Commercial Law Review Abella

Commercial Law Review
Dean Eduardo Abella

MORTGAGE
Introduction
- Under the NCC (Book V), there are accessory contracts securing principal obligations (special
contracts). These include pledge, mortgage, antichresis, guaranty, and suretyship.
Definition
- a mortgage is a contract where the property is recorded (in the register of deeds of the city and/or
province) to secure a principal obligation
- example: If a mortgaged property is in Batangas City, it must be registered in both the City and
Province of Batangas (Batangas City is the provincial capital).
- an accessory contract, collateral or security for an obligation
They are valid only if there is a principal contract.
Basic Principles
1.) Accessory Contract only exists if there is a principal contract
2.) Mortgagor is the owner of thing mortgaged
3.) Mortgage is extinguished if the principal obligation is extinguished
Scope: It may be constituted over:
(1) Personal Property (Chattel Mortgage)
(2) Real Property (Real Estate Mortgage)

Dean Eduardo Abella
First and Second Semester 2012-2013
Object
Scope
Foreclosure
EJ Foreclosure
Registration
Return of Excess
Claim for Deficiency
CM
REM
Personal property
Real property
Existing and valid obligations;
Includes future obligations
Includes voidable, unenforceable, rescissible and natural obligations
Extrajudicial only
EJ or Judicial
No right of redemption
Right of Redemption
RD of mortgagors residence + location
of property + LTO (motor vehicles)
Not required
Required
- No recovery under the Recto Law
(NCC 1484 on installment sale of
personal property where the mortgage
is constituted over the object of sale to
secure the payment of the purchase
price). For Recto Law to be applied,
mortgage must be constituted over the
object of the installment sale.
- Recovery if not under the Recto Law
FROM: Principal Debtor
E: Obligation is solidary with the
Mortgagor
CHATTEL MORTGAGE

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CHATTEL MORTGAGE LAW

ACT NO. 1508
This act is considered repealed by the New Civil Code.
The ratio is that pactum commissorium is void and the Chattel Mortgage Law considers a Chattel
Mortgage as a conditional sale which becomes absolute upon default
Governing Law: Act No. 1508
In Jurisprudence:
In one case there was a house that was subject to a chattel mortgage. The reason was that the land
belonged to one person and the house to another. The Court ruled that as between the parties there is a
valid chattel mortgage as under NCC 1159, stipulations of parties valid between themselves. However, it
is not binding on other persons.
Collateral issue: The register of deeds was not justified in refusing to record chattel mortgage over the
house; it is a ministerial duty on the part of the register
Q: May personal property also be classified as real?
A: Yes, but it is binding only as between the parties
While registration may be notice to world, it is still not in accordance with law.
Definition
- Chattel Mortgage is defined in the NCC as a contract whereby personal property is recorded in the
chattel mortgage registry as security for the performance of an obligation.
Where to Register: Residence of the mortgagor
CM is to be recorded in the Register of Deeds of the City or Province where the mortgagor resides.
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Note: There is no Register of Deeds in Municipalities.

Why: Because it can be easily moved
Nature of Requirement:
Not for the validity of the mortgage
But for Constructive Notice to the world
TRIVIA: Forms of Construction Notice:
Public Instrument, Publication, Registration
Form of Registration: Affidavit of Good Faith
- It is a sworn declaration of both the mortgagor and mortgagee that they executed the mortgage in good
faith to secure a valid obligation and not for the purpose of fraud
- IF LACKING:
a) the mortgage is still valid between the parties
b) it is invalid as to third persons because the mortgage cannot be registered without the affidavit
Q: If an affidavit of good faith is omitted is there a valid chattel mortgage?
A: Yes, general ObliCon rule. Affidavit of good faith is for purposes of registration. If there is no affidavit,
it is not binding on third persons. Affidavit of good faith may be demanded.
Q: What if mortgagor and property are in different locations?
A: Register first in the city or province where the mortgagor resides then where the property is found.
If object is motor vehicle it should be registered with the LTO. It should be first registered with register of
deeds. After, which, register with the LTO.
Practical: Bring two copies, first to Register of Deeds then have him stamp the copy. Bring the second
copy to the LTO.
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Mortgagor may or may not be the principal debtor.

A problem arises when the principal debtor defaults.
REMEDIES OF THE CREDITOR:
1.) Sue for specific performance if the obligation is for a sum of money mortgagee abandons
mortgage by suing the principal debtor. If suit is brought, mortgagor may demand release of
mortgage.
2.) Foreclose the mortgage under the Chattel Mortgage Law
- ABSOLUTE REQT: CREDITORS POSSESSION of the thing mortgaged because it must be sold
in a public auction
- How does the creditor acquire possession:
Demand for the delivery of the object after default. If concealed, sue for replevin.
- Who attends to the foreclosure sale:
Sheriff or
Notary public
- What is the process of foreclosure:
a. Petition for EJ Foreclosure with the sheriff or notary public
b. Notice of Auction Sale by the Sheriff/NP after the receipt of the petition
- Posted in at least 3 public places,
e.g. City/Municipal Hall, Barangay Hall, Hall of Justice
- there is no law that requires the sheriff or np to make sure that the notices stay where
posted
Q: If somebody took the posted notice, will proceeding be invalidated?
A: No, it will not, posting is enough.
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- Copy furnished to the mortgagor at least 10 days before the auction sale, otherwise the
sale would be void
c. Sale to the Highest Bidder
- If sold to the mortgagee, he has no obligation to deliver any amount
- If sold to a third party, the latter delivers the amount of the bid to S/NP
d. Certificate of Sale
- Whoever is the highest bidder gets certificate of sale from sheriff or notary.
Hypothetical Q: Mortgagor did not see necessity of recording release of mortgage. Went to get a
second loan from mortgagee. He merely returned the release of mortgage, is the mortgage revived?
A: No, obligation it secured is already extinguished
REAL ESTATE MORTGAGE
Governing Law: ACT 3135
It is a special law creating the right of the mortgagee to foreclose the REM extrajudicially
How to extrajudicially foreclose a REM
3135 refers to the Rule 39 of the Rules of Court
1. The Mortgagor must expressly authorize the mortgagee to sell the mortgaged property in case of
default, either in the deed of mortgage or in a separate instrument
- EXAMPLE: In case of default, the bank shall be authorized to sell, as it is hereby authorized to
sell.

