatory action in relation to, his 80 work which would be prejudicial to 81 his honor or reputation; and 82 4. Restrain the use of his name with 83 respect to any work not of his own 84 creation or in a distorted version of 85 his work (Sec. 193). 86

87LIMITATIONS ON COPYRIGHT:

41THE RIGHTS OF COPYRIGHT


42

43A. Copyright or Economic Rights


44 45Copyright or Economic rights shall consist of the 46exclusive right to (a) carry out, (b) authorize or 47(c) prevent the following acts: 48 49 1. Reproduction of the work or substantial 50 portion of the work; 51 2. Dramatization, translation, adaptation, 52 abridgment, arrangement or other 53 transformation of the work; 54 3. First public distribution of the original 55 and each copy of the work; 56 4. Rental of the original or a copy of an 57 audiovisual or cinematographic work; 58 5. Public display of the original or a copy of 59 the work; 60 6. Public performance of the work; and 61 7. Other communication to the public of the 62 work. (Sec. 177) 63

88 89 The following acts shall NOT constitute 90infringement of copyright: 91 921. Recitation or performance of a work 93 -made accessible to the public 94 -privately done 95 - free of charge 96 -strictly for a charitable or religious 97 institution; 982. Making of quotations from a published 99 work 100 - compatible with fair use 101 - to the extent justified for the purpose 102 - including quotations from newspaper 103 articles and periodicals 104 - source and name of the author, 105 appearing on work, must be mentioned; 1063. Reproduction or communication to the 107 public by mass media 108 - of articles on current political, social, 109 economic, scientific or religious topic, 110 lectures, addresses and other works, 111 delivered in public 112 - use is for information purposes 113 - not expressly reserved 114 - source is already indicated; 1154. Reproduction and communication to the 116 public of literary, scientific or 117 artistic works 118 - as part of reports of current events 119 -by means of photography, 120 cinematography or broadcasting 121 - to the extent necessary for the 122 purpose; 1235. Inclusion of a work in a publication, 124 broadcast, or other communication to 125 the public, sound recording or film

4 Page 69 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2 3 4 5 66. 7 8 9

- 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

11 - such recording must be deleted within a 12 reasonable period 13 - such recording may not be made from 14 audiovisual works which are part of the 15 general cinema repertoire of feature films 16 EXCEPT for brief excerpts of the work; 177. Making of ephemeral recordings 18 -by a broadcasting organization 19 - by means of its own facilities 20 - for use in its own broadcast; 218. Use made of a work by or under the 22 direction or control of the Government 23 - Government 24 - National Library 25 - Educational, Scientific, or professional 26 institutions 27 - use is in the public interest 28 - compatible with fair use; 299. Public performance or the communication to 30 the public of a work 31 - in a place where no admission fee is 32 charged by a club on institution 33 - for charitable or educational purpose only 34 - aim is not profit making; 3510. Public display of the original or a copy of the 36 work not made by means of a film, slide, 37 television image or otherwise on screen or 38 by means of any other device or process 39 - either the work has been 40 a) published 41 b) sold 42 c) given away 43 d) transferred to another person by the 44 author or his successors in title; 4511. Any use made of a work for the purpose 46 - of any judicial proceedings; or 47 - for the giving of professional advice by a 48 legal practitioner. 49 50 The provisions of this section shall be 51interpreted in such a way as to allow the work to 52be used in a manner which does not conflict with 53the normal exploitation of the work and does not 54unreasonably prejudice the right holder's 55legitimate interests. (Sec. 184.2) 56 57 The private reproduction of a published work in 58a single copy, where the reproduction is made 59by a natural person exclusively for (1) research 60and (2) private study, shall be permitted, without 61the authorization of the owner of copyright in the 62work. (Sec. 187.1) HOWEVER, the permission

106FAIR USE OF A COPYRIGHTED 107WORK 110


108 109 111 112 113 114 115 116

63granted under Subsection 187.1 SHALL 64NOT EXTEND to the reproduction of: 65 xxx 66(b) An entire book, or a substantial part 67thereof, or of a musical work in graphic form 68by reprographic means; (Sec. 187.2) 69 70 Under Article 9, paragraph 2 of the 71Berne - Paris Convention, individual 72countries may permit the reproduction of 73literary and artistic works "provided that 74such reproduction does not conflict with a 75normal exploitation of the work and does not 76unreasonably prejudice the legitimate 77interests of the author." (also found in Sec. 78187.2 e) 79 The same caveat is contained in Article 8014 of the GATT 94 intellectual property 81agreement: Limitations or exceptions to the 82exclusive rights shall be confined to certain 83special cases which do not conflict with a 84normal exploitation of the work and do not 85unreasonably prejudice the legitimate 86interests of the right - holder. This in-built 87protection of the interests of a copyright 88owner is now unequivocally enshrined in 89Sec. 187.2 e. 90 91PERSONAL USE - generally understood as 92making a single reproduction, adaptation, 93arrangement or other transformation of 94another's work exclusively for one's own 95individual use in such cases as personal 96research, learning or amusement. 97 98PRIVATE USE - generally understood in 99relation to a published work as making a 100reproduction, adaptation or other 101transformation of it, in a single person, as in 102the case of "personal use" but also for a 103common purpose by a specific circle of 104persons only. 105

Fair Use A privilege, in persons other than the owner of the copyright, to use the copyrighted material in a reasonable manner without his consent, notwithstanding the monopoly granted to the owner by the copyright.

117

It is meant to balance the monopolies 118 enjoyed by the copyright owner with the 119 interests of the public and of society. 120 121NOTE: It only applies to copyrighted work 122and not to non-copyrightable material. 123 124 125

4 Page 70 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1CRITERIA TO DETERMINE WHETHER 2USE IS FAIR OR NOT: 3


41. 52. 63. 7 84. 9 10

Purpose and the character of the use Nature of the copyrighted work Amount and substantiality of the portions used Effect of the use upon the potential market of the copyrighted work

11THE "FAIR USES" OF PROTECTED 12MATERIAL ARE: 13


141. 152. 16 17 18 19 20

70Importation for Personal Purposes 71 72 The importation of a copy of a work by an


73individual for his personal purposes shall be 74permitted without the authorization of the 75author of, or other owner of copyright in, the 76work under the following circumstances: 77a. Copies of the work are not available in 78 the Philippines and: 79 1.One (1) copy at one time is 80 imported, for strict individual 81 2.By Authority of and for the use of 82 the Philippine Government; or 83 3.Religious, Charitable or 84 Educational Society or institution 85 imported not more than three (3) 86 copies per title (or kind) provided 87 they are not for sale. (it is enough 88 if the importation be for the 89 sake of such society or institution) 90b. Copies form parts of libraries and 91personal baggage belonging to persons or 92families arriving from foreign countries and 93are not intended for sale: Provided, That 94such copies do not exceed three (3). (Sec. 95190)

623. 63 64 65 66 67 68 69

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)

Criticizing, commenting, and news reporting; 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)

21REPROGRAPHIC REPRODUCTION BY 22LIBRARIES: 23 24 Any library or archive whose activities are not
25for profit may, without the authorization of the 26author of copyright owner, make a single copy of 27the work by reprographic reproduction, when: 28 1. Fragile or rare 29 2. Isolated articles 303. Preservation (Sec. 188.1) 31 323 It shall not be permissible to produce a 33 volume of a work published in several 34 volumes or to produce missing tomes or 35 pages of magazines or similar works, unless 36 the volume, tome or part is necessary for the 37 collection of the library and is out of stock. 38 (Sec. 188.2) 394 40 The rights mentioned vest in libraries, 41public archives and museums. There is no 42requirement that the library be a public library, it 43could be private. And is limited only to literary or 44artistic works. 45

96 97THE OWNERSHIP OF COPYRIGHT


98 991. 100 1012. 102 103 104 105 106 107 108 109 110 111 1123. 113 114 115 116 1174. 118 119 120 121 122 123 124

46CRITERIA FOR "REPROGRAPHIC 47REPRODUCTION" OF LIBRARIES: 48

55REPRODUCTION OF COMPUTER 56PROGRAMS: 57

491. Photocopying only, i.e. "xerox" (not by other 50 medium) 512. Single copy 52 3. Consistent with the activities of the library 53 or archive 54

58 The reproduction of a computer program is 59allowed on the following conditions: 601. Only one (1) copy is made; 612. Lawful owner made the copy;

SINGLE CREATOR - The creator, his heirs or assigns owns copyright. JOINT CREATION - The co - authors shall be the original owners of the copyright and in the absence of agreement, their rights shall be governed by the rules on co ownership. If, however, a work of joint authorship consists of parts that can be used separately and the author of each part can be identified, the author of each part shall be the original owner of the copyright in the part that he has created. COMMISSIONED WORK - Ownership of the work is in the person commissioning; ownership of copyright, remain with the creator, unless there is a written stipulation to the contrary. CINEMATOGRAPHIC WORK - The producer exercises copyright for purposes of exhibition; for all other purposes, the producer, the author of the scenario, the composer, the film director, the photographic director and the author of the work are the creators. For purpses of showing the film,

4 Page 71 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 however, the producer is to be deemed 2 copyright owner. 35. PSEUDONYMOUS AND ANONYMOUS 4 WORKS - Unless the author is undisputably 5 known, the publisher shall be presumed to 6 be the representative of the author. (Sec. 7 178 and 179) 8 9 As regards moral rights, the joint authors are 10entitled to be acknowledged as authors of the 11work (Sec. 193.1 may apply). As regards 12contributions to a collective work, the law 13provides that unless the contributor expressly 14reserves his right (which often will not be the 15case precisely because he is in the employ of a 16putative author or commonly accepted author), it 17is the putative author to whom the work will be 18attributed. (Sec. 196) 19 When a writer, a photographer, an artist - or 20any other contributor - sends in his piece to a 21periodical or newspaper publisher, such writer or 22artist retains his copyright on the piece except 23the right to publish once - which is deemed 24granted to the publisher. (Sec. 180.3) 25

63reproductions are not delivered and the fee 64is not paid, the copyright owner shall be 65liable to pay a fine. (Sec. 191) 66 67NOTICE OF COPYRIGHT 68 69 Each copy of a work published or offered 70for sale may contain a notice bearing the 71name of the copyright owner, x x x. (Sec. 72192) 73 Notice of copyright is allowed, not 74prescribed, for the permissive "may" is used. 75

76INFRINGEMENT

26COPYRIGHT OWNERSHIP OF FOREIGN 27AUTHORS 28 29 When the author, though a foreigner, has
30habitual residence in the Philippines, or when 31the headquarters of the producer of audiovisual 32works is in the Philippines, copyright protection 33is beyond doubt. 34 Protections afforded the code are applied to 35works "protected by virtue of and in accordance 36with any international convention or other 37international agreement to which the Philippines 38is a party. (Sec. 221.2) 39 Members shall accord the treatment provided 40for in this Agreement to the nationals of other 41Members. (Art. 1, par. 3, TRIPS; Paris - Berne 42Convention; GATT 94) 43

44DEPOSIT AND NOTICE

45 46Registration and Deposit with the National 47Library and the Supreme Court Library 48 49 For the purpose of completing the records of 50the National Library and the Supreme Court 51Library, within three (3) weeks, two (2) complete 52copies of the work shall be registered and 53deposited with the said libraries, by personal 54delivery or by registered mail. 55 A certificate of deposit shall be issued and the 56prescribed fee collected for which the copyright 57owner shall be exempt from making additional 58deposit of the works with the aforementioned 59libraries under other laws. 60 If, within three (3) weeks after receipt by the 61copyright owner of a written demand from the 62directors for such deposit, the required copies or

77 78REMEDIES of one who complains of 79infringement: 80 81 1. INJUNCTION to prevent 82 infringement (Sec. 216) 83 2. DAMAGES assessed on the basis 84 of the proof alleged by the plaintiff of 85 sales made by the defendant of the 86 infringing work minus whatever 87 costs the defendant may be able to 88 prove and appreciated by the court. 89 (b) 90 3. DELIVERY UNDER OATH OF ALL 91 IMPLEMENTS employed in the 92 production of the infringing items, as 93 well as the infringing products 94 themselves, for impounding. (c) 95 4. DELIVERY under oath of all 96 infringing copies or devises for 97 destruction. (d) 98 5. PAYMENT of moral and exemplary 99 damages in the discretion of the 100 court. (e) 101 102 The infringer also exposes himself to 103criminal liability wherein the law prescribes 104penalties of imprisonment and fines, 105including subsidiary imprisonment in case of 106insolvency. (Sec. 218) 107

108RELATED ISSUES

109 1101. JURISDICTION 1115 Original jurisdiction lies with the Director 112 General of the IPO over disputes 113 relating to the terms of a license 114 involving the author's right to public 115 performance or other communication of 116 his work. (Sec. 7 c) 117 Other infringement cases are not within 118the jurisdiction of the Director - General. In 119fact throughout Section 216, the term "court" 120is used, leaving no doubt that jurisdiction will 121rest with the "court" in view of the 122jurisdictional amount and the criminal 123prosecution of imposable penalties. 124

4 Page 72 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

12. STANDING TO SUE 2 Persons who may sue: 3 a) Legal owner; or 4 b) Beneficial owner; since they are 5 "parties in interest." 6 73. DEFENDANTS 86 Those who may be liable for infringement 9 under the copyright law: 10 a) Infringer 11 b) Aids 12 c) Abets 13 d) Participates 14 e) Contributes 15 f) Authorizes 16 a) Benefits (deemed included in 17 Sec. 217). 18 19 A corner book store and magazine store that 20vends pirated copies of a work is in fact violating 21the copyright owner's right to exclusively 22distribute his work. Such store would therefore 23be infringing. The printer who, though acting 24under instructions from another, sets into motion 25the illegal reproduction of protected material 26would, in fact, be infringing copyright. 27 284. PRESCRIPTIVE PERIOD 29 30 No damages may be recovered after four (4) 31years from the time the cause of action arose. 32(Sec. 226) This pertains only to recovery of 33damages. 34 There is no such prescriptive period in 35petitions for injunctive relief as well as for the 36impounding and destruction of infringing 37material. The crime of infringement is subject to 38the general rules of prescription of crimes. 39

64MORAL RIGHTS OF PERFORMERS


65 661. Identified as the performer. 672. Object to any distortion or mutilation of 68 the performance (Sec. 204). 69 70 71 72 73

63

74LAW ON TRADEMARKS

75 76TRADEMARK is anything which is adopted 77and used to identify the source of origin of 78goods, and which is capable of 79distinguishing them from goods emanating 80from a competitor. 81 82GOODWILL is the reputation and public 83confidence that a business venture has 84earned through a period of creditable 85dealings. 86 87 The reason the law protects 88 trademarks is to protect the interests of 89 producers in their marks, and in the 90 goodwill earned. 91 The essence of trademark 92 infringement is: passing off ones goods 93 as those of a producer of fame or note.