Dean Eduardo Abella
- INSUFFICIENT: Banks use printed deeds of REM with the following provision: In case of default,
the Bank can extrajudicially foreclose pursuant to Act No. 3135. According to a SC Circular, mere
reference to Act No. 3135 is not enough.
- Thus now, in case of default, the bank must be expressly authorized to sell the property
mortgaged.
- Note: Just copy the wording/form of the law
2. The mortgagee must execute a verified petition
Q: How is it initiated?
A: Prepare a verified petition to foreclose the REM. The sheriff or a notary public may handle this.
The mortgagee himself may do it, but it is often the sheriff or notary public.
- Where filed: Sheriff or Notary public
- CAFS is not required
- Note: It is ironic that the remedy is supposed to be extra-judicial or out of court and yet sheriff is
not allowed to accept the petition unless the court fees required are paid (SC Circular March 2000)
3. Referral and Payment of Fees
4. Notice of Auction Sale
- By Whom Issued: Sheriff, NP
- Where: Where the property is situated
- How:
a) Notice in at least three public places in City or Province where the property is located
b) Publication in a newspaper of general circulation, once a week for two consecutive weeks
- NOTE: Publisher must be accredited by the court and assigned the publication by raffle

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- Should notice be furnished to the mortgagor? No because publication is constructive notice

to all (This is opposed to the EJ Foreclosure of Chattel Mortgages where notice to the
mortgagor is required)
- REQT: CORRECT DESCRIPTION OF PROPERTY, Otherwise the notice would be void
- How to Prove: Ask for a Certificate of Notice or Affidavit of Publication and a copy of issue of the
newspaper
5. Scrutiny of the Title of the Property
- If the property is wrongly described in the publication, then the entire proceedings would be void
- REMEDY: Inform the publisher and correct the issue
6. Auction Sale
- Q: If there is a written agreement between the mortgagor and mortgagee to postpone the auction
sale, is it valid? YES, because it is not contrary to law, morals, good customs, public order or
policy. However, in case of postponement, the notice requirements should be complied with again
as in the case of Nepomuceno Productions vs. PNB.
- Three possible results of an auction sale
a. Bid exceeds the amount of the obligation: the excess is returned to the mortgagor
b. Bid is less than the amount of the obligation: the deficiency is recoverable
c. Mortgagor himself is the highest bidder: There is no need for the amount of the bid to be
delivered to the sheriff or no.
NOTE: There is no longer any requirement of having at least 2 bidders.
7. Certificate of Sale
- By whom issued: sheriff or np
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- What to do: Register ASAP with RD BEC the one-year Right of Redemption commences within
one year from the date of registration
8. Redemption
- Nature: Right, Not a Duty; it may not be forced on the mortgagor
- It is a property right arising from property
- Real property
- Real rights
- Who Exercises Right of Redemption:
a. Mortgagor
b. His successors-in-interest
c. Judgment creditor of mortgagor
- How is it Exercised:
there must be a valid tender of the redemption price
within the redemption period
- When is tender valid: If there is tender of the full amount of in legal tender
- What is the redemption price:
a) If there is a special law that created the mortgage and there is an indication of redemption price,
then follow that.
b) If it is a bank, it depends on the law.
c) If another person:
1.) Bid price
2.) 1% interest per month on the bid price
3.) Taxes and charges paid by the highest bidder
4.) 1% interest per month on the taxes and charges paid

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The Supreme Court construed this as 12% per annum.

- To whom must the amount be tendered:
Highest bidder or Sheriff/NP conducting the auction, whoever is less intimidating
*If tender is refused: the remedy is specific performance. The amount may not be consigned
because for consignation to be allowed, there must be a debt due.
*NOTE: Present the Certificate of Title from the Register of Deeds with the annotation of the
Certificate of Sale.
- What is the Certificate of Redemption: It cancels the certificate of sale
- When is the Redemption Period:
GR: 1y from registration of certificate of sale (NOT 12m)
E: 90d or before the registration of tile over the property, whichever comes first IF the
mortgagor is a juridical person and the mortgagee is a bank (General Banking Act)
- Is the right of redemption waivable? NO. Express waivers within the period of redemption is not
allowed because it is contrary to public policy. HOWEVER, waiver may be done by not exercising
the right.
- Is it transferable? YES, either onerously or gratuitously. Redemption is a real right over real
property. The right may be inherited by succession
9. Acquisition of Title
- When to obtain title to the property: When the period of redemption expired without anyone
redeeming the property
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- How: 2 ways
a. Have the Sheriff/NP issue a Final Certificate of Sale
b. Execute an Affidavit of Non-Redemption, which is less expensive than the first
c. Pay BIR the taxes upon the expiration of the redemption period
- Why do it: The BIR requires: (1) certificate authorizing registration and (2) the tax clearance
certificate
a. DST within five days from the month following the expiry of the redemption period
b. CGT / Withholding Taxes 30 days from expiration of the redemption period
c. VAT
d. Transfer Taxes of LGUs
- Pay the amount of taxes to the LGU
- Update all realty taxes
- Obtain a Clearance from the local treasurer
- Go to the RD for the issuance of a TCT
- What is the tax base:
Before, it was the bid price.
By reason of a BIR Circular dated July 2012, the tax base is now the highest of:
(a) Bid Price or
(b) Market Value in the Tax Declaration or
(c) BIR Valuation
10.
Possession of the Property
- How: Ex parte petition for the Issuance of a Writ of Possession
- It is in the nature of a motion
- Nature:
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General Rule: Ministerial duty of the court BUT if filed before the end of the redemption period, a
bond is required.
Exception: Not ministerial if there is another person with a better right. Ex. Lessee
- REQD: GF of Applicant! Thus, the applicant must inquire into the (a) TCT and (b) rights of the
current possessor to qualify as a buyer in good faith; otherwise, he will have no right of
possession.
New buyer in good faith doctrine: Looking at certificate of title is no longer enough; you
must look at the right of the person in actual possession of the property. Failure to do so
does not qualify one as a buyer in good faith.
Case: Person borrowed from bank. Parents executed a Real Estate Mortgage. Borrower issued postdated checks. The checks were dishonored. The bank sued the borrower for BP22.
Remedies for bank are as follows:
1.) Civil Collection
2.) BP22
3.) Foreclosure
Filing of BP22 is an abandonment of the mortgage.
If buyer of mortgaged land already owns the land and the prior owner does not want to leave, file an ex
parte Petition for Issuance of Writ of Possession.
Practical Matters: Attach all certified true copies of documents in the petition title, deed of mortgage,
final certificate of sale, BIR clearance (tax clearance, certificate authorizing registration)
Practical Matters: When Register of Deeds issues Certificate of Title, he issues at least 2, the original
and the owners copy.
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There are at least 2 because co-owners may each want a copy of the certificate of title. In which case,
the co-owners duplicate should be prepared with the original. If you are buying from co-owners, you
must get all other copies so that they may be annotated.
Remedy or the issuance of the writ of possession is the same in extrajudicial foreclosure, judicial
foreclosure and execution sale. There is no remedy if a third party has a better right.
Q: Can PDCs be used as chattel mortgaged property?
A: Legally, yes.
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DOCUMENT OF TITLE
Governing Laws:
NCC (Sales)
Code of Commerce
Warehouse Receipts Act
Definition
It is an instrument or document where the bailee acknowledges goods and contains an undertaking to
deliver the goods
- DIFF with Instrument under the Negotiable Instruments Law
1) Coverage: NCC covers GOODS to be transported or safely kept. NIL covers sums certain in
money, except other properties that may also be covered.
2) Modes of Endorsement
- In DTs, endorsements must be IN BLACK or ESPECIALLY
- In NIs, it may be blank, especially, conditional, qualified, or restrictive
Examples of Documents of Title
- Bill of Lading, issued by common carriers (Code of Commerce)
- Warehouse Receipt, issue by warehousemen (under the Warehouse Receipts Act and the General
Bonded Warehouse Act).
- Quedan, a warehouse receipt that covers rice, sugar, or tobacco
Who issues DTs:
Common carriers
Warehousemen
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Forms of DTs to facilitate trade