94

40PERFORMER'S RIGHTS

41 421. Authorize as well as prohibit: 43 a. The broadcasting and other 44 communication to the public of their 45 performance (including telecast). (Sec. 46 203.1 a) 47 b. The fixation of their unfixed 48 performance. (b) 49 (The above rights shall be maintained and 50 exercised fifty (50) years after his death, by 51 his heirs, and in default of heirs, the 52 government Sec. 204.2) 532. Direct or indirect reproduction of their 54 performances (Sec. 203.2) 553. First Public distribution of the original and 56 copies of their performance (Sec. 203.3). 574. Commercial rental to the public of the 58 original and copies of their performances 59 (Sec. 203). 605. Making available to the public of their 61 performances fixed in sound recordings by 62 wire or wireless means (Sec. 204.5).

95SERVICE MARK distinguishes the services 96of an enterprise from the service of other 97enterprises. 98 99MARK any visible sign capable of 100distinguishing the goods or services of an 101enterprise and shall include a stamped or 102marked container of goods. 103 The term visible is not limited to 104 whatever may be perceptible by the 105 senses. 106 107COLLECTIVE MARK any visible sign 108designated as such in the application for 109registration and capable of distinguishing the 110origin or any other common characteristic, 111including the quality of goods or services of 112different enterprises which use the sign 113under the control of the registered owner of 114the collective mark. 115

116DISTINCTION :

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

4 Page 73 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

name.
1 3 4 5 6

14DISTINCTIONS :
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.

8 9 10 11 12 13

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).

62ACQUISITION OF RIGHT/GOODWILL 63THROUGH USE 64 When a person has identified in the


LABEL
- it names what is within the container or package. - purpose:informative

49According. to the World Intellectual Property 50Organization: 511. Distinguishing or differentiating 52 functions. It sets apart the products or 53 services of an enterprise from those of 54 another. 552. Origin or source function. It refers to 56 origin or source in terms of enterprise. 573. Quality function. The marks guarantees 58 the same standards and controls with 59 which it is associated. 604. Advertising function. 61

16

15 17 18 19 20

21

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.

22TRADE DRESS involves the total image of a 23product, including such features as size, shape, 24color or color combinations, texture and /or 25graphics. 26 27 Unfair competition includes the selling of 28 goods and giving them the general 29 appearance of goods of another 30 manufacturer or dealer, either as to the 31 goods themselves or in the wrapping of the 32 packages in which they are contained, or the 33 devices or words thereon, or in any other 34 feature of their appearance, which would be 35 likely to influence purchasers to believe that 36 the goods offered are those of a 37 manufacturer, or dealer, or who otherwise 38 clothes the goods with such appearance as 39 shall deceive the public and defraud another 40 of his legitimate trade, or any subsequent 41 vendor of such goods or any agent of any 42 vendor engaged in selling such goods with a 43 like purpose. 44 All that is necessary is the likelihood of 45 deception. 46

65 mind of the public the goods he 66 manufactures or deals in his business or 67 services from those of others, such a 68 person has a property right in the 69 goodwill of the said goods, of services 70 which will be protected in the same 71 manner as other property rights. 72 73 Priority in registration in the Philippines of 74 a trademark is not material in an action 75 for unfair competition as distinguished 76 from an action for infringement of 77 trademark. The basis of an action for 78 unfair competition is confusing and 79 misleading similarity in general 80 appearance, not similarity of trademark. 81 (Converse Rubber World v. Jacinto 82 Rubber, G.R. Nos. L-27425 and L83 30505, April 28, 1980) 84 The use of the mark must be such as to 85 allow the same to be associated by the 86 public with a particular producer or 87 manufacturer. Hence, mere intention to 88 adopt a particular mark or name without 89 actual use gives rise to no rights at all. 90

91DISTINCTIONS : 92

INFRINGEMENT OF TRADE MARK

UNFAIR COM PETI TION

474 FUNCTIONS OF A MARK 48

1. it is the unauthorized 1. is the passing off use of a trademark of ones goods as 2. fraudulent intent is those of another unnecessary 2. fraudulent intent is 3. prior registration of essential the trademark is a 3. registration is not prerequisite to the necessary. action 93 94 95ARTICLE 189 of the Revised Penal Code 96provides for the following punishable acts: 97 1. Selling ones goods, giving them the 98 general appearance of the goods of

4 Page 74 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

10 11 ACQUISITION THROUGH 12 REGISTRATION 13 14 The rights to a mark are acquired through


15 16 17 19 20 21 22 24 25 26 27 28

1 another manufacturer or dealer. (Unfair 2 competition) 3 2. Affixing to ones goods or using in 4 connection with ones services a false 5 designation or origin, or any false 6 description or representation. 7 3. Procuring fraudulently from the patent office 8 the registration of trade name, trademark or 9 service mark. (Fraudulent registration)

18

23

registration with the Bureau of Trademarks( BT) of the Intellectual Property Office (IPO). However, it is not necessary to use the the mark in commerce in the Philippines (or elsewhere) before filing the application with the BT. The use of a mark becomes necessary only after it has been filed. new law requires an applicant or the registrant to file a declaration of actual use of the mark, with evidence to that effect, within three (30 years from the filing date of the application (Sec. 124.2, IPL).

29EFFECTS OF NON-USE 31
30 32 33 34 36 37 38 40 41

35

39

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).

42THE FOLLOWING ARE NOT ELIGIBLE 43FOR LICENSING:


44 45A mark cannot be registered if it: 46 1. Consists of immoral, deceptive, or 47 scandalous matter, or matter which may 48 disparage or falsely suggest a connection 49 with persons, living or dead, institutions, 50 beliefs, or national symbols, or bring them 51 into contempt or disrepute; 52 Whether a mark is immoral, scandalous or 53 contrary to public decency is to be 54 ascertained from the standpoint of a 55 substantial composite of the general public. 56 2. Consists of the flag or coat of arms or other 57 insignia of the Philippines or any of its 58 political subdivisions, or of any foreign 59 nation, or any simulation thereof; 60 3. Consists of a name, portrait or signature 61 identifying a particular living individual 62 except by his written consent, or the name,

63 signature, or portrait of a deceased 64 President of the Philippines, during the 65 life of his widow, if any, except by 66 written consent of the widow; 67 4. Is identical with a registered mark 68 belonging to a different proprietor or a 69 mark with an earlier filing or priority 70 date, in respect of: 71 (i) the same goods or 72 services, or 73 (ii) closely related goods or 74 services, or 75 (iii) if it nearly resembles 76 such a mark as to be likely 77 to deceive or cause 78 confusion; 79 80REVERSE CONFUSION -takes place when 81a large junior user makes use of a mark or a 82name confusingly similar to the mark or a 83name of a small senior user, occasioning the 84impression that the products of the senior 85are those of the junior, or that the senior has 86somehow been absorbed or merged into the 87junior. 88 89 The law institutes a race for the registry 90 office, she who reaches and registers first 91 gains the protection of law to the exclusion 92 of others in regard to the same or a 93 confusingly similar mark. 94 5. Is identical with, or confusingly similar 95 to, or constitutes a translation of a mark 96 which is considered by the competent 97 authority of the Philippines (IPO) to be 98 well-known internationally and in the 99 Philippines., whether or not it is 100 registered here, as being already the 101 mark of a person other than the 102 applicant for registration, and used for 103 identical or similar goods or services: 104 Provided, That in determining whether 105 a mark is well-known, account shall be 106 taken of the knowledge of the relevant 107 sector of the public, rather than of the 108 public at large, including knowledge in 109 the Philippines. Which has been 110 obtained as a result of the promotion of 111 the mark; 112 113 Protects even unregistered marks and 114 names. 115 Deals with an applicants goods that 116 are identical or similar to those under 117 a previously registered or previously 118 well-known mark. Where the same sign 119 is used for identical goods, there will be 120 presumption of the likelihood of 121 confusion. (Sec. 147.1, IPL) 122 123 6. Is identical with, or confusingly similar 124 to, or constitutes a translation of a mark 125 considered well-known in accordance

4 Page 75 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 with the preceding paragraph, which is 2 registered in the Philippines with respect to 3 goods or services which are not similar to 4 those with respect to which registration is 5 applied for: Provided, That use of the 6 mark in relation to those goods or 7 services would indicate a connection 8 between those goods or services, and 9 the owner of the registered mark: 10 Provided further, That the interests of the 11 owner of the registered mark are likely to be 12 damaged by such use; 13 14 This provision deals with goods or services 15dissimilar from those disposed of under the 16same mark or name. 17 18 DOCTRINE OF DILUTION -refers to copying 19 which, while not sufficiently confusing to divert 20 sales in the short run, will tend to divert them in 21 the long run by weakening the instantaneous 22 favorable associations the public makes with 23 highly regarded products. 24 25 26 27 28 29

30 TESTS OF TRADEMARK 31 INFRINGEMENT


DOMINANCY TEST

HOLISTIC TEST

- consists in seeking - takes stock of the out the main, other features of a essential or mark, taking into dominant features consideration the of a mark. entirety of the marks. 32 33 Under the Dominancy Test, if the competing 34 trademark contains the main or essential or 35 dominant features of another, and confusion 36 and deception is likely to result, infringement 37 takes place. 38

39TRANSLATIONS 40 There will be infringement when a translation

41of a well-known mark in the Philippines. or 42internationally is used for similar goods or 43products. There will like wise be infringement 44when a translation of a registered mark in the 45Philippines. is used for dissimilar goods or 46products. 47 48DOCTRINE OF FOREIGN LANGUAGE 49EQUIVALENTS - states that "the foreign 50equivalent of a merely descriptive English51language word is deemed to be no more 52registrable than the English word itself, despite 53the fact that the foreign term may not be 54commonly known to be general public". 55

56 7. Is likely to mislead the public, 57 particularly as to the nature, quality, 58 characteristics or geographical origin of 59 the goods or services; 60 61 A mark then will not be granted 62 registration that suggests a quality, a 63 characteristics or an origin that the good 64 or service does not possess. 65 66 8. Consists exclusively of signs that are 67 generic for the goods or services that 68 they seek to identify; 69 9. Consists exclusively of signs or of 70 indications that have become 71 customary or usual to designate the 72 goods or services in everyday language 73 or in bona fide and established trade 74 practice; 75 76 It must be made clear that the fact that a 77 term is generic does not per se render it 78 non-registrable. What the law excludes is 79 the registration of a mark that is generic 80 relative to the goods or products for which 81 the mark is used. 82 Where a word or a term was originally 83 the subject of a trademark, but becomes 84 so associated in the public mind with an 85 article to which it is applied and thereby 86 becomes a generic indicator, it can no 87 longer be protected. 88 89 10. Consists exclusively of signs or of 90 indications that may serve in trade to 91 designate the kind, quality, quantity, 92 intended purpose, value, geographical 93 origin, time or production of the goods 94 or rendering of the services, or other 95 characteristics of the goods or services; 96 97 That which may rightly be said of all can 98be appropriated by none. 99 100 11. Consists of shapes that may be 101 necessitated by technical factors or by 102 the nature of the goods themselves or 103 factors that affect their intrinsic value; 104 12. Consists of color alone, unless defined 105 by a given form; or 106 13. Is contrary to public order or morality 107 (Sec. 123.1, IPL). 108 109Sec. 123.2. As regards signs or devices 110mentioned in paragraphs (j), (k) and (l), 111nothing shall prevent the registration of any 112such sign or device which has become 113distinctive, in relation to the goods for which 114registration is requested as a result of the 115use that have been made of it in commerce 116in the Philippines. The Office may accept as 117a prima facie evidence that the mark has 118become distinctive, as used in connection

4 Page 76 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1with the applicant's goods or services in 2commerce, proof of substantially exclusive and 3continuous use thereof by the applicant in 4commerce in the Philippines for five (5) years 5before the date on which the claim of 6distinctiveness is made. 7 8DOCTRINE OF SECONDARY MEANING 9 10 While a generic, indicative or descriptive mark 11will, as a general rule, be denied registration, 12there is a circumstance that will allow it to be 13registered, this is the doctrine of secondary 14meaning which has been defined as, when a 15mark has become distinctive of the applicant's 16goods in commerce and, and in the mind of the 17public, indicates a single source to consumers, it 18may be registered. 19 20 Requirements of the doctrine: 21 1. The secondary meaning must have 22 arisen as a result of substantial 23 commercial use in the Philippines. 24 2. The use result in the distinctiveness 25 of the mark insofar as the goods or 26 the products are concerned. 27 3. Prima facie evidence is proof of 28 commercial use in the Philippines 5 29 years before date of claim. 30.