1. Negotiable IF it contains words of negotiability, i.e. to order, to bearer, or those with equivalent
words or phrases (e.g. holder, possessor)
2. Non-Negotiable
What if it contains deliver to bearer with a red stamp in big font of NON-NEGOTIABLE: It is
negotiable even if the bailee intends it to be non-negotiable, as long as it contains words of
negotiability.
How to Negotiate Documents of Title
1. To Order Instruments: Indorsement (Blank or Special) and Delivery
2. To Bearer: Delivery
If Originally To Bearer, then specially endorsed and delivered, the transferee must also negotiate
by endorsment and delivery.
NOTE: Once it has been especially endorsed, negotiate by endorsement and delivery all the time
thereafter
EXCEPT IF the last endorsement is in blank, then just deliver it subsequently
DIFFERENCE WITH NI: Endorsement in a bearer NI has no effect.
BILL OF LADING
Governing Law: Code of Commerce
Kinds:
Bill of Lading Common carrier of goods by water
Waybill by trucks on land
Airwaybill by aircrafts, airlines
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Formal Requirements
1. It must be printed
2. It must contain the complete name and address of the printer
3. It must contain the telephone number of the printer.
4. It must contain the TIN Number of the printer.
Content of B/L (Code of Commerce)
1.) Complete name and address of consignor/shipper.
2.) Complete name and address of consignee.
3.) Complete name and address of the carrier/shipee (NCC).
4.) Complete description of goods including marks and markings, e.g. Numbers on crates, Names in
pomelo crate from Davao
5.) Amount of fare
6.) Stipulations on limited liability
- Nature: Contract of Adhesion but it is not prohibited; it is only interpreted against the party who
cause the ambiguity
Q: Are printed stipulations on Bill of Lading binding on the shipper even if the shipper does not
sign?
A: GR: Yes, a contract is perfected by mere consent. Here, consent is implied even if it is signed
only by the carriers representative.
EXCEPTION: There is no consent if print is too small that the shipper could not have read it as in
the Shewaram Case.
Effect of Issuance of a B/L: Disputable presumption that the carrier received the goods. It is not
conclusive.
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Purposes of Documents of Title and Bills of Lading

1.) As a Receipt
2.) As a Written Contract between parties
3.) As a Symbol, standing for the goods mentioned therein (Symbol)
WAREHOUSE RECEIPT
Governing Law: GENERAL BONDED WAREHOUSE ACT governs the conduct and business of
warehousing
Who issues WR: Warehouseman.
Requirements for Issuance
1. Annual license from DTI Director.
2. Bond must be posted before the issuance of a license, to answer for damages to goods suffered
while the goods are in storage. The bond is coterminous with the license.
3. Insurance against fire over all the goods stored in the warehouse.
Is there a prescribed minimum area for warehouses? NONE.
What is its difference with a Customs-Bonded Warehouse: WH is licensed and bonded, while a
customs-bonded WH is a facility by importers of raw materials.
What if a warehouseman issues more copies of WH receipts: He must indicate that it is only a copy and
not the original. Otherwise, he is liable to a TP who receive it in GF and for value
If a warehouseman issues more than one copy of a warehouse receipt, he should indicate on
copies that they are merely copies and not the original. If he fails to indicate it as a copy and a
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person in good faith received the receipt for value, he would be entitled to the goods as if his
warehouse receipt were original.
Negotiability of WH Receipts
A warehouse receipt is negotiable or non-negotiable.
Effect of Negotiation: Transferee acquires the direct right to receive goods from the warehouseman.
However, the right is conditioned upon the following:
1.) Person claiming the goods must first satisfy the liens of the warehouseman.
2.) He must surrender the original to the warehouseman.
3.) He must express his willingness to sign the receipt upon delivery of the goods to him.
Liens of the Warehouseman
Nature: Possessory and Waivable by parting with the goods
1.) Storage fees
2.) Other arrangements with the depositor, e.g. premium and interest for additional insurance
coverage
3.) Cost of packaging and repackaging (though the latter is illegal)
Q: What should warehouseman do with the original receipt?
A: Cancel it. If he fails to cancel it and the receipt falls into the hands of someone in good faith and who
got it for value, warehouseman is liable to the person.
Q: May goods covered by a document of title be levied upon on attachment for execution?
A: Yes.
Effect of Loss of Original Receipt
- The claimant must file an action in court to prove his ownership or right over the goods. In practice,
the claimant merely posts a bond with the warehouseman.
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- It would be the claimants problem because he cannot oblige the warehouseman to deliver the goods
without the original receipt
- To protect the warehouseman, the claimant must post a bond for the value of the goods.
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TRUTH IN LENDING ACT

Purpose of the law: To enable persons borrowing money or buying goods on installment or credit to
know the actual cost in money of the credit.
History: When cost of money had gone beyond a profitable rate and the interest was also subject to the
usury law, banks thought of other ways to make money. Banks started charging different fees to avoid
the usury law. In effect, every move by the bank had a price (Processing fee, application fee, appraisal
fee). Thus, the law obliges lenders to fully disclose all charges before the consummation of the
transaction.
How: Disclosure Statement.
Prior to consummation, person lending money or selling on credit/installment should deliver to the debtor
a written statement showing the breakdown of the charges. Note that this is already after a meeting of
the minds. (Section 4)
Content of Disclosure Statement
1.) Cash Price less down payment = amount to be financed
2.) Payable in XX installments
3.) Total amount to be paid in installments
4.) Total Cost
5.) Other charges
Regulating Body: Monetary Board of the BSP is the body that oversees the implementation of the law.
Violation of the Act is a crime; penalty is fine of P100 to P2000 and imprisonment of at least 1 month but
not more than 5 years.
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Case: Solidbank extended a credit line of P200k to a client, not just as an ordinary loan but also as a
standby source of funds which earns no interest unless it is drawn. When the borrower draws money,
the credit diminishes and he pays only what is actually received. But, there were accumulated service
fees which were not made available to the borrower.
Credit Line when bank sets aside a certain amount for client that client may draw on at any time.
SC did not allow Solidbank to collect amount because the additional charges were not indicated in the
promissory notes.
In 2009, there was another case where the fees were included in the promissory notes but there was no
delivery of disclosure statements, collection still not allowed.
BULK SALES LAW
Purpose of the law: To protect creditors from fraudulent schemes of their debtors
Acts covered and regulated:
1. Sale, assignment, mortgage, or other forms of transfer of all or substantially all of the stocks of
goods, wares or merchandise other than in the ordinary course of business
2. Sale, assignment, mortgage, or other forms of transfer of all or substantially all of the businesses
of a person, the business/es themselves
3. Sale, assignment, mortgage, or other forms of transfer of all or substantially all of fixtures and
equipment used in the conduct of business
WHY All or Substantially All: These are extraordinary transfers
Note: Not every sale is covered. Sales in the ordinary course of business is not covered, e.g. If all
goods were sold while engaged in the wholesale business.
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Requirements: Must be strictly complied with; OTHERWISE, Void sale

1. Notify the creditors in writing of the intended transfer at least 10 days before the intended
transaction
2. Deliver to the prospective transferees, a sworn statement stating the full names and addresses of
creditors and the amounts due them.
3. Furnish a copy to the Director of the Bureau of Commerce/Bureau of Domestic Trade a copy of the
sworn statement
Note: Transfer without compliance with requirements is void even if the buyer acted in GF; the buyer
is considered a trustee.
Exemptions from Requirements:
1. Judicial sales (execution, assignee in insolvency)
2. Sales or transfers of property exempt from execution
3. Sale by manufacturer of his own products
4. Written waiver by the creditors
SC: Sale of a foundry shop (Horseshoe maker/metal fabricator)
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SECRECY OF BANK DEPOSITS (R.A. No. 1405)

Purpose of the law: To encourage people to deposit their money in banks for the purpose of promoting
the national economy.
Scope: Includes investments in government securities
Reserve Requirements
What: Percentage of deposit received by the bank is to be deposited with the BSP
How much: Percentage depends on the deposit liabilities
1. Highest Checking
2. Medium- Savings
3. Low Time Deposit
Q: How does BSP use reserve requirements to manage money supply? Why is there a need to manage
money supply?
A: If there were a lot of money in circulation, prices would go up. The reserve requirement is also there
in order for the BSP to have money to lend to banks.
REDISCOUNTING FACILITY
- Promissory notes are used as security
Note: It is illegal for a bank officer or employee to disclose any information regarding bank deposits and
government securities.
Exceptions:
1. Written authority from depositor himself Self explanatory
2. In case of impeachment ex. Clarissa Ocampo
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3. Court order in case of bribery, dereliction of duty of public officer, violation of Anti-graft and Corrupt
Practices Act, extending to the spouses and relatives, close friends and associates in cases of
AGCPA
4. Where deposit is the subject matter of litigation Must be read literally, e.g. settlement of estate;
wife channels funds out of a corporation
5. By Order of the CA in relation to the Anti-Money Laundering Act
6. Examination of books of banks by the BSP
7. Independent auditors they are not bank employees/officers
GENERAL BANKING ACT OF 2000
Definition: BANK
- It is a corporation authorized by the Monetary Board to accept deposits from the public and to grant
loans.
Kinds of Banks
1. Universal Banks
2. Commercial Banks
3. Thrift Banks
a. Savings and Mortgage Bank retail banks catering small deposits; accepts deposits of small
depositors for home-building purposes (Amount is smaller than those of the universal banks,
e.g. P500 in BPI Family Bank)
b. Private Development Bank accepts deposits and grants loans; once the bank runs out of
capital, it can invite the DBP to invest in it and DBP would require membership in its BOD;
Development is in its corporate name
c. Stock Savings and Loan Associations it can be non-stock, where it cannot accept deposits
from the public but only from the restricted groups of persons.
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4. Cooperative Bank
5. Rural Bank
6. Islamic Bank
Commercial Bank
Definition: It is not defined in law. The law only identifies its powers and functions:
1) To accept deposits subject to withdrawal by check.
However, the BSP may license other banks to accept similar deposits
2) To open letters of credit.
MB licensed savings bank to do the same, e.g Ph Business Bank
3) To engage in allied enterprises
4) To exercise the powers of a corporation
As a matter of right, only commercial banks should accept deposits in checking accounts/current
accounts/commercial accounts/demand deposit
1.) May issue letters of credit
2.) Lend money
3.) Trading of government securities
4.) Foreign transactions
5.) Safety deposit box
Ownership of Other Banks
KB can own 100% of just one other
KB. There is no limit on the number of smaller banks it can
own.
Why: To encourage merger or consolidation.
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Commercial bank limit is 35% of equity, but still with a maximum of 25% per industry.
Universal Bank
Nature: Actually a commercial bank, but also authorized by Monetary Board to engage in the business of
an investment house.
Functions and Powers:
1) To accept deposits subject to withdrawal by check.
2) To open letters of credit.
3) To engage in business of investment house
4) To engage in allied or non-allied enterprises. Non-allied enterprises have nothing to do with
banking.
5) To sell life or non-life insurance policies cross-selling with insurance companies where bank
owns 5% of outstanding shares
Definition of an Investment House
Q: What is an investment house?
A: It is a quasi-bank with two major functions:
1.) Rediscounting of receivables one entity goes to an Investment House and as collateral pledges
its receivables. (Ex. Business sells on credit and needs capital again, so it borrows from an
Investment House)
2.) Underwriting for securities where a corporation offers to the market securities for sale with certain
commitments (ex. In corporation that needs more capital that cant be raised from stockholders
securities only if 20 or more persons) Get SEC approval first, then have them sold by securities
underwriters
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Example: House of Investment, Inc. and State Investment House, Inc.