63 not transact business just the same as it 64 may protect its tangible property, real or 65 personal against trespass or conversion. 66 Sec. 160 leaves no doubt that a foreign 67 national or juridical person who is a 68 national of a country that is party to a 69 relevant convention to which the 70 Philippines. is also a party may bring a 71 civil or an administrative action for 72 opposition, cancellation, infringement, 73 unfair competition or false designation of 74 origin and false description, regardless of 75 its status (or lack of it) in the Philippines., 76 and even if such an entity does not do 77 business in the Philippines. 78

79ELEMENTS OF THE CRIME OF 80TRADEMARK INFRINGEMENT: 81


821. 83 84 852. 86 87 88 893. 90 91 924. 93 94

31RIGHTS CONFERRED

32 331. The right to the exclusive use of the mark for 34 one's own goods or services. 352. The right to prevent others from the use of 36 the same mark for identical goods or services 37 in the course of trade. 383. The right to the exclusive use of one's 39 already registered mark even for goods or 40 services into which one's venture expands, if 41 use by others for dissimilar products is likely 42 to damage the business interests of the first 43 venturer (Sec. 147, IPL). 44 45 The rights, by Sec. 145, lasts for ten (10) 46years subject to indefinite renewal for periods of 47ten years each. 48 The right to the use of a registered trademark 49may be licensed to another person, natural or 50juridical, enabling such a party to produce, 51market, distribute and advertise goods or 52services by the trade or service mark of the 53licensor. Sec. 150.1 however requires that a 54licensor effectively control the quality of the 55goods or services of the licensee. 56

The deceitful act of giving ones goods the general appearance of the goods of another manufacturer or dealer. The deceptive similarity is either in the goods themselves, in the trade dress, in the words or devices, or in any other feature of appearance. The offender offers to sell or sells the goods, or gives others the opportunity to do the same. An actual intent to deceive the public or defraud the competitor.

95 96PATENT 98 Is a document, issued, upon application,


99by a government office, which describes an 100invention and creates a legal situation in 101which the patented invention can normally 102only be exploited (manufactured, used, sold, 103imported) with the authorization of the owner 104of the patent 105 106 is an exclusive right acquired over an 107invention, to sell, use and make the same 108whether for commerce or industry. 109 97

110DISTINCTIONS : 111
PATENT

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.

57STANDING TO SUE AND JURISDICTION


58

59 The right to the use of the corporate or trade


60 name is a property right, a right in rem, which 61 it may assert and protect in any of the courts 62 of the world even in jurisdiction where it does

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

4 Page 77 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

discoverer.

2 It will be remembered that what is not


3patentable may nevertheless be protected under 4copyright law. 5

66REQUIREMENTS FOR PATENT:

625. Aesthetic creations 636. Anything which is contrary to public 64 order or morality (Sec. 22). 65

6PATENTABILITY

7 8To be patentable, a product must be: 9 a. a technical solution of a problem in 10 any field of human activity 11 b. novel 12 c. an invention 13 d. industrially applicable 14 15 These criteria may apply to: 16 a. products 17 b. processes 18 c. improvements of either products or 19 processes 20 21PROCESS- consists of an act, operation, or 22steps or a series thereof, performed upon a 23specified subject matter to produce physical 24result. 25 where the patent is for a process, the law 26forbids others from using the process, and also 27from manufacturing, dealing in , or importing any 28product obtained directly or indirectly from such 29process.

30

47 EXCLUDED FROM PATENT 48PROTECTION: 49


501. 51 522. 53 54 553. 56 57 58 594. 60 61

31PRODUCT-is broad enough a term to include 32every output of human ingenuity, every tangible 33result of craftsmanship or partnership. It is to be 34noted that not all products are patentable 35because not all process the requirements of 36patentability. 37 38IMPROVEMENTS- to be patentable, the 39improvement should be non-obvious to one 40skilled in the art of the original invention and is 41truly novel. If it is merely a consequence of 42technical configuration of the original invention 43and is thus suggested by the invention itself, 44the improvement is still within the dominion of 45the original invention. 46

discoveries, scientific theories and mathematical method schemes, rules and methods of performing mental acts, playing games, or doing business, and programs for computer methods for treatment of the human body or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body. Plant varieties or animal breeds of essentially biological process for the production of plants or animals

67 681. NOVELTY- that which does not form 69 part of the prior art (Sec. 23). 70 Prior art is specified under Sec. 24, to 71 wit: 72 a. that which has been made 73 available to the public anywhere 74 in the world before the filing 75 date or the priority date of 76 application 77 b. that which forms part of an 78 application whether for patent, 79 utility model or industrial 80 designed, effective in the 81 Philippines, provided that: 82 b.1. the inventor or applicants 83 are not the same 84 b.2. the contents of the 85 application are published in 86 accordance with the 87 requirements of patent 88 application rules 89 b.3. the filing date of prior art Is 90 earlier 91 92 thus prior art is synonymous with 93prejudicial disclosure 94 Sec. 25 RA 8293 embodies the exception 95to prior art under the heading non96prejudicial disclosure any disclosure of the 97invention made within twelve (12) months 98before the filing date does not prejudice the 99application if the disclosure is made by: 100 a. inventor himself (or by anyone 101 who has the right to patent, Sec. 102 25, 2) 103 b. patent officewhen the 104 information of the latter office 105 comes another application filed 106 by the inventor that should not 107 have been disclosed by the 108 office 109 c. third persons application when 110 such persons information 111 directly indirectly comes from 112 the inventor himself without the 113 inventors permission, or from 114 any third persons who obtained 115 his information from the 116 inventor. 117 1182. INVENTIVENESS 119 1207 an invention involves an inventive step 121 if, having regard to prior act, it is not 122 obvious to a person skilled in the art at 123 the time of the filing date or priority date

4 Page 78 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 of the application claiming the invention 2 (Sec. 26, RA 8293). 38 It is suggested that the test of non4 obviousness be pursued in four steps: 5 1. the scope and 6 content of the prior art are determined 7 2. the differences 8 between the prior art and the claims at 9 issue are ascertained 10 3. the level of ordinary 11 skill in the pertinent art is resolved 12 4. against this 13 background, the obviousness or non14 obviousness of the subject matter is 15 ascertained (60 AM JUR 2d, Patents, 16 Sec. 144). 17 183. CAPABLE OF INDUSTRIAL 19 APPLICATION 20 21 (TRIPS, Sec. 5 Art. 27, par. 1) 22Two requirements of industrial applicability shall 23be fulfilled: 24 a. it can be produced 25 b. can be used in industry (Sec. 27) 26 279 The application shall disclose the invention 28 in a manner sufficiently clear and complete 29 for it to be carried out by a person skilled in 30 the art. 31 according to TRIPS, it is synonymous with 32 useful 33 (Sec. 5 Art. 29 year 1, TRIPS) an applicant 34 for a patent shall disclose the invention in a 35 manner sufficiently clear and complete for the 36 invention to be carried out by a person skilled in 37 the art and may require the applicant to indicate 38 the best mode for carrying out the invention 39 known to the inventor at the filing date 40 41FIRST TO FILE RULE 42 Under Sec. 29 R.A. 8293, if two or more 43person have made the invention separately and 44independently of each other the right to the 45patent shall belong to the person who first filed 46an application for such invention.

66TERM OF A PATENT 67 The term of a patent shall be twenty (20)


68years from the filing date of application 69(Sec. 54 ). 70 71INFRINGEMENT- the making, using, 72offering for sale , selling or importing a 73patented product or a product obtained 74directly or indirectly from a patented 75process, or the use of a patented process 76without the authorization of the patentee 77(Sec. 76.1). 78

63 64 65

date or the earliest priority date (Sec. 28)

47 48OWNERSHIP OF PATENT RIGHTS:

49 50The right to a patent belongs to: 51 a. inventor, his heirs, or assigns 52 b. when two (2) or more persons have 53 jointly made an invention to them 54 jointly 55 c. if two (2) or more persons have the 56 invention separately and 57 independent of each other to the 58 person who filed an application for 59 such invention 60 d. where 2 or more application are filed 61 for the same invention to the 62 applicant who has the earliest filing

811. Literal infringement- resort is had to 82 the words of the claim. 832. Doctrine of equivalents- if two devices 84 do the same work in substantially the 85 same way, the same result, and 86 produce substantially same result, they 87 are the same eventhough they differ in 88 name, form or shape. 89 90 Sec. 78 warns that where the product is 91identical, it shall be presumed to have been 92obtained thru the use of the patented 93process. Thus there has evolved the 94doctrine of equivalents which protects a 95patented invention from circumvention by 96minor changes or deviations. 97 98THE RIGHTS OF A PATENTEE ( SEC. 9971) 100 1011. In came of a product, the patentee shall 102 have the exclusive right to make, use, 103 offer for sale, sell or import the product. 1042. In case of a process, the patentee shall 105 have the exclusive right to use the 106 process, and to manufacture, deal in, 107 use, sell or offer for sale or import any 108 product obtained directly or indirectly 109 from such process. 110 111 The government or a third person 112authorized by the government may use the 113patent without the authority of a patent 114owner, provided: 115 1. on public interest grounds, in 116 particular, national security, 117 nutrition, health or the development 118 of other sectors, as determined by 119 the appropriate agency of the 120 government so requires; i.e. 121 importation of medicines under the 122 Generics Act by the Department of 123 Health.

79TESTS OF PATENT INFRINGEMENT 80

4 Page 79 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 2. The manner of exploitation by the owner 2 of the patent or his licensee, is anti3 competitive (Sec. 74.1). 4 5 Under Sec. 46 R.A. 8293, After the publication 6of the patent application, the applicant, event 7while his application is still pending, is already 8accorded the rights of a patentee granted under 9the law as against any person unlawfully 10exercising patent rights, provided the ff. 11conditions concur 12 13 1. the latter has actual knowledge that the 14 invention he was using was the subject 15 matter of a patent 16 2. he has written notice of such fact 17 3. the action may be filed only after the 18 grant of the patent and within four (4) 19 years from the commission of the acts 20 complained of. 21 22UTILITY MODELS - are models of implement 23 or tools of any industrial product even 24 if not possessed of the quality of 25 invention but which is of practical 26 utility. 27 28 Sec. 108.1 treats patents and utility models 29similarly what distinguishes a utility model 30however from a patentable invention is set forth 31in Sec. 109.1: An invention qualifies for 32registration as a utility model if it is new and 33industrially applicable. 34That is why it is said that the degree of 35inventiveness necessary for the grant of 36protection to utility model is lower in degree than 37that required of a patentable invention.

64 65

66VI. BANKING LAWS 67 68R.A. 337 (GENERAL 69BANKING ACT) 71VOTING STOCK OF A BANK THAT 72MUST BE OWNED BY FILIPINO 73CITIZENS: 74 75 At least 70% - must be owned by Filipinos.
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 70

30% - can be owned by Foreigners. EXCEPTIONS: a) The Monetary Board may, with the approval of the President, increase the percentage of foreign voting stock in any domestic bank from 30% to 40% (Sec. 12 and 12-A, RA 337). b) Where a new bank is established as a result of 1) local incorporation of the existing branches of foreign banks pursuant to Sec. 68 of RA 337 or 2) merger or consolidation of existing banks in any of which there are foreign owned voting stocks at the time of consolidation (Secs. 12 and 12-A, RA 337). c) 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) 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 of only one domestic bank or new banking subsidiary (Sec. 2,RA. 7721). d) Foreign banks or certain Philippine corporations may own up to 60% of voting stock of a domestic bank (RA 7721). e) Foreigners or any foreign corporation may own up to 60% of the voting stock in thrift

38 39MANDATORY PROVISIONS

40The law requires that certain mandatory 41provisions be incorporated in the technology 42transfer agreement (TTA) 43 a. Philippine Law should govern the 44 interpretation of contracts and that 45 in case of litigation, the venue shall 46 be the peace where the licensee 47 has its principal office. 48 b. The licensee shall have continued 49 access to improvements in 50 techniques and processes related to 51 the technology for the duration of 52 the TTA. 53 c. In cases of arbitration, the 54 arbitration laws of the Philippines or 55 of the UN Commission or 56 International trade law or of the 57 International Chamber of Commerce 58 shall apply and the venue shall be 59 the Philippine or any neutral 60 country, and 61 d. Payment of Philippine Taxes 62 relating to the TTA shall be borne by 63 the licensor.

4 Page 80 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

9STOCK OWNERSHIP PERCENTAGE OF 10LIMITATIONS IN BANKS OF: 11 12a. Natural persons and their relatives within 3rd
degree of consanguinity or affinity 20% of voting stock. 15b. Corporation (cooperative, association, 16 partnership) 17 - 30% of voting stock. 18 1. If 2 or more corporations are owned 19 or controlled by the same group of 20 persons, the aggregate voting 21 stocks which said corporations may 22 own in any single bank shall not 23 exceed 30% of voting stock of the 24 bank. 25 2. If said corporations are owned or 26 controlled by one person or group of 27 persons related within the 3rd degree 28 of consanguinity or affinity, the 29 aggregate voting stocks which such 30 corporations may own in any bank 31 shall not exceed 20% of voting stock 32 of the bank (Secs. 12-B-12-D, RA 33 337). 34 35 DISCLOSURE REQUIREMENT- Banks 36 shall report to the Central Bank any 37 sale or other forms of transfer of 38 ownership of their shares of stock by 39 and between corporations or individuals 40 and corporations, for purposes of 41 determining compliance with the 42 limitations on bank equity holdings of 43 corporations. 44 45NOTE: The Monetary Board may exempt voting 46stockholdings of corporations and of any 47person/s related to each other within the third 48degree of consanguinity or affinity from the 49prescribed ceilings in exceptional cases and 50when circumstances warrant, such as but not 51limited to PURCHASES IN THE EQUITY OF 52DISTRESSED BANKS FOR PURPOSES OF 53REHABILITATION. 54 55 56 57 58
13 14

1 2 3 4 5 6 7 8

f)

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.