Ownership of Other Banks
UB can own 100% of just one other
can own.
UB or KB. There is no limit on the number of smaller banks it
Q: if Universal Bank invests allied or non-allied, what is the limit?

A: Equivalent to 50% of net worth but only up to 25% in a single enterprise
Thrift Bank
Kinds:
1. Savings and mortgage - To lend money to those that want to construct houses. For small
depositors (small amounts of money). Banks prefer big depositors as maintenance costs are the
same
2. Private development bank organized for development of community. If it needs additional capital,
it may invite DBP to invest with it. To recognize it, check corporate name, it always has
development in its name.
3. Stock savings and loan associations Theres also a non-stock but not bank. If non-stock no ACS.
If stock, may accept deposits from general public, if non-stock only from limited clientele (ex.
AFPLSAI restricted only to AFP, PNP and family members; MESALA, Meralco employees
including the Lopez group) Many corporations have savings and loan associations and a credit
union.
Cooperative Bank
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What: It is one set up and owned by cooperatives. There are no individual stockholders, all are
cooperatives. Under cooperative office, but bank under the BSP.
Rural Bank
What: It is organized to provide banking services in rural communities, to farmers/tenants or simply
stated, in rural areas. It is recognizable by Rural in its corporate name.
Islamic Banks
Note: There is only one, owned by the government of the DBP as a controlling SH.
Why: There are no interests earned on deposits because it is considered immoral, but there may be
profit sharing.
LENDING MONEY
Is the bank allowed to lend any amount?
No. The amount of money lent must be secured by titled real properties and it must be subject to the
Single Borrowers Limit, the maximum amount which any borrower may borrow. DOSRI may borrow
from banks on the condition that it is approved by the BOD in a meeting of the BOD with quorum,
without counting the officer involved in the quorum and approval votes, unless the loan is part of a
package, e.g. fringe benefits.
What is the amount of the SBL: 20% of net worth of the bank but may be increased by 10% of its net
worth provided that the additional liabilities of any borrower are adequately secured by trust receipts,
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shipping documents, warehouse receipts or other similar documents transferring or securing title
covering readily marketable, non-perishable goods which must be fully covered by insurance.
Do the SBL and DOSRI include legitimate interests only? No, it includes illegitimate interests.
What is the remedy for SBL: Syndicated Loans where loans from several banks are obtained.
If secured by real property: Loans may be secured by Real Property; however, according to Section 37,
the maximum amount that may be lent is 75% of the appraised value of the land. If it has improvements,
the value lent is not to exceed 60% of the appraised value of improvements. Improvements must be
insured.
REGULATION OF BANKS
Under the law, only corporations under supervision of the Monetary Board may use Bank or Banking
in corporate name.
Banks are prohibited from directly engaging in the business of insurance as an insurer BUT UB can sell
insurance policies of insurance companies which it may own.
All banks should be organized as a stock corporation and comply with the requirements of the Monetary
Board for licensing. Before a corporation can be organized, it must go through bank. After requirements
submitted to the Monetary Board and completed, endorsement by Monetary Board to SEC, which then
has a ministerial duty to register it.
There is paid-up capital required by the Monetary Board. There is a period increase in paid-up capital in
order for banks to be more stable.
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For banks to open branches and ATMs, it must first obtain a permit from the MB.
Banks should have employees on permanent basis.
Q: How many directors may a bank have?
A: 5-15, odd or even, no law obliges the BOD number to be odd. If consolidated, it may have a
maximum of 21.
There must be two independent directors who are neither officers nor employees of the bank.
Directors and officers not just anybody may be a director or officer. There is the fit and proper rule.
Fit and proper rule Monetary Board came out with qualifications. Must be a college grad.
Quorum in meetings GBA allows meeting via tele- or video-conferencing
Bank should not acquire treasury shares of its own
Treasury Shares shares already issued by a corporation but which shares a corporation
reacquires in its own name.
Subscribed and Issued Shares no difference between them in terms of rights
If a bank acquires treasury shares, they should be gotten rid of in 6 months.
Under the General Banking Act, bank should cause to be published at least every quarter their financial
statements.
Clearing House Bangko Central Lending facility for purpose of collecting checks drawn on one bank
but deposited in another.
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Ex. BPI Katipunan depositor deposited checks from other banks such as Metrobank and Allied Bank.
Clearing house is where banks swap checks they received drawn on other banks. Physically there is no
cash involved, but transactions recorded.
Under present rules, if within 24 hours a bank dishonors check, check should be returned or else
considered cleared.
Bank cannot declare dividends if clearing house account are overdrawn. There is only movement of
cash if clearing house account is overdrawn.
PHILIPPINE DEPOSIT
INSURANCE CODE
History
In the 1960s to the 70s, there were so many bank closures leading to the loss of the publics confidence.
To restore faith in banking that is vital to the economy, the Uniform Currency Act was repealed and the
PDIC was created.
What is insured: Savings, current, time deposits (credit-debtor relationship). The PDIC insures only
deposits in savings, current or time accounts, not any other investments even if made with or through a
bank. It excludes money market transactions, and marginal deposits (amount required to open a L/C).
Q: Why are money market placements not insured in PDIC?
A: They are not deposits but investments. There is no debtor-creditor relationship.
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Money Market Placements transactions through bank but bank is not borrower. Borrowers are
other corporations that need to borrow for a short time. Reason for Money Market Placements is
that normal loans take time. Bank is an intermediary between the borrower and lender in the
Money Market Placement.
It is lending to another person. Advanced is that in case of bank closure, you make get Promissory
Note by borrower.
What is the maximum indemnity: P500k per person per bank in the Philippines, whether in Philippine
or foreign currency. If it is a foreign currency deposit unit, indemnity amount in pesos on the day the
bank is ordered closed.
Joint Accounts: It is insured separately and independently. Before, when a bank is ordered closed, all
deposits of a person in different accounts in different banks will be collated. In the present law, joint
accounts are insured separately. So, it is P500k per sole account per bank, and a total of P500k for all
joint accounts combined per bank.
Definition: A joint account is an account in the name of 2 or more persons. It is indicated by the
words and/or (survivorship account, each can withdraw on his own) and and (all depositors
required to sign withdrawal slip).
Kinds of Joint Accounts:
a. & - all depositors must sign the withdrawal slip
b. &/or or survivorship accounts withdrawal may be made through the signature of one or all
Under the law, deposits in joint account are presumed co-owned in equal parts unless the contrary is
proved.
Example 1:
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Sir
Sir + Wife
Joint
Account
Sir + GF
Joint
Account
Amount
Recoverable
by Sir
Example 2:
Sir
Sir + Wife
Joint
Account
Sir + GF1
Joint
Account
Sir + GF2
Joint
Account
Amount
Recoverable
by Sir
490k
500k
500k
990k
490k
500k
500k
500k
990k
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New Central Bank Act