62 At least 2/3 of the members of the board


63of directors of any bank shall be citizens of 64the Philippines. 65 66 The limitation on the number of directors 67in a corporation under Sec. 14 of 68Corporation Code shall not be applied in 69case of a BANK MERGER OR 70CONSOLIDATION, so that membership in 71the new board may include up to the total 72number of directors provided for in the 73respective articles of incorporation of the 74merging or consolidating banks. 75 76 No appointive or elective public officials, 77whether full-time or part-time, shall at the 78same time serve as OFFICER of any private 79bank, EXCEPT in cases where such service 80is incident to financial assistance provided 81by the government-owned or controlled 82corporation to the bank. 83 84 Elective and appointive public officials 85can serve as directors but not as officers of 86the bank. 87 88COMMERCIAL BANK is a corporation 89organized to carry on the business of 90commercial banking by: 91 921) discounting and negotiating promissory 93 notes, drafts, bills of exchange and 94 other evidences of debts; 952) accepting drafts and issuing letters of 96 credit ; 973) receiving deposits; 984) buying and selling foreign exchange 99 and gold or silver bullion; 1005) lending money against personal security 101 or against securities consisting of 102 personal property of mortgages on 103 improved real estate and the insured 104 improvements thereon (Section 20, RA 105 337). 106

107ALLIED UNDERTAKINGS OF 108COMMERCIAL BANKS INCLUDING 109GOVERNMENT BANKS AND 110FOREIGN BANKS WITH EXISTING 111LOCAL BRANCHES:

59BOARD OF DIRECTORS IN A BANK


60(Section 13, RA 337) 61

112 113a. warehousing companies 114b. leasing companies 115c. storage companies 116d. safe deposit box companies 117e. companies engaged in the management 118 of mutual funds but not in the mutual 119 funds themselves 120 PROVIDED: 121 1. the total investment in equities shall 122 not exceed 25% of the net worth of 123 the bank;

4 Page 81 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

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).

62COMMERCIAL BANKS MAY OWN 63VOTING STOCKS OF A THRIFT BANK 64OR RURAL BANK 65 66 Commercial Banks may own more than
6730% of voting stock of thrift bank or rural 68bank up to a majority or all of equity thereof, 69 PROVIDED: 70 1. acquisition of such equity is 71 approved by the Monetary Board; 72 2. the equity ownership of any 73 individual, related group or 74 corporation in the investing bank is 75 in accordance with Sections 12, 76 12-A,12-B,12-D of RA 337; 77 3. the equity investment in other banks 78 shall be deducted from the investing 79 banks net worth for purposes of 80 computing the prescribed ratio of 81 net worth to risk assets (Section 82 21-C, RA 337) 83Section 22 - prescribed that a banks capital 84should be at least 10% of its total loan 85portfolio minus non-risk assets. For 86example, if a banks net worth or capital is 87P10 billion, its total loan portfolio, net of risk 88assets, should not exceed P100 billion. 89 90Section 23- SINGLE BORROWERS LIMIT 91 OR SBL- 25% of unimpaired capital 92 and surplus of the bank under present 93 BSP regulations. 94 95

20 21EXPANDED COMMERCIAL BANKING 22AUTHORITY 23 24 Whenever it is necessary to further national


25development objectives or support national 26priority projects, the Monetary Board may 27authorize a commercial bank, bank authorized to 28provide commercial banking services as well as 29government-owned and controlled bank to 30operate under an expanded commercial bank 31authority and by virtue thereof: 32 a. exercise the powers of an Investment 33 House under PD 129; 34 b. invest in the equity of non-allied 35 undertaking; 36 c. own majority or all of the equity in a 37 financial intermediary other than a 38 commercial bank or bank authorized to 39 provide banking services. 40 PROVIDED: 41 1. the total investment in equities shall 42 not exceed 50% of the net worth of 43 the bank; 44 2. the equity investment in any 45 enterprise whether allied or non46 allied shall not exceed 15% of the 47 net worth of the bank; 48 3. the equity investment of the bank or 49 of its wholly-or majority owned 50 subsidiary, in a single non-allied 51 undertaking shall not exceed 35% of 52 the total equity in the enterprise nor 53 shall it exceed 35% of the voting 54 stock in the enterprise; 55 4. the equity investment in other banks 56 shall be deducted from the investing 57 banks net worth for purposes of 58 computing the prescribed ratio of 59 net worth to risk assets (Section 2160 B, RA 337) 61

96EXCLUDED FROM THE SBL ARE THE 97FOLLOWING. NON-RISK ASSETS: 98

99 1. loans secured by obligations of the 100 Central Bank or Philippine 101 Government; 102 2. loans fully guaranteed by the 103 government as to the payment of 104 principal and interest; 105 3. loans to the extent covered by hold106 out on, or assignment of, deposits 107 maintained in the lending bank and 108 held in the Philippines; 109 4. loans and acceptances under letters 110 of credit to the extent covered by 111 margin deposits; 112 5. other loans or credits which the 113 Monetary Board may from time to 114 time, specify as non-risk assets; 115 116 An additional 15% may be granted to the 117borrower if the additional liabilities are 118secured by shipping documents, warehouse 119receipts or other documents transferring or 120securing title covering readily marketable, 121non-perishable staples, which staples must 122be fully covered by insurance and must have

4 Page 82 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1a market value equal to at least 125% of such 2additional liabilities. 3 4LIABILITIES - includes the direct liability of 5 the maker, acceptor, endorser, drawer or 6 guarantor; in case of a partnership, the 7 liabilities of the members; and in case of a 8 corporation, all the liabilities of all 9 subsidiaries thereof in which such 10 corporation owns or controls a majority 11 interest. 12 13 The Monetary Board prescribe the 14combination of the liabilities of the subsidiary 15corporations or members of the partnership 16EVEN IF THE CORPORATION/PARTNERSHIP 17HAS NO LIABILITY TO THE BANK in the 18following cases: 19 1) the parent corporation or 20 partnership guarantees the 21 repayment of the liabilities; 22 2) the liabilities were incurred for the 23 accommodation of the parent 24 corporation or another subsidiary or 25 of the partnership; 26 3) the subsidiaries through separate 27 entities operate merely as divisions 28 or departments of a single entity 29Section 24 - No commercial bank shall make 30any loan or discount on the security of shares of 31its own capital stock, nor be the purchaser of 32any such shares, 33 34 UNLESS: 35 1. such security or purchase is 36 necessary to prevent loss upon a 37 debt previously contracted in good 38 faith and 39 2. the stock so purchased or acquired 40 for any other reason in the course of 41 its operations, shall within 6 months 42 from the time of its purchase or 43 acquisitions, be sold or disposed of 44 at public or private sale; or 45 3. in default thereof, a receiver shall be 46 appointed to close up the business 47 of the bank in accordance with law. 48 49 In FILIPINAS MILLS, INC. vs. DAYRIT (192 50SCRA 177) under Section 24 of RA 337, there 51is a SPECIFIC EXCEPTION, xxx unless such 52security or purchase be necessary to prevent 53loss upon a debt previously contracted in good 54faith xxx and a GENERAL EXCEPTION xxx or 55purchased or acquired for any other reason in 56the course of its operations xxx. Thus, if and 57when the bank decides to purchase those 58shares of stocks in the public auction sale, this 59circumstance will not result in violation of 60Section 24, RA 337, as it is allowed under the 61GENERAL EXCEPTION. 62

85

63Section 25 allows a commercial bank to 64purchase, hold and convey real estate for 65the following purposes: 66 67 A 1) when it is necessary for its 68 immediate accommodation 69 in the transaction of its 70 business; 71 M 2) when mortgaged to it in good 72 faith by way of security for 73 debts; 74 C 3) when conveyed to it in 75 satisfaction of debts 76 previously contracted in the 77 course of its dealings; 78 P 4) when purchased at sales 79 under judgments, decrees, 80 mortgages or trust deeds 81 held by it and such as it 82 shall purchase to secure 83 debts due to it. 84

CODE: A M C P

86 87 In the case of REGISTER OF DEEDS 88OF MANILA vs. CHINA BANKING 89CORPORATION (4 SCRA 1146), debts 90referred to in Section 24 are only those 91resulting from previous loans and other 92similar transactions made or entered into by 93the commercial bank in the ordinary course 94of its business as such. Thus, an alien95owned commercial bank cannot acquire 96ownership of real estate by virtue of a deed 97of transfer executed by its former employee 98in satisfaction of a civil liability arising from a 99criminal offense of a qualified theft. 100 101Section 25 - But no such bank shall hold 102the possession of any real estate under 103mortgage or trust deed, or title and 104possession of any real estate purchased to 105secure any debt due to it, for a longer period 106than 5 years. 107 108TRUST CORPORATION any 109corporation formed or organized for the 110purpose of acting as trustee or administering 111any trust or holding property in trust or on 112deposit for the use, benefit or behalf of 113others (Section 56, RA 337). 114 115Section 57 116 A trust company may, with the approval 117of the Monetary Board, do a commercial 118banking business but such business must 119be kept separate and distinct from its trust 120business. All relevant provisions governing 121the business of commercial banking 122corporations shall be held to apply to the 123commercial banking activities of a trust 124company.

4 Page 83 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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10Section 58- POWERS OF TRUST 11CORPORATION :

Any banking corporation may, with the 2approval of the Monetary Board, be authorized 3to engage in the business of a trust company, 4but shall be subject to provisions as regards its 5trust business. 6 7 8 9

12 13 1. to act as trustee on any mortgage or 14 bond issued by any municipality, 15 corporation, or any body politic and to 16 accept and execute any other municipal 17 or corporate trust not inconsistent with 18 law; 19 20 2. to act under the order or appointment of 21 any court of record as guardian, receiver, 22 trustee or depository or the estate of any 23 minor, insane person, idiot, habitual 24 drunkard or other incompetent or 25 irresponsible person and as receiver and 26 depository of any moneys paid into court 27 by parties to any legal proceedings 28 and/or property of any kind which may be 29 brought under the jurisdiction of the court 30 by proper legal proceedings; 31 32 3. to act as the executor of any last will or 33 testament when it is named in the last will 34 as executor; 35 36 4. to act under appointment of a court of 37 competent jurisdiction as administrator of 38 the estate of any deceased person, with 39 the will annexed, or as administrator of 40 the estate of any deceased person when 41 theres no will and when in either case, 42 theres no person qualified, competent 43 willing, able and entitled to accept such 44 administration. 45 46 5. to accept and execute any legal trust 47 confided to it by any court of record or by 48 any person or corporation for the holding, 49 management and administration of any 50 estate, real or personal, and the rents, 51 issues and profits thereof; 52 53 6. to establish and manage 54 common trust funds. 55 56 Section 64 Real estate acquired by a trust 57company shall be governed by Section 25, RA 58337.

86Section 74 COMMON BANKING 87PRACTICES:


88 891. 90 91 922. 93 943. 954. 96 97 985. 99 1006. 1017. 1028. 103 104 105 106 107 1089. 109 110 111

641. Receive in custody funds, documents 65 and valuable objects and rent safety 66 deposit boxes for the safeguarding of 67 such effects. 682. Act as financial agent and buy and sell, 69 by order of and for the account of their 70 customers, shares, evidences of 71 indebtedness and all types of securities. 723. Make collections and payments for the 73 accounts of others and perform such 74 other services for the customers as are 75 not incompatible with banking business. 764. Act as managing agent, adviser, 77 consultant or administrator of 78 investment 79 management/advisory/consultancy 80 accounts with approval of Monetary 81 Board. 82 83Banks shall perform services under 1, 2, 3 84as depositories or as agents. 85

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, includingstand-by 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.

112PROHIBITIONS:
113 114Section 73 Banking institutions shall 115not engage in insurance business as the 116insurer. 117 118Section 74 - No bank shall enter directly or 119indirectly into any contract of guaranty or 120suretyship or shall guarantee the interest or 121principal of any obligation of any person, co122partnership, association, corporation, or 123other entity. However, this provision shall 124not apply to common banking practices. 125

59 60Section 72 - OTHER SERVICES 61PERFORMED BY BANKING 62INSTITUTIONS: R F M A


63

126Section 78

4 Page 84 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1LOAN AGAINST REAL ESTATE 2SECURITY 4 shall not exceed 70% of appraised value of
5real estate plus 70% of appraised value of 6insured improvements; 7 title to real estate shall be in the mortgagor; 8 in the event of foreclosure, whether judicially 9 or extrajudicially, the mortgagor or debtor 10 shall have the right within 1 year after the 11 sale to redeem the property by paying the 12 amount fixed by the court in the order or 13 execution or the amount due under the 14 mortgage deed with interest at rate specified 15 in the mortgage, costs, judicial expenses 16 less income of property; 3

62 63Section 82 - Banks shall not advertise the 64amount of their authorized or subscribed 65capital stock without indicating the amount 66of their capital actually paid-up. 67 68 No branch of any foreign bank 69doing business in the Philippines shall in any 70way announce the amount of the capital and 71surplus of its head office or of the bank in its 72entirety without indicating the amount of the 73capital assigned to such branch. In case no 74capital has been definitely assigned to such 75branch, such fact shall be stated and shall 76form part of advertisement. 77

17 18 The purchaser of the auction sale concerned

19in a judicial foreclosure shall have the right to 20enter upon and take possession of the property 21immediately after the date of confirmation of 22auction sale by court. 23 24 In JOVEN VS. CA (212 SCRA 700), to give 25effect to his right of possession, the purchaser 26must invoke the aid of courts and ask for a writ 27of possession. He cannot simply take the law 28into his own hands and enter the property 29without judicial authorization. He need not bring 30a separate and independent suit for this 31purpose. Nevertheless, it is essential that he 32ask for and be granted a writ of possession in 33order that he may be legally installed in the 34property he has bought. 35 36 As a general rule, there is no right of 37redemption from a judicial foreclosure sale after 38confirmation of the sale. However, foreclosure 39of mortgages to banking institutions shall be 40subject to legal redemption even after 41confirmation (LIMPIN VS. IAC, GR No. 70987, 42GSIS VS. CFI, 175 SCRA 19).