Purpose of law: Because of the bankruptcy of the Central Bank, the Bangko Sentral was created,
having a corporate existence and is controlled by a board, the Monetary Board.
Composition of MB
1. BSP Governor. The BSP Governor has a term of 6 years, except when it is to fill a vacancy for an
unexpired term. He may be re-appointed once for a total term of 12 years.
2. Cabinet Member depends on the President who to send, currently it is DTI Secretary
3. 5 Fulltime members from the private sector so that the BSP will not become a dumping ground of
political lame ducks. Private sector representatives need not necessarily be from privately owned
private corporations. They may come from GOCCs such as the DBP, SSS, GSIS but the
appointment is staggered for a 6-year term. They may be re-appointed once for a total term of 12
years.
Prohibition to Join Private Banks - Within the period of 2 years from separation from the Monetary
Board, neither the governor nor the full time directors may serve in any capacity in corporations under
the supervision of the Monetary Board (banks, quasi-banks and investment houses), except if he would
be representing the interest of the Philippine Government.
Business: The Monetary Board is obliged to meet every other week because it has to closely monitor
the prices and take action. In every meeting, there should be a quorum of at least 4. To pass a
resolution, at least 4 members should concur. If the Governor cannot attend, he should send a Deputy
Governor. If the Secretary cant attend, he should send an Undersecretary.
Functions of the BSP
1.) Supervision of the banking system
2.) Manages currency and money supply
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3.) Gold purchasing

Q; What is MONEY?
A: Any medium of exchange, anything could be money
Money vs. Currency
Currency is defined by law as notes and coins issued by the BSP and are in circulation.
Currency has 2 qualifications:
1.) Issued by the BSP
2.) In circulation, meaning out of the BSP vaults
TRIVIA
BSP prints the notes and mints the coins. Production is local but materials are imported. Notes are not
paper; they are cloth. The cost of materials is very high.
The currency is called Peso. Its symbol is the capital letter P. There are 2 other countries that use
Peso; they are Argentina and Mexico. Part of Peso is called a Centavo. The sign for a Centavo is the
small letter c.
A note contains 2 sets of serial numbers; they are located at the upper left and lower right. They also
have 2 signatures on them, one belongs to the Philippine President, and the other belongs to the BSP
Governor.
The life of a note is estimated to be 5 years, but in Metro Manila, it is merely 1 year. If the estimated life
is over, it is withdrawn and demonetized, i.e. it loses the character of money.
Q: May a damaged note be replaced or accepted for deposit?
A: Yes, it may, but it must fulfill the following requirements:
1. If damaged, there must be at least 3/5 of the note present.
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2. It must have at least one set of complete serial numbers

3. It must have at least one signature present
4. There must be no intentional defacement (Its a crime). BSP issued a circular for banks not to
accept for deposit or replacement notes showing intentional defacement.
Coins have a much longer existence. Damaged coins may also be replaced if there is no sign of filing,
clipping or perforation; the reason for this is that the metal content would be diminished. Ideally, the
amount stated is the total cost of making coins; however, Philippine coins are worth more than their
stated value.
In case of possession of damages coins, the possessor is presumed to have caused the damage.
The year in front of the coin is the year it was minted.
Q: What is LEGAL TENDER?
A: Legal tender is currency in such quantity prescribed by law to be accepted in payment of obligations.
All Philippine notes are legal tender for all obligations. However, coins are legal tender only up to a
certain amount.
A Monetary Board Circular changed the amount of what may be legal tender for coins. All centavo coins
are legal tender up to P100 while all one peso coins are legal tender up to P1000. Contrast this with the
law that states that for coins worth 10 centavos or less, they are legal tender only up to P20, while coins
worth 25 centavos and up are legal tender only up to P50.
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LETTER OF CREDIT
Governing law: Code of Commerce, which deals with merchants.
Definition: L/C
- It is a letter addressed by a merchant to another merchant to enable the person names in the letter to
attend to a commercial transaction.
- A form of bank facility or accommodation to enable persons to have a commercial transaction where
the buyer is assured of the delivery of the goods he is buying and the seller is assured of payment.
What is a COMMERCIAL TRANSACTION
It is buy and sell.
Who is a MERCHANT
He is a person, natural or juridical,
having the capacity to engage in commerce and regularly engages in it
Regularly engages means habitual, not necessarily a big volume of transaction
If a natural person:
1.) At least 18 years of age
2.) With the capacity to enter into contracts of sale
If a juridical person partnerships and stock corporations
1.) Organized according to law
2.) SEC Certificate of Registration (corporations)
Persons Involved
1. The sender or maker, who is a merchant
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2. The addressee who is also a merchant, and