78Section 83 - LOANS TO DIRECTORS, 79OFFICERS, STOCKHOLDERS AND 80THEIR RELATED INTEREST (DOSRI) 81 82 No Director or officer of any bank shall

43 44LOANS ON SECURITY OF CHATTELS 45 46 shall not exceed 50% of the appraised value
47of the security; title to the chattels shall be free from all 49encumbrances; 50 title to the chattels shall be in the name of 51mortgagor. 52 53 Shares of stock can be mortgaged under the 54Chattel Mortgage Law. 55 56 RECTO LAW applies only to foreclosure of 57personal property sold should the vendee fail to 58pay 2 or more installments. 59 The foreclosure pursuant to RECTO LAW 60shall not apply in case of personal property held 61as security for a loan.

48

83borrow any of the deposits of funds of such 84banks, EXCEPT, with written approval of 85majority of the directors of the bank, 86excluding the director concerned. The 87approval shall be entered upon the records 88of the bank and a copy of such entry shall 89be transmitted to the appropriate supervising 90department of BSP. 91 92 The credit accommodation which may be 93extended by a bank to each of its 94stockholders owning 2% or more of the 95subscribed capital stock, its directors or 96officers shall be limited to an amount 97equivalent to the respective outstanding 98deposits and book value of paid in capital 99contribution in the bank. 100 101 Loans and advances to officers, in the 102form of fringe benefits granted in 103accordance with rules prescribed by 104Monetary Board shall not be subject to the 105limitation that the loanable amount shall not 106exceed the outstanding deposits and book 107value of the paid-in capital contribution to 108the bank of the borrower-officer concerned. 109 110Section 87-A, as amended, penalizes an 111officer, employee or agent of a bank, who, 112without order of a court of competent 113jurisdiction, shall disclose to any 114unauthorized person any information relative 115to the funds or properties in the custody of 116the bank belonging to a private person, 117whether natural or juridical. 118 119

120R.A. 1405 SECRECY OF BANK 121DEPOSITS LAW 123PURPOSES:


122

4 Page 85 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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8DEPOSITS COVERED BY LAW: 10 All deposits of whatever nature with banks or


11banking institutions in the Philippines including 12investments in bonds issued by the Government 13of the Philippines, its political subdivisions and 14its instrumentalities. 15 16 These deposits are considered as of an 17ABSOLUTELY CONFIDENTIAL NATURE AND 18MAY NOT BE EXAMINED and may not be 19examined, inquired or looked into by any person, 20government al, bureau, or office. EXCEPT IN 21THE offici FOLLOWING CASES: 22 23 1) Where the depositor consents in 24 writing; 25 2) Impeachment cases; 26 3) By court order in bribery or 27 dereliction of duty cases against 28 public officials; 29 4) Deposit is subject of litigation; 30 5) If authorized by Monetary Board if it 31 has reasonable ground to believe 32 that such account is used to defraud 33 the bank; 34 6) When made by an independent 35 auditor hired by the bank for the 36 exclusive use of the bank (Sec. 2, 37 RA 1405); 38 7) Anti-graft cases (Added by analogy 39 in PNB VS. GANCAYCO, 15 SCRA 40 91); 41 8) Inquiry of Commissioner of BIR into 42 bank deposits of: 43 a) a decedent to determine his 44 gross estate 45 b) a taxpayer who has filed an 46 application for compromise of his 47 tax liability (Sec. 6 (F) NIRC). 48 49 In PNB VS. GANCAYCO (15 SCRA 91), the 50court held that a bank can be compelled to 51disclose the records of accounts of a depositor 52who is under investigation for unexplained 53wealth. 54 Section 2 of RA 1405 provides that bank 55deposits are absolutely confidential xxx and 56therefore may not be examined, inquired or 57looked into, except in cases mentioned therein. 58Meanwhile, Sec. 8 of RA 3019 (Anti-Graft Law ) 59directs that bank deposits shall be taken into 60consideration in the enforcement of this section, 61notwithstanding any provision of law to the 62contrary. The only conclusion possible is that 63Sec. 8 of Anti-Graft Law is intended to amend 9(Section 2)

1a.) 2 3b.) 4 5 6 7

To encourage people to deposit money in banks; To discourage private hoarding so that these deposits may be properly utilized by banks in authorized loans to assist in the economic development of the country.

64Sec. 2 of RA 1405 by providing an 65additional exception to the rule disclosure of 66bank deposits. (Ibid. p. 92). 67 68 In CHINA BANKING CORPORATION 69VS. ORTEGA (49 SCRA 355), the Court 70held that garnishment of bank deposit of 71judgment debtor does not violate RA 1405. 72The lower court did not order an 73examination of or inquiry into the bank 74deposit of the defendant, as contemplated in 75the law. It merely required the cashier of the 76bank to inform the court whether or not the 77defendant had a deposit in said bank only 78for purposes of garnishment issued by it. So 79that the bank would hold the same intact 80and not allow any withdrawal until further 81order. 82 83 84 85 In BANCO FILIPINO SAVINGS AND 86MORTGAGE BANK VS. PURISIMA (161 87SCRA 576), the Supreme Court reiterated 88its ruling in PNB VS. GANCAYCO, supra 89and expanded the coverage of persons 90excluded from the prohibition against 91disclosures in RA 1405. Under RA 3019, 92illegally acquired property extends to cases 93where property is concealed by being held 94by or recorded in the name of respondents 95spouse, ascendants, descendants, relatives, 96or any other persons. Bank records of 97transactions by or in the names of the wife, 98children and friends of a person charged 99with violation of Anti-Graft Law may be the 100proper subject of subpoena duces tecum. 101 102 In MELLON BANK VS. MAGSINO (190 103SCRA 633), private respondents sought to 104disallow testimony on the bank accounts of 105the third parties for violating RA 1405. The 106court ruled that an inquiry into the 107whereabouts of the illegally acquired amount 108extends to whatever is concealed by being 109held or recorded in the name of persons 110other than the one responsible for the illegal 111acquisition. Since the action was aimed at 112recovering the amount converted by 113respondents for their own benefit such 114inquiry therefore involved deposited money 115which was the subject matter of litigation to 116be exempted from the prohibition. 117 118 Safe deposit boxes are not strictly 119deposits since the relationship between the 120bank is that of lessor and lessee. However, 121any information regarding the existence of 122the safe deposit box in the name of the 123renter is considered confidential in view of 124Sec. 87-A of RA 337 as amended. 125

126Section 26, RA 7653

4 Page 86 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

Any director, officer, stockholder who, 3together with his related interests, contracts a 4loan or any form of financial accommodation 5from his bank / from a bank which is: 6 a) a subsidiary of a bank holding 7 company of which both his bank and 8 the lending bank are subsidiaries; or 9 b) in which a controlling proportion of 10 the shares is owned by the same 11 interest that owns a controlling 12 proportion of the shares of his bank 13 in excess of 5% of the capital and 14 surplus of the bank or in the 15 maximum amount permitted by law, 16 whichever is lower, shall be required 17 by the lending bank to WAIVE THE 18 SECRECY OF HIS DEPOSITS OF 19 WHATEVER NATURE IN ALL 20 BANKS IN THE PHILIPPINES. 21 22 Any information obtained form an examination 23of his deposits shall be held strictly confidential 24and may be used by the examiners only in 25connection with their supervisory and 26examination responsibility or by the Bangko 27Sentral in an appropriate legal action it has 28initiated involving the deposit account. 29 30PENALTIES 31 Violation of the secrecy of bank 32deposits will subject the offender upon 33conviction to imprisonment of not more than five 34(5) years or a fine not more than Php 20,000 or 35both , in the discretion of the court.

1 2

36 37PHILIPPINE DEPOSIT INSURANCE 38CORPORATION ACT 40


39

Created the Philippine Deposit Insurance 41Corporation (PDIC), a government corporation, 42financed completely by the Central Bank where 43banks are mandatorily required to insure their 44deposits with, and pay premium to; 45 46 Purpose of the law to insure the deposit 47liability of banks in an account up to 48P100,000.00 for every single depositor of each 49bank irrespective of the number of accounts 50therewith. 51DEFINITONS 52 1. Deposit means the unpaid 53 balance of money or its equivalent 54 received by a bank in the usual 55 course of business and for which it 56 has given or is obliged to give credit 57 to a commercial, checking, savings, 58 time or thrift account or which is 59 evidenced by passbook, check 60 and/or certificate of deposit, printed, 61 issued in accordance with Central 62 Bank rules and regulations and

63 other applicable laws, together 64 with such other obligations of a 65 bank which, consistent with 66 banking usage and practices, 67 the Board of Directors shall 68 determine and prescribe by 69 regulations to be deposit 70 liabilities of the Bank: Provided, 71 That any obligation of a bank 72 which is payable at the office of 73 the bank located outside of the 74 Philippines shall not be a 75 deposit for any of the purposes 76 of this Act or included as part of 77 the total deposit or of the 78 insured deposit: Provided, 79 further, That subject to the 80 approval of the Board of 81 Directors, any insured bank 82 which is incorporated under the 83 laws of the Philippines which 84 maintains a branch outside the 85 Philippines may elect to include 86 for insurance its deposit 87 obligation payable only at such 88 branch. 89 902. Insured Deposits means the 91 net amount due to any depositor 92 for deposits in an insured bank 93 (after deducting offsets) less 94 any part thereof which is in 95 excess of Php100,000.00. 96 97TYPES OF DEPOSIT INSURED: 98 99 1. Savings Deposits 100 2. Time Deposits 101 3. Current or Demand Deposits 102 103 By virtue of Presidential Decree No. 1974, 104approved on June 27, 1984, TRUST FUNDS 105were deleted from the scope of insured 106deposits. Hence, effective said date, trust 107funds were no longer insured with PDIC. 108 109PRIMARY OBJECTIVE OF PDIC 110 111 To enhance public confidence in 112the banking system through the provision of 113insurance protection to bank depositors and 114the effective regulation of banks. 115 116MAIN FUNCTIONS OF PDIC: 117 118 1. Risk Management The 119 insurance and examination 120 function of the PDIC deals with 121 the insurance assessment and 122 premium collection from 123 member banks. PDIC monitors 124 the health of member banks, 125 examines and identifies risk

4 Page 87 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1 areas in banks, or their 2 weaknesses. It also institutes 3 corrective measures to prevent 4 closures thru bank rehabilitation. 5 Further, it provides financial 6 assistance to distressed banks and 7 assists in the reopening of closed 8 banks, provided all PDIC 9 requirements are met. 10 2. Claims, Receivership and 11 Liquidation Claims refers to the 12 settlement of claims for insured 13 deposits; Receivership deals with 14 the takeover and control of all 15 assets, liabilities and affairs of 16 closed banks; Liquidation covers the 17 conversion of loans, disposal of 18 fixed assets into cash deposits, and 19 the implementation of final 20 settlement with creditors. 21 22What specific risks to a bank does PDIC Cover? 23 Only the risk of bank closures. Thus 24losses due to a bank theft is not covered by 25PDIC. 26 27When is an insured bank deemed closed? 28 An insured bank shall be deemed 29closed on account of insolvency upon the order 30of closure by the Monetary Board of the Bangko 31Sentral ng Pilipinas under Section 29 of R.A. 32265 as amended by the New Central Bank Act. 33 34 Insolvency refers to a situation wherein 35a banks liabilities exceed its total assets 36resulting in the banks inability to repay its 37creditors. 38 39Section 4, RA 3591 - The deposit liabilities of 40any bank or banking institution which is engaged 41in the business of receiving deposits as herein 42defined on the effective date of this Act or which 43thereafter may engage in the business of 44receiving deposits, shall be insured by the 45corporation. 46 47 If a bank is insolvent, every depositor is 48compulsorily insured for a maximum amount of 49P100,000.00. 50 51 If the total valid deposits (as determined by 52PDIC) exceeds the amount of Php 100,000.00, 53the excess amount can still be claimed from 54PDIC upon the final liquidation of the remaining 55assets of the closed bank. 56 57 The schedule of payment beyond the Php 58100,000.oo maximum insurance shall be based 59on priorities set by law. 60 Under the law, claims for deposit in excess 61 of the insured Php100,000.00 will be settled 62 together with other ordinary claims, after

70RECOVERABLE CEILING IN CASE 71SEVERAL ACCOUNTS ARE 72MAINTAINED BY THE SAME 73DEPOSITOR: 74
75a. If a single depositor maintains several 76 accounts with one bank of several 77 branches of the same bank totaling 78 more than P100,00.00, the amount 79 insured is only P100,000.00, although 80 the depositor is maintaining his deposits 81 in different accounts; 82b. If three accounts are maintained in the 83 same bank in the individual capacity of 84 each of the depositors and in an and/or 85 capacity or jointly by the depositors, the 86 three accounts are insured up to 87 P100,000.00 each because the 88 depositors are maintaining the accounts 89 in different capacities and rights. 90c. If two bank accounts (savings and 91 current) are held jointly by two persons, 92 the said accounts are not deemed 93 insured separately but are added 94 together and covered on up to a total of 95 P100,000.00 because the amounts are 96 maintained in the same capacity and 97 right by the two depositors. 98 99 PDIC is given priority to be appointed as 100receiver of any banking institution. 101 102 PDIC is subrogated to all rights of 103depositor against a closed bank to the 104extent of the payment made by the PDIC. 105 106 Provided that in the event a depositor in a 107closed bank fails to file a claim for his 108insured deposit within 18 months after the 109Monetary Bank shall have ordered the 110closure of said bank, all rights of depositor 111against the Corporation with respect to the 112insured deposit shall be barred. 113

63 preferred claims like government, taxe, 64 labor claims are settled. 65 66TWO (2) TYPES OF CLAIM SETTLEMENT 67 1. Direct Claims Settlement 68 2. Transfer Deposit Settlement 69

4 Page 88 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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MEMORY AID in COMMERCIAL LAW


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1REPUBLIC vs. COURT OF APPEALS (65 2SCRA 186) the Supreme Court ruled that since 3the relation between the depositor and the bank 4is that of creditor and debtor, a depositor has 5every right to apply his credit with the bank 6against his loans. When all the elements 7necessary for set-off are present, compensation 8takes place ipso-jure, without need of any 9conscious intent on the part of the parties.