3. The beneficiary or person name in the letter who may or may not be a merchant.
Requirements for a Letter of Credit
1.) The person to whom credit is extended is stated. It must not be a bearer instrument.
2.) The amount or maximum amount of credit to be extended to that person shall be stated. It must
not be an open L/C. Addressee must not have the discretion as to how much is to be given under
the L/C.
If the requirements are not met, it is called a Letter of Recommendation. A letter of credit cannot be in
negotiable form.
Q: Why is there a need to specificy the beneficiary? Why not just bearer or order?
A: Because of obligations to each other.
Kinds:
1.) Domestic all parties in the same country; good for 6 months
2.) Foreign different countries; good for 12 months
Who issues L/Cs: Commercial banks as a general rule are allowed to issue letters of credit, but
Monetary Board may allow other banks to issue Letters of Credit.
How do L/Cs work
1. Buyer and seller are insecure
2. Buyer goes to the full service branch of a bank to open a L/C in favor of the seller
3. Bank requires a marginal deposit, the amount required by banks of the purpose of opening L/C
4. Bank remits the amount to the seller only after the seller presents proof of delivery
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Example
BPI QC requests BPI Cebu to open a L/C in favor of a seller in Cebu.
BPI Cebu communicates to the Cebuano seller to ship the goods and upon proof of such delivery, BPI
Cebu will pay him. Shipper thus ships the goods and the shipping company issues a bill of lading. If the
goods are delivered to the common carrier and it issues a B/L, it is considered as delivery to the buyer.
BPI Cebu gets the B/L from the seller, pays the seller, forwards the B/L to BPI Manila.
Buyer pays BPI Manila, claims the B/L, and receives the goods under the B/L from the carrier.
What is the benefit of L/Cs to banks
Service fees and interest on advance.
Example: Purchase price is P200k. The marginal deposit required is P120k, from which the bank
advances P80k to the seller. Interest on the P80k advanced by the bank is payable by the buyer
to the bank.
What is a Letter of Credit Trust Receipt Line
A trust receipt is a receipt with undertakings. In lieu of a 100% marginal deposit, the buyer has the
option to execute a Trust Receipt in addition to the marginal deposit. Under the Trust Receipt, the bank
releases the B/L to enable the buyer to acquire the goods which he would sell and either (a) use the
proceeds thereof in paying the bank within a stipulated period, and/or (b) return the goods unsold.
What are TRUST RECEIPTS
- A trust receipt is a receipt with undertakings.
- In a trust receipt transaction, the entruster, who has security interests over the goods, entrusts those
goods to the entrustee so that the entrustee may sell those goods and remit the proceeds of the sale
within the stipulated period. If the amount owing to the entruster has not been met within the period, the
entrustee is to return the goods not sold.
- Trust receipts are issued to guarantee debts due to failure to pay the amount bank advanced in the
Letter of Credit.
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Undertakings of the Entrustee

1. To sell the goods and from the proceeds of the sale, remit the amount owing to the entruster within
the period stipulated. The proceeds mentioned include the profits as long as there is still an
amount owing to the entrustee.
2. If the amount owed cannot be remitted, to return the goods within the period.
Parties to a T/R
- Entrustee
- Entruster, who has security interests over the goods, e.g. holder of a B/L which is a document of title
SC: In a TR, the entruster is the theoretical owner of the goods as he advanced the full payment of
the goods.
Note: Trust receipts may be between individuals
Effect of Returning Goods to Entruster
- The entrustee has the option of returning all of the goods to the entruster if the due date is near and he
has not sold the goods to avoid a prosecution for estafa. In this event, the bank would be the one to sell
the goods and deduct the proceeds from the debt of the entrustee.
- Returning the goods does not extinguish the obligation to pay the amount advanced by the bank.
Why is there a need for the Trust Receipts Law:
The bankruptcy of bank became rampant from their failure to collect from borrowing importers who did
not remit any amount to the banks after they have claimed the goods. The P.D. regulating trust receipts
was made to protect the banking system. The PD requires the entrustee to insure the goods against all
risks.
Consequences of the Entrustees Failure:
- Before, there are two views
1. Violation of a TR is a criminal act under Art. 315 of the RPC.
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2. Violation of a TR only leads to civil liability.

- NOW, the TR Law explicitly provides for criminal liability and requires the entrustee to insure the goods
against all risks.
When a document has the same stipulations as a promissory note along with undertakings present in a
trust receipt, then it is still considered a trust receipt.
In banks, the transaction is often called an L/C-T/R line because of the interrelation of the 2 transactions.
CREDIT INSTALLMENT SALES
- It is the use of TR but is not a trust receipt by provision of law because the buyer did not intend to sell
the goods sold but to use it.
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COMMON CARRIERS
Definition: A common carrier is a person natural or juridical who is regularly engaged in the
transportation of goods, passengers or both, offering its services to the public for a fee.
Elements
1.) Transporting goods, passengers or both.
2.) Offering service to the public
3.) For a fee
The common carrier is at liberty to transport what they want.
Q: What is the public?
A: It is not necessarily the general public; it may merely be a narrow segment of the public, e.g. school
bus operator is a common carrier; pipeline is also considered a common carrier, transporting fuel, and its
clients are Shell and Caltex.
Q: Do you need a motor vehicle?
A: No.
Importance of Classification: The diligence required of a common carrier is extraordinary diligence.
CARRIAGE OF GOODS
When to exercise ED:
General Rule: Extraordinary diligence is to be exercised when
the goods are unconditionally placed at the disposal of the common carrier,
until the goods shall have been delivered to the consignee or
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until consignee has been informed of arrival of the goods and given a reasonable opportunity to claim
the goods.
Reasonable opportunity is dependent upon the circumstances.
Exception: When the shipper exercises the right of stoppage in transitu.
Q: In case of stoppage in transit, what is the relationship of the common carrier to the shipper?
A: The common carrier is merely a bailee, where the diligence required is only that of a good father of a
family.
Exception to the exception: Eordinary Diligence if the shipper asks for delivery back to himself.
Q: Is the common carrier an insurer of the goods?
A: No, the common carrier is not an insurer against all risks related to transportation.
When may the CC avoid liability for loss or damage to goods:
1.) When the proximate and only cause is a storm, earthquake, lightning, or other natural calamity.
2.) When the proximate and only cause is an act of a public enemy in times of war, whether civil or
international.
3.) When the proximate and only cause is the character of goods or a defect in the container or
packaging.
4.) When the proximate and only cause is the act or omission of the shipper himself.
5.) When the proximate and only cause is the order of a competent public authority.
REQD: There must be no unnecessary delay in the prosecution of the voyage. The carrier should not
have committed an improper deviation. The diligence required is still extraordinary diligence (BUT,
according to NCC 1739, it is only Due Diligence).
Q: If not one of these five occurred, might the carrier excuse itself from liability?
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A: Yes it may, but it is the obligation of the Common Carrier to prove that under the circumstances, it
exercised extraordinary diligence. The burden of proof is on the common carrier.
Q: If one of these five occurred, is there a chance to recover from the common carrier?
A: Yes, but the burden of proof is on the shipper to prove that there is failure to exercise the required
standard of care, still extraordinary diligence.
Q: May a common carrier and shipper validly stipulate on a standard of care less than extraordinary?
A: Yes, but it must conform to the following requirements:
1.) Must be in writing and signed by both parties
2.) It must be supported by consideration other than to transport (ex. Discount)
3.) The stipulated standard of care must not be less than that of a good father of a family.
4.) If there are other stipulations, they must be fair and reasonable.
There are 2 prestations in a bilateral contract to transport. With respect to the carrier its prestation is the
promise of the shipper to pay the fare. With respect of the shipper, it is the promise of the carrier to
transport the goods.
Standards of Care:
1.) Utmost diligence of a very cautious person (transportation of person)
2.) Extraordinary diligence (transportation of goods)
3.) Good father of a family.
Note: There is no name for the standard of care in between extraordinary diligence and that of a
good father of family.
The shipper also has the obligation to minimize damage to itself.
CARRIAGE OF PASSENGERS
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Q: When should diligence start?