10 11THRIFT BANKS ACT, RA No. 7906 12


13THRIFT BANKS shall include savings and 14mortgage banks, private development banks, 15and stock savings and loans associations 16organized under existing laws, and any banking 17corporations that may be organized for the 18following purposes: 19 201. Accumulating the savings of depositors and 21 investing them, together with capital loans 22 secured by bonds, mortgages in real estate 23 and insured improvements thereon, chattel 24 mortgage, bonds and other forms of security 25 or in loans for personal or household 26 finance, whether secured or unsecured or in 27 financing for homebuilding and home 28 development, in readily marketable and debt 29 securities; in commercial papers and 30 accounts receivables, drafts, bills of 31 exchange, acceptances or notes arising out 32 of commercial transactions; and in such 33 other investments and loans which the 34 Monetary Board may determine as 35 necessary in the furtherance of national 36 economic objectives. 372. Providing short-term working capital, 38 medium- and long-term financing, to 39 businesses engaged in agriculture, services, 40 industry and housing. 413. Providing diversified financial and allied 42 services for its chosen market and 43 constituencies especially for small and 44 medium enterprises and individuals 45 (Section 3). 46 48 491. 502. 51 52 53 54 553. 56 574. 58 59 605. 61 62 63

646. 65 667. 67 68 69 70 718. 72 73 74 759. 76 7710. 7811. 79 8012. 81 82 8313. 84 85 86 88

Rediscount paper with PNB, Land Bank, DBP, and other GOCC; Issue mortgage and chattel mortgage certificates buy and sell them for its own account or for the account of others, or accept and receive them in payment or as amortization or its loan; Purchase, hold, convey real estate under the same conditions as those governing commercial banks under Section 25, RA 337; Engage in quasi-banking and money market operations; Open domestic letters of credit; Extend credit facilities to private and government employees; Extend credit against the security of jewelry, precious stones and articles of similar nature; Offer banking services as provided under Sec. 72 of RA 337 and RA 6426 as amended.

87RA 7353 RURAL BANKS ACT


Rural banks shall be organized in the 90form of stock corporations. 91 92 Cooperatives and corporations primarily 93organized to hold equities in rural banks 94may organize a rural bank and/or subscribe 95to the shares of stock of any rural bank. 96 97 The capital stock of any rural bank shall 98be fully owned and held directly or indirectly 99by citizens of the Philippines or corporations, 100associations or cooperatives qualified under 101Philippine laws to own land EXCEPT 102shareholdings of corporations organized 103primarily to hold equities in rural banks 104under Sec. 12-C of RA 337. 105 106 Nothing in this Act shall be construed as 107prohibiting any appointive or elective public 108official form serving as director, officer, 109consultant or in any capacity in the bank. 110 111 Loans extended shall be primarily for the 112purpose of meeting the normal credit needs 113of farmers, fishermen or farm families 114owning or cultivating land dedicated to 115agricultural production as well as normal 116credit needs of cooperatives and merchants 117with the land as security. 118 119 Rural bank may devote a portion of their 120loanable funds to meeting the normal credit 121needs of small business enterprises and of 122essential enterprises and industries provided 123loans shall not exceed 15% of net worth of 124rural bank or amount prescribed by

89

47POWERS: (Section 10)

Accept savings and time deposits; Open current or checking accounts, provided, that the thrift bank has net assets of at least P20 M and it shall be allowed to directly clear its demand deposit operations with the Bangko Sentral and PCHC; Act as correspondents for other financial institutions; Act as collection agent for government entities, including but not limited to BIR, SSS, Bureau of Customs; Act as official depository of national agencies and of municipal, city or provincial funds in the municipality, city or province where the thrift bank is located;

4 Page 89 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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1Monetary Board may be warranted by prevailing 2economic conditions. 3 4 With the approval of Monetary Board, any 5 rural bank may act as trustees over estates 6 or properties of farmers and merchants or 7 perform services authorized for savings and 8 mortgage banks or for commercial banks 9 under RA 337 or operating under an 10 expanded banking authority. 11 12

13RA 6938 COOPERATIVE BANKS 14 15 Cooperative Bank is one organized the


16majority shares of which is owned and controlled 17by cooperatives primarily to provided financial 18and credit services to cooperatives. It shall 19include cooperative rural banks; 20 21 Membership of a cooperative bank shall 22include only cooperatives and federations of 23cooperatives. 24 25 MBR No. 115, as amended 26 27 Only one cooperative bank shall be 28established in each province which must be 29located in a place accessible to the public. 30 31 Capital contributions in a cooperative bank 32shall be as widely dispersed as possible. No 33cooperative members shall own or control more 34than 30% of the total capital contributions of a 35cooperative bank. This limitation shall also 36apply to cooperatives purchasing government37held preferred shares of cooperative banks 38converted into common stock. 39 40 Any officer or employee of Cooperative 41Development Authority and elective officials of 42the Government EXCEPT BARANGAY 43OFFICIALS, shall be disqualified to be elected 44or appointed to any position in a cooperative 45bank. 46 47

48RA 3936 UNCLAIMED 49BALANCES LAW


50 51UNCLAIMED BALANCES include credits or 52deposits of money, bullion, security or other 53evidence of indebtedness of any kind and 54interest thereon with banks, buildings and loan 55associations and trust corporations in favor of 56any person known to be dead or who has not 57make further deposits or withdrawals during the 58preceding 10 years or more. 59 60ELEMENTS OF UNCLAIMED BALANCES: 61 62 1. There must be a claim or deposit of:

63 a. money, 64 b. bullion, 65 c. security, or 66 d. other evidence of 67 indebtedeness 68 2. The credit or deposit must be with a 69 bank, building and loan association, 70 or trust corporation; and 71 3. The credit or deposit is in favor of a 72 person: 73 a. who is dead, or 74 b. who has not made further 75 depsotis or withdrawals 76 during the preceding ten 77 years or more. 78Builidings and Loan Association are 79corporations whose capital stock is required 80or is permitted to be paid in by the 81stockholders in regular, equal, periodical 82payments and whose purpose is to 83accumulate the savings of its stockholders, 84to repay to said stockholders their 85accumulated savings and profits upon their 86surrender of their shares. 87 88 89 The Solicitor General, when informed of 90such unclaimed balances, shall commence 91an action in the name of People of Republic 92of Philippines in the RTC of the province 93where the bank is located. Bank and 94depositors shall be made defendants. 95 96 Summons shall be issued directed to all 97persons, OTHER THAN THOSE NAMED 98AS DEFENDANTS, claiming any interest in 99any unclaimed balance requiring them to 100appear within 60 days after publication of 101such summons and show cause why it shall 102not be deposited with the Treasurer. 103 104 Upon trial, if the court determines that 105such deposits are unclaimed, judgment shall 106be rendered declaring that said unclaimed 107balances be escheated in favor of the 108government and commending said bank to 109deposit it with the Treasurer of the 110Philippines. 111 112 Any bank which shall make any deposit 113with the Treasurer shall not be liable to any 114person which the latter may bring against 115the bank. 116

117RA 6426 FOREIGN CURRENCY 118DEPOSIT ACT


119 120Foreign Currency Deposit Unit shall refer 121to that unit of a local bank or of a local 122branch of a foreign bank authorized by the 123Central Bank to engage in foreign currency124denominated transactions.

4 Page 90 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

2 All foreign currency deposits under RA 6426


3and PD 1034 are absolutely confidential in 4nature and may not be examined EXCEPT 5UPON WRITTEN PERMISSION OF 6DEPOSITOR. 7 8 Foreign currency deposits are exempt from 9garnishment, attachment or any court process. 10 11 However in SALVACION, et al. VS. CBP, et 12al. 278 SCRA 27, the court allowed garnishment 13of such deposits since to hold otherwise would 14result to injustice to a citizen perpetrated by a 15foreigner. 16

63 64 65 66 67 68 69 70 71

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).

72 73

PD 1034 OFFSHORE BANKING SYSTEM

17RA 7721 AN ACT LIBERALIZING THE 18ENTRY AND SCOPE OF OPERATIONS 19OF FOREIGN BANKS IN THE 20PHILIPPINES
21

22 When MB authorizes foreign banks to operate


23through any of the following: 24 1) by acquiring, purchasing or owning up 25 to 60% of the voting stock of an 26 existing bank; 27 2) 2) by investing in up to 60% of the 28 voting stock of a new banking 29 subsidiary incorporated under laws of 30 Philippines; 31 3) by establishing branches with full 32 banking authority, provided: a) foreign 33 bank may avail itself of only one 34 mode of entry and b) foreign bank or 35 Philippine corporation may own up to 36 60% of the voting stock only one 37 domestic bank or new banking 38 subsidiary (Sec. 2,RA. 7721). 39 40 Only those among the top150 foreign banks 41in the world or the top 5 banks in their country of 42origin as of the date of application shall be 43allowed entry in allowance with Sections 2 , 44numbers 2 and 3 (Sec. 3). 45 In the exercise of this authority, the MB shall 46adopt such measures as may be necessary to: 47 1. ensure that at all times the control of 48 seventy percent (70%) of the resources 49 or assets of the entire banking system is 50 held by domestic banks which are at 51 least majority-owned by Filipinos: 52 2. prevent a dominant market position by 53 one bank or the concentration of 54 economic power in one or more 55 financial institutions, or in corporations, 56 partnerships, groups and individuals 57 with related interests; and 58 3. secure the listing in the Philippine 59 Stock Exchange of the shares of stocks 60 of banking corporations established 61 under Section 2, numbers 1 and 2. 62 Provided, that said banking corporations

74 75OFFSHORE BANKING shall refer to the 76conduct of banking transactions in foreign 77currencies involving receipt of funds from 78external sources and the utilization of such 79funds. 80 81BASIS FOR THE ISSUANCE OF 82CERTIFICATE OF AUTHORITY TO 83OPERATE AN OFFSHORE BANKING 84UNIT 85 86 Only banks organized under any law other 87than those of Republic of Philippines shall 88be qualified to operate offshore banking 89units in the Philippines. 90 91 However, LOCAL BRANCHES of foreign 92banks already authorized to accept foreign 93currency deposits under RA 6426 may opt to 94apply for authority to operate an offshore 95banking unit provided that upon their receipt 96of certificate of authority to operate as an 97offshore banking unit, the license to transact 98business under RA 6426 shall be deemed 99automatically withdrawn. 100 101

102RA 8183 REPEALING ACT NO. 529 103OR UNIFORM CURRENCY ACT
104 105 106 107 108 109 110 111 112 113

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.

114Art 1249, 1st paragraph of Civil Code


115 The payment of debts in money 116shall be made in the currency stipulated and 117if it is not possible to deliver such currency, 118then in the currency which is legal tender in 119the Philippines. 120 121LEGAL TENDER all notes and coins 122issued by the BSP fully guaranteed by the 123Republic of Philippines for all debts, public 124or private.

4 Page 91 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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1 2 Not exceeding P50.00 25 centavos or 3above 4 Not exceeding P20.00 - 10 centavos or 5less. 6 7

8VII. SPECIAL LAWS


9 10

11BULK SALES LAW 13WHEN IS A SALE CONSIDERED A SALE 14IN BULK? 15


16a. 17 18b. 19 20c. 21 22 12

when a sale, transfer or disposition is other than in the ordinary course; the sale is of all or substantially all of the business; when the sale is of all or substantially all of the fixtures and equipment.

61c. purchaser is liable to sellers creditors 62 for properties forming part of bulk and 63 already disposed by him. 64 65DISTINCTION BETWEEN FRAUDULENT 66CONVEYANCE UNDER THE BULK 67SALES LAW FROM THE TRANSFER IN 68FRAUD OF CREDIORS UNDER THE CIVIL 69CODE 70 71 A conveyance or transfer fraudulently 72made in violation of the Bulk Sales Law is 73null and void while a conveyance or transfer 74in fraud of creditors under Article 1381-1389 75of the New Civil Code is rescissible and is 76valid until set aside by a competent court. 77

78CHATTEL MORTGAGE LAW 79 80CHATTEL MORTGAGE 81 contract by virtue of which personal


82property is recorded in the Chattel Mortgage 83Register as security for the performance of 84an obligation. 85 No longer considered a conditional sale. 86 87SUBJECT MATTER OF CHATTEL 88MORTGAGE 89 90 personal or movable property. 91 921. Shares of stock; 932. Interest in business; 943. Machinery treated by the parties as 95 personal property subsequently installed 96 on leased land; (Davao Sawmill vs. 97 Castillo) 984. Vessels recorded in the office of the 99 Philippine Coast Guard to be effective 100 as to 3rd persons; not necessary to be 101 recorded in the Office of the Registry of 102 Deeds; 1035. Motor Vehicles mortgage registered in 104 LTO (for vehicles used for public 105 services); 1066. House of mixed materials; 1077. House intended to be demolished; 1088. House built on rented land, 109 GENERAL RULE: still immovable 110 property; 111 EXCEPTION: by estoppel; 1129. House of strong materials- personal 113 property for purposes of executing a 114 chattel mortgage as the parties to the 115 contract so agree and NO innocent 3 rd 116 party will be prejudiced. 117 118 The rule that the chattel mortgage shall be 119deemed to cover only the property described 120therein and not like on substituted property 121does not apply to stores open to the public. 122(sec. 7, par. 4 CML).

23PURPOSE 25 To prevent the defrauding of creditors by the


26secret sale or disposal in bulk of all or 27substantially all of a merchants stock of goods. 28 24

29EXCEPTIONS: 30
31a. 32 33b. 34 35c. 36d. 37 38

sale is made in the ordinary course of business; there is a waiver from all the creditors and must be written; sale is by virtue of a judicial order; those sold by assignee or those beyond the right of creditors.

39FORMALITIES REQUIRED BY LAW


40 41a. the sale in bulk to be accompanied by sworn 42 statement of the vendor/mortgagor listing 43 the names and addresses of, and amounts 44 owing to, creditors (to be furnished to the 45 buyer); 46b. the seller to prepare an inventory of stock to 47 be sold and notify the creditors of projected 48 sale at least n10 days before such sale 49 (Sec. 3-4). 50 51 52 53 54EFFECTS OF SALE IN VIOLATION OF BSL 55

56VALID between the parties, VOID as to 57 affected creditors.


58a. sale in bulk is void; 59b. purchaser holds property in trust for seller 60 (whether in good faith or bad faith);

4 Page 92 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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10

1 2AFFIDAVIT OF GOOD FAITH It is an oath in 3contract of chattel mortgage wherein the parties 4severally swear that the mortgage is made for 5the purpose of securing the obligation specified 6in conditions thereof, and for no other purpose 7and that the same is just and valid obligation 8and one not entered into for the purpose of 9fraud.

11EFFECT OF ABSENCE OF AFFIDAVIT OF 12GOOD FAITH: 13 14a. Valid between the parties; 15b. Does not affect 3rd persons without notice 16 like creditors and subsequent 17 encumbrances. 18 19NOTE: A house of is a real property regardless 20of ownership, however the parties may treat the 21same as personal property and by estoppel be 22binding between them. However, third persons 23are not bound. 24 25RIGHT OF REDEMPTION 26 27The following may redeem: 28 a. the mortgagor; 29 b. a person holding a subsequent 30 mortgage; or 31 c. a subsequent attaching creditor. 32 33RECTO LAW 34 35 a. applies only to sale of personal 36 property in installments; 37 b. remedies are alternative, not 38 cumulative; 39 c. foreclosure of chattel mortgage on 40 the things sold shall ban recovery of 41 any deficiency. Thus, seller cannot 42 recover from guarantor; 43 d. if seller-mortgagee opts to exercise 44 remedy number one, he shall be 45 deemed to have waived his right as 46 a mortgagee but may still levy on 47 the mortgage property. 48

50 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

3. procedure is found in Art. 2112 of the Civil Code

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

51
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.

3. One of the formalities required is the execution of affidavit in good faith

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.

52
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 53

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

49DISTINCTION :

CHATTEL MORTGAGE
1. the delivery of the personal property to the mortgagee is not necessary 2. the registration of the same in Chattel Mortgage Register is necessary for its validity

PLEDGE
1. delivery is necessary 2. the registration in the Registry of Property is not necessary

4 Page 93 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

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MEMORY AID in COMMERCIAL LAW


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1 2 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.

52 53LAWS WHICH REPEALED EITHER 54EXPRESSLY OR IMPLIEDLY 55CERTAIN PORTIONS OF THE CODE 56OF COMMERCE:
57 581. 59 60 612. 62 63 64 653. 66 67 684. 69 70 715. 72 736. 74 75 767. 77 78 79 80 81 82 83

3 4EXTENT OF CHATTEL MORTGAGE 5 6Section 7, paragraph 4 of Act No. 158,


7provides : 8 "A chattel mortgage shall be deemed to 9cover only the property described therein and 10not like or substituted property therafter acquired 11by the mortgagor and placed in the same 12depository as the property originally mortgaged 13anything in the mortgage to the contrary 14notwithstanding." 15 The provision does not apply to stores open to 16public for retail business where the goods are 17constantly sold and substituted with new stock. 18(Torres vs Limjap, 56 Phil 141).

19 20CHATTEL MORTGAGE COVERS ONLY 21EXISTING OBLIGATIONS. 22 23 While a pledge, real estate mortgage, or
24antichresis may exceptionally secure after25incurred obligations so long as these future 26debts are accurately described, a chattel 27mortgage can only cover obligations existing at 28the time the mortgage is constituted. Promise 29expressed in a chattel mortgage to cover debts 30yet to be contracted may be binding but security 31itself arise only after amending the old contract 32conformably with the form prescribed by the 33Chattel Mortgage Law. (Acme Shoe Rubber 34and Plastic Corp. vs. CA) 35.

The Corporation Law which repealed principally the provisions on Sociedad Anonimas; The Negotiable Instruments Law, which repealed the provisions on Promissory Notes and Bills of Exchange also in Book Two; The Insolvency law, which repealed the provisions on Suspension of Payments and Bankruptcy in Book Four; The Insurance Law, which repealed the provisions on Fire and Marine Insurance; The Securities Act, which repealed the provisions on Commercial Houses; The New Civil Code, which repealed the provisions on Partnership, Agency, Sales, Loan, Deposit and Guaranty; 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.

84MERCHANTS ARE:
851. those who having capacity to engage in 86 commerce, habitually devote 87 themselves to it. 882. The commercial or industrial companies 89 which may be created in accordance 90 with existing legislation. (Art. 1) 91 92 QUALIFICATIONS: 93 1. having completed the age of 18 94 years; and 95 2. having the free disposition of his 96 property. 97 98 99LEGAL PRESUMPTION OF 100HABITUALITY- exists from the moment a 101person who intends to engage in commerce 102announces through circulars, newspapers, 103handbills, posters exhibited to the public, or 104in any other manner whatsoever, an 105establishment which has for its object some 106commercial acts. 107 108 Habituality in the practice of 109commerce presupposes the repetition and 110continuation of commercial acts in such 111manner that they are related to each other 112by reason of the commercial purpose or end 113which they tend to have, which is the

36CODE OF COMMERCE 37 38PROVISIONS OF THE CODE OF 39COMMERCE WHICH ARE STILL IN 40FORCE
411. 42 432. 443. 454. 46 475. 486.

Merchants, Book of Merchants, Commercial contracts Joint Account Transfers of Non-negotiable credits Commercial Contracts of Overland Transportation letters of credit Maritime Commerce

49 50 51

4 Page 94 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

6ACTS OF COMMERCE

1exchange or circulation of products. However, it 2may be shown by a single act of commerce, if it 3manifests the intention to engage habitually in 4commerce. 5

laws. 45 46INDIVIDUAL MERCHANTS- not required to 47register however cannot enjoy the benefits 48of registration.

49

17DISQUALIFICATION TO ENGAGE IN 18COMMERCE 19 20a) ABSOLUTE DISQUALIFICATIONS


21 221. 23 242. 25 263. 27 28 30 31 32 33 34 35 36 37 38 39 40 41 42

7 8 Those acts contained in this Code of 9Commerce and all other acts of analogous 10character. An act need not be performed by a 11merchant in order that it may be considered an 12act of commerce. Hence, an act performed by 13one who is not a merchant would, nevertheless, 14be an act of commerce if it is contained in the 15Code or is one of analogous character. 16

53Disqualification of 54constitutional officials:


55 561. 57 58 59 60 61 62 63 64 65 66 672. 68 69 70 71 72 73 74 75 76 773. 78 79 80 81 82 83 84 85 864. 87 88 89 90 91 92 93 94 95

50JURIDICAL MERCHANTS- mandated to 51register with the SEC. 52

certain

Those serving the penalty of civil interdiction; Those judicially declared insolvent until they would have obtained a discharge; Those who are absolutely disqualified under special laws. (Art. 13, Code of Commerce)

Art. VI, Sec. 14 - No Member of Congress shall directly or indirectly, be interested financially in any contract with, or in any franchise or special privilege granted by the Government during his term of office. He shall not intervene in any matter before any office of the Government for his pecuniary benefit or where he may be called upon to act on account of his office. Art. VII, Sec. 13 - The President, VicePresident, Members of the cabinet, and their deputies or assistants shall not, during said tenure, practice any profession, participate in any business, be financially interested in any contract or franchise granted by the Government. They shall avoid conflict of interest in the conduct of their office. Art. IX, Sec. 2 - No member of the Constitutional Commission shall engage in the practice of any profession or active management of any business which may be affected by the functions of his office, nor shall he be financially interested with any contract or franchise with the Government. Art. XI, Sec. 16 - No loan, guaranty, or other form of financial accommodation for any business purpose may be granted by any government owned or controlled bank to the President, VicePresident, Members of the Cabinet, Congress, Supreme Court and the Constitutional Commission, Ombudsman during their tenure.

29b) 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)

43DISTINCTIONS : 44
ABSOLUTE INCAPACITY
1. extends through out the Philippines.

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

2. act is null and void if incapacity is absolute and apparent.

96APPLICABILITY OF LAWS 97COMMERCIAL TRANSACTIONS: 98


991. 1002. 101 1023. 103 104

TO

First, the Code of Commerce; In the absence of the foregoing, the commercial customs; and Civil Code (in the absence of the first two).

4 Page 95 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1
2 3 4 5 6 7

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.

8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26

EXCEPTIONS:
1. when the Code of Commerce or other special laws require that it must be reduced in writing, require forms or 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). Illicit arrangements do not give rise to obligations or causes of actions even should they refer to commercial transactions.

23

27

Contracts entered into by correspondence 28 shall be perfected from the moment an 29 answer is made accepting the offer or the 30 conditions by which the latter may be 31 modified. (This is the Manifestation Theory 32 as distinguished from the Cognition theory 33 followed under the Civil Code). 34 35 When an agent or a broker intervenes in a 36commercial contract, the same is perfected only 37when the contracting party shall have accepted 38his offer. 39

63 account of a buyer of merchandise, 64 gives formal evidence to a 65 merchandise seller, of its willingness 66 to permit him (the seller), to draw 67 bills against it, on certain terms, and 68 stipulates in legal form that all such 69 bills will be honored. 70 71 2. TRAVELERS LETTER OF 72 CREDIT- is a letter from a bank 73 addressed to one or more of its 74 correspondents stating that drafts 75 up to a certain sum drawn by the 76 beneficiary will be honored by the 77 bank. 78 79ESSENTIAL CONDITIONS OF LETTERS 80OF CREDIT: 81 82 1. to be issued in favor of a definite 83 person and not to order. 84 2. to be limited to a fixed and specified 85 amount, or to one or more 86 undetermined amounts, but within a 87 maximum limits of which have to be 88 stated exactly. 89 3. Those which do not have any of 90 these last circumstances shall be 91 considered as mere letters of 92 recommendation. 93 94TERM/ DURATION OF A LETTER OF 95CREDIT:

96

40RULES IN INTERPRETATION OF 41COMMERCIAL CONTRACTS: 42

102
103

97 98 99 100 101

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

431. interpretation and compliance in good faith 44 and full enforceability of their provisions in 45 their plain, usual and proper meanings; 462. in case of conflicts between copies of the 47 contract, and an agent should have 48 intervened in its negotiation, that which 49 appears in the agents book shall prevail; 50 and 513. in case of doubt, and the rules enunciated 52 cannot resolve the conflict, issues shall be 53 decided in favor of the debtor. 54 55LETTER OF CREDIT- those issued by one 56merchant to another for the purpose of attending 57to a commercial transaction. 58 59KINDS OF LETTERS OF CREDIT: 60 61 1. COMMERCIAL LETTER OF CREDIT 62 an instrument by which a bank, for the

104INSOLVENCY LAW 105 106PURPOSE OF THE LAW: 107


1081. 109 110 1112. 112 113 114 115

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.

116REMEDIES OF A DEBTOR:
117 1181. 1192. 1203. 121

122 123DOUBLE MAJORITY


124

apply for suspension of payment; apply for voluntary insolvency; creditor may file for an involuntary insolvency.

4 Page 96 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

4CANNOT PARTICIPATE

1 At least 2/3 of the creditors representing 2at least 3/5 of the total liabilities of the debtor. 3

13ACTS OF INSOLVENCY:
14 151. 16 172. 18 193. 20 214. 22 235. 24 256. 26 277. 28 29 308. 31 329. 33 34 3510. 36 37 3811. 39 40 4112. 42 43 44 46

5 61. claims of laborers; 72. funeral; 83. contractual mortgages or pledges. 9 10NOTE: In case of corporation and partnerships, 11SEC has jurisdiction. 12

2. The purpose is to suspend or delay the payment of debts. 3. The amount of indebtedness is not affected. 4. The number of creditors is immaterial.

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.

intention to depart or departure from the Philippines to defraud creditors; absence from the Philippines to defraud creditors; concealment of debtor to avoid legal processes; concealment or removal of his property to avoid legal processes; confession of judgment in favor of any creditor to defraud other creditors; allowing default judgment in favor of a creditor to defraud other creditors; allowing his property to be taken under legal process in preference of a particular creditor to defraud other creditors; making conveyance, assignment or transfer of his property to defraud his creditors; making conveyance, assignment or transfer of his property in contemplation of insolvency; default of a merchant or tradesman to pay his current obligations for a period of thirty days after demand; failure to pay money on deposit or received in a fiduciary capacity for a period of thirty (30) days; insufficiency of property to satisfy an execution issued against him. (Sec. 20, Insolvency Law)

54 55 56 57 58 59DISTINCTIONS :
VOLUNTARY INSOLVENCY
1. One creditor is sufficient. 2. Filed by the debtor. 3. No need for the commission of acts of insolvency. 4. Amount of indebtedness must exceed one thousand pesos (P1,000.00). 5. Bond is not required.
60

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.