A: When the carrier agrees to take in the person as a passenger.
Q: May the passenger and the carrier stipulate a lower standard of care?
A: No
Q: Is a common carrier insurer against all risks?
A: No, it is not, BUT in case of mechanical defects or when a common carrier violates a traffic rule, the
common carrier is always liable.
Employees Negligence: The common carrier shall be liable for acts or omission of its employees
although said employees may have acted without or in excess of their authority
Strangers Negligence: For acts or omissions of other passengers or third persons, if the
common carrier could have prevent death or injury by merely exercising the diligence of a good
father of a family and it failed to do so, the carrier is liable.
Q: When may a common carrier be liable for moral damages?
A: In the following instances:
1.) Death of passengers in favor of the heirs
2.) When passenger suffers physical injuries
3.) When the common carrier acts in bad faith
A common carrier is liable for moral damages against a waitlisted passenger whose number is called,
given a boarding pass, allowed to proceed to the pre-departure area but not allowed to board.
CARRIAGE OF GOODS BY SEA ACT
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Background
The COGSA is a law of American origin; it was made part of our laws during the American occupation.
In case of conflict between the Code of Commerce and the COGSA, the former prevails due to specific
provision in the COGSA.
Scope of COGSA
It covers the shipment of goods by sea coming from another country into the Philippines. The shipment
of goods must be covered by a B/L.
It is not applicable to:
1.) Inter-island or coast-wise shipping
2.) Shipment of livestock
3.) Those not covered by BL
4.) Before, COGSA does not apply also to shipment of goods on deck. But NOW, there is no more
transportation on deck because goods are transported only via containers.
Salient Features
Time of filing claims:
o Apparent Loss or Damage: File it right away, immediately with the carrier
o Not Apparent: 3 days from delivery
Note: Under general law (Civil Code and Code of Commerce), the claim must be filed right away if
the damage is apparent; if it is not apparent, it must be filed within 24h from delivery (Code of
Commerce).
Actions of the Carrier on the Claim
o Settle it right away
o Not to act on it
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o Reject the claim.

What is the remedy of the consignee in case of rejection: If the claim is denied, the claim should be
filed in court within 1 year from the delivery of the goods by the common carrier to the arrastre
operator. This is because the transfer of the goods from the carrier to the arrastre is documented
in a tally sheet after an ocular inspection by the arrastre operator. When the arrastre receives the
goods, it inspects the goods and lists the defects in the tally sheet. If there are defects found, they
are formalized in the Bad Order Form.
Q: Is the filing of a claim with the common carrier a condition precedent to recover from the carrier by
complaint in court?
A: Under COGSA, no, it is not required. But under the Code of Commerce, it is a condition precedent
and thus constitutes the cause of action.
Q: When goods are insured and turned over to the arrestre operator and loss or damage is determined,
where and when should the claim by the insurer be filed?
A: Claim of the consignee must be filed with the insurer also within one year from delivery to the arrestre
operator. The insurer merely subrogates and steps into the rights of the insured.
Q: If the insurer did not act on the claim of the insured until after 1y, can it involve prescription?
A: No. Prescription between the insurer and the insured is as stated in the insurance policy or Insurance
Code.
Q: What if the goods are not annotated as damaged in the tally sheet or bad order form upon turnover to
the arratre, but the goods are damaged upon turnover by the arrastre to the consignee?
A: The suit should be against the arrastre on the basis of quasi-delict since there is no pre-existing
contractual relation between the arrastre and the consignee.
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Q: If the goods are insured but no claim is made by the insured against the insurer within 1 year from
delivery of goods, is the claim against the insurer barred after one year?
A: No.
Q: What if there is no damage annotation on the tally sheet, and the customs broker received the goods
from the arrastre, but upon delivery by the customs broker to the consigee, there is damage which is not
annotated on the delivery receipt?
A: Sue the broker on the basis of breach of contract of carriage, because the customs broker is a
common carrier. The ruling is that a customs broker who offers to transport goods to client as part of
services qualifies as a common carrier.
Q: In case of missing goods, or, if the vessel arrives but the goods are not off-loaded, when should the
claim be filed?
A: Within one year from the last day when the carrier had the last chance to deliver the goods to the
arrastre operator, e.g. before the ship sails to another port.
Q: If the prescriptive period is about to expire, can the consignee extend it by sending a Demand Letter
to the carrier?
A: No.
ADMIRALTY
Qualifications to be a Vessel: Not every watercraft is a vessel; it has to have the following
qualifications:
1.) It must not be a mere accessory to another watercraft (ex. Lifeboats)
2.) It must be registered with the MARINA
3.) It must be used to transport goods, passengers or both
4.) It is seagoing
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Q: Who may own a vessel?

A: Anybody. If a vessel is owned by more than one person, there is a disputable presumption that a
partnership exists.
Hypothecary Rule
The limited liability of a shipowner.
It is the
value of the vessel, plus
earned freightage plus
insurance, if any.
Q: Who participates in admiralty?
A: Those involved in navigation (crew) and housekeeping (compliment)
Crew of a Vessel:
1.) Captain
The title captain is used to refer to the commanding officer of a ship that goes abroad.
The title master is used to refer to the commanding