45SUSPENSION OF PAYMENTS 47
is the postponement, by court order, of 48payment of debts of one who, while possessing 49sufficient property to cover his debts, foresees 50the impossibility of meeting them when they 51respectively fall due. 52

61EFFECTS OF FILING OF PETITION OF 62SUSPENSION OF PAYMENTS: 63


64a. 65 66 67 68 69b. 70 71 72c. 73 74 75 76

53DISTINCTIONS :

SUSPENSION OF PAYMENT
1. The debtor has sufficient property but he foresees the impossibility of meeting his debts as they fall due.

INSOLVENCY
1. The debtor does not have sufficient property to pay his debts.

No disposition in any manner of his property may be made by the petitioner except insofar as concerns the ordinary operations of commerce or of industry in which he is engaged; No payments may be made by the petitioner except in the ordinary course of his business or his industry, and; Upon request to the court, all pending executions of the debtor shall be suspended except execution against property especially mortgaged.

77EFFECTS OF ADJUDICATION OF 78INSOLVENCY: 79

4 Page 97 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1The adjudication or declaration of insolvency by 2the court after hearing or default shall have the 3following effects: 4a. forbid the payment to the debtor of any debt 5 due to him and the delivery to him of any 6 property belonging to him; 7b. forbid the transfer of any property to him; 8c. stay of all pending civil proceedings against 9 the insolvent. (Secs. 18 and 24 of Act 10 1956) 11 12 Unpaid claims of wages are subordinate to 13legal and contractual claims. 14

64B) DEBTOR CORPORATION


65 66Sec. 5[d]. P.D. 902-A: Petitions of 67Corporations to be declared in a state of 68suspension of payments in cases where the 69corporation possess sufficient property to 70cover all its debts but foresees the 71impossibility of meeting them when they 72respectively fall due or in cases where the 73corporation has no sufficient assets to cover 74its liabilities but is under management of a 75Rehabilitation Receiver or Management 76Committee. 77 78

63

15JURISDICTION:

16 17Note: The provisions of the Insolvency Law still 18governs the procedure when a corporate debtor 19seeks to pursue voluntary insolvency 20proceedings (the word debtor includes 21partnerships, corporations and sociedades 22anonimas). 23 24VOLUNTARY INSOLVENCY 25 26Sec. 14 An insolvent debtor, owing debts 27exceeding in amount the sum of P1,000, may 28apply to be discharged from his debts and 29liabilities by petition to the Regional Trial Court 30of the province or city in which he has resided 31for six months next preceding the filing of such 32petition.

79 80 81 82 83 84TRUST RECEIPT LAW 85 86TRUST RECEIPT 87 trust receipt is a security transaction


88intended to aid in financing importers or 89dealers in merchandise by allowing them to 90obtain delivery of the goods under certain 91covenants.

33 34INVOLUNTARY INSOLVENCY
35 36Sec. 20 An adjudication of insolvency may be 37made on the petition of three or more creditors, 38residents of the Philippines whose credits or 39demand accrued in the Philippines, and the 40amount of which credits or demand are in the 41aggregate not less than P1,000: PROVIDED, 42that none of his creditors has become a creditor 43by assignment, however made, within 30 days 44prior to the filing of said petition. Such petition 45must be filed in the Regional Trial Court of the 46province or city in which the debtor resides or 47has his principal place of business, and must be 48verified by at least three of the petitioners. 49

92 93OBLIGATION OF: 94
95 96 97 98 99 100

101

(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.

50SUSPENSION OF PAYMENTS 51 52A) INDIVIDUAL DEBTOR

53 54Sec. 2 The debtor who, possessing sufficient 55property to cover all his debts foresees the 56impossibility of meeting them when they 57respectively fall due, may petition that he be 58declared in the state of suspension of payments 59by the court, or the judge thereof in vacation, of 60the province or city in which he has resided for 61six months next preceding the filing of his 62petition.

102 (B) ENTRUSTEE 103 (See Sec. 9 of P.D. 115 TRL) 104 1051. holds the goods, documents or 106 instruments in trust; 1072. receives the proceeds in trust; 1083. insures the goods for their total value 109 against loss; 1104. keeps said goods or proceeds thereof; 1115. binds himself to hold the goods in trust 112 for the entruster and to sell or otherwise 113 dispose the same and to turn over to the 114 entruster the amount still owing; 1156. returns the goods, documents or 116 instruments if unsold or upon demand of 117 entruster; 1187. observes all other terms and conditions 119 of the trust receipt. 120 121IN CASE OF LOSS: (Sec 10) The risk of 122loss shall be borne by the entrustee. Loss of 123goods, documents or instruments which are

4 Page 98 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

13NO AGENCY RELATIONSHIP IS 14ESTABLISHED. 16


17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 15

1the subject of the trust receipt, pending 2disposition, irrespective of whether or not it is 3due to the default or negligence of the entrustee 4shall not extinguish his obligation to the 5entruster for the value thereof. 6 7 It is assumed that the title and possession is 8turned over to the entrustee. The law does not 9cover sales on credit with the title or other 10interest being retained by the seller as security 11thereof. 12

63attorneys fees. The transaction, however, is 64valid. 65 66

67WAREHOUSE RECEIPTS LAW 69WAREHOUSE RECEIPT


70a. It is a written acknowledgement by a 71 warehouse that he has received and 72 holds certain goods therein described in 73 store for the person to whom it is issued. 74b. It is a simple written contract between 75 the owner of the goods and the 76 warehouseman to pay the 77 compensation for that service. 78c. It is a bilateral contract. It imports that 79 goods are in the hands of a 80 warehouseman and is a symbolical 81 representation of the property itself. 82 83 If goods are stolen and deposited by the 84thief with a warehouseman, the 85warehouseman shall not be liable to the 86holder of the receipt even if he delivers the 87goods to the real owners without the receipt 88being surrendered to him. (Secs. 11 and 89141, WRL) 90 91 68

No agency relationship is established; an entrustees breach of trust, however, subjects him to criminal and civil liability to estafa. As held by the Supreme Court in People vs. Cuervo (104 SCRA 312) , the enactment of P.D. 115 with its penal sanction is, in reality, merely confirmatory of existing jurisprudence on situations covered by Article 315 of the Revised 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.

92MEANING OF NEGOTIABLE UNDER 93THE ACT 95


94

37NOTE:

41 42TRUTH IN LENDING ACT


43

The borrower continues to be the 38owner of the goods and may not exempt himself 39from liability by offering the goods to the bank. 40

44SCHEME OF THE LAW 45 The law requires the creditor to make a full
46disclosure of the credit cost to the person to 47whom the credit is extended, otherwise, the 48debtor may recover any interest payment made 49by him but the validity of the contract/transaction 50itself is NOT adversely affected. 51 53a. to protect a debtor from the effects of 54 misrepresentation or concealment; 55b. to permit him to fully appreciate and 56 evaluate the real cost of his borrowing; 57c. to avoid circumvention of usury laws. 58 59 NOTE: Non-compliance with the law would 60authorize the debtor to recover any interest 61payment made and subject the creditor to penal 62sanction for double finance charges plus

52PURPOSE OF THE LAW

It indicates that in the passage of 96warehouse receipts through the channels of 97commerce, the law regards the property 98which they describe as following them and 99gives to their regular transfer by 100indorsement the effect of manual delivery of 101the things specified in them. 102 103DISTINCTION between the right of a person 104to whom a receipt has been negotiated and 105rights of a person to whom a receipt has 106been transferred. 107 108a. Rights of a person to whom a receipt 109 has been negotiated (Sec. 41): 110 1. the title of the person negotiating 111 the receipt over the goods covered 112 by the receipt; 113 2. the title of the person (depositor or 114 owner) to whose order by the terms 115 of the receipt the goods were to be 116 delivered over such goods; and 117 3. the direct obligation of the 118 warehouseman to hold possession 119 of the goods for him, as if the 120 warehouseman directly contracted 121 with him. 122

4 Page 99 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1b. Rights of a person to whom receipt has 2 been transferred (Sec. 42): may be 3 defeated by levy and execution 4 1. The title of the goods as against the 5 transferor with respect to a negotiable 6 warehouse receipt not duly negotiated 7 (merely steps into the shoes); 8 2. If the receipt is non-negotiable, such 9 person also acquires the right to notify 10 the warehouseman of the transfer 11 thereof; and 12 3. The rights, thereafter, to acquire the 13 obligation of the warehouseman to hold 14 the goods for him. 15 16 An unpaid sellers lien or right of stoppage in 17transitu cannot defeat the right of the holder in 18good faith of NWR. 19 20Sec. 25 of Warehouse Receipt Law

63b. 64 65c. 66 67 68d. 69 70 71 72 73 74 75 76 77

that he has legal right to negotiate or transfer it; that he has knowledge of no fact which would impair the validity or worth of the receipt; and 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.

78RETAIL TRADE LIBERALIZATION 79ACT OF 2000 80 (RA 8762) 81


82PURPOSE 83 84It is the policy of the State: 85 to promote consumer welfare in attracting, 86promoting and welcoming productive 87investments that will bring down prices for 88the Filipino consumer, 89 create more jobs, 90 promote tourism, 91 assist small manufacturers, 92 stimulate economic growth and 93 enable Philippine goods and services to 94 become globally competitive through the 95 liberalization of the retail trade sector. 96ELEMENTS WHICH MUST CONCUR TO 97CONSIDER IT AS RETAIL:

21 22

If goods are delivered to a warehouse 23man by the owner or by a person whose act in 24conveying the title to them to a purchaser in 25good faith for value would bind the owner, and 26the negotiable receipts is issued for them. 27 While in possession of such 28warehouseman, the goods cannot be attached 29or levied upon under execution UNLESS: 301. The document be first surrendered; or 312. Its negotiation is enjoined; or 321. The document is impounded by the court. 33 34 Reason: the law protects an innocent 35 purchaser for value in the negotiation of 36 NWR. 37 38 Goods covered by NWR cannot be attached 39or levied upon unless receipt is surrendered. 40 41 WAREHOUSEMAN 42 A person lawfully engaged in the business of 43storing goods for compensation for such service. 44 45 TO WHOM DELIVERED 46 upon demand made by the holder of receipt or 47depositor provided such demand is 48accompanied by : 49 a. an offer to satisfy the WMs lien; 50 b. an offer to surrender the receipt, if 51 negotiable, with such endorsement as 52 would be necessary for the negotiation 53 of the receipt; and 54 c. a readiness and a willingness to sign, 55 when the goods are delivered, if such 56 signature is requested by the 57 warehouseman. 58 59WARRANTIES ON SALE OF RECEIPT: (Sec. 6044) 61 62a. that the receipt is genuine;

98

99a. the seller must be habitually engaged in 100 selling; 101b. the sale must be direct to the general 102 public; 103c. the object of the sale is limited to 104 merchandise, commodities or goods for 105 consumption (Marsman and Co. vs. 106 First Coconut). 107 108FOREIGN EQUITY PARTICIPATION 109CONSUMER GOODS 110 111 Category A Enterprises with paid up 112capital of the equivalent in Philippine Peso 113of less than Two million five hundred 114thousand US dollars ( US $2, 500,000.00) 115shall be reserved exclusively for Filipino 116citizens and corporations wholly owned by 117Filipino citizens. 118 119 Category B Enterprises with a minimum 120paid up capitail of the equivalent in 121Philippine Pesos of Two million five hundred 122thousand US dollars ( US$2, 500,000.00) 123but less than Seven million five hundred

4 Page 100 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

SAN BEDA COLLEGE OF LAW, 2000-2001

2
3

MEMORY AID in COMMERCIAL LAW


Any form of reproduction of this copy is strictly prohibited!!!

1thousand US dollars (US$7,500,000.00) may be 2wholly owned by foreigners except for the first 3two (2) years after the effectivity of this Act 4wherein foreign participation shall be limited to 5not more than sixty percent (60%) of total equity. 6 7 Category C Enterprises with a paid up 8capital of the equivalent in Philippine Pesos of 9Seven million five hundred thousand US dollars 10(US$7, 500,000.00) or more may be wholly 11owned by foreigners : Provided, however, That 12in no case shall the investments for establishing 13a store in Categories B and C be less than the 14equivalent in Philippine Pesos of Eight hundred 15thirty thousand US dollars. (US$830,000.00) 16 Category D Enterprises specializing in high17end or luxury products with a paid-up capital of 18the equivalent in Philippine Pesos of Two 19hundred fifty thousand US dollars 20(US$250,000.00) per store may be wholly 21owned by foreigners. 22

23END-USE DOCTRINE 24 This means that a person who buys the goods
25acquires them for his own use and not for 26resale, in that case the transaction is retail. 27

28 29 30 31 32 33 34 35 36ANTI-DUMMY LAW 37(CA 108 As Amended) 39


38

The law punishes the evasion of 40nationalization laws (by the use of dummies) 41and prohibit them from intervening in the 42management, operation, administration or 43control of any nationalized industries. 44 45ALIENS MAY BE EMPLOYED IN THE 46FOLLOWING CASES: 47 481. Employment in technical personnel 49 approved by the president upon 50 endorsement of the department head 51 concerned (i.e. the Secretary of Justice or 52 under special laws, by the entity or office 53 concerned, such as the Bureau of 54 Industries, the Director of Mines and Geo55 sciences. 562. Election of alien directors to the extent 57 allowable and actual foreign equity 58 participation.

4 Page 101 5Commercial Law Memory Aid Committee: NICEFORO AVILA JR. (Chairperson), MA. HAZEL M. GUBATON 6(EDP) ,Ma. Leonora R. Tabladillo, Ma. Cecilia Taliman, Kristine Gayapa, Jaymie Parafina, Joanne Tatel, Darius 7Manlangit, Maricel Eschavez, Marisol Caneja, Shey Alvarez, Malou Ababa, Joeffrey Ravago, Abet Rebosa, Zharone 8Japson, Jinky Manguntalao, Lenie Basilio, Wilfred Babano, Alvin Carullo, Verny Camacho, Abraham Guiao, Michelle 9Antonio, Jil, Reina, Macky Macaldo 10

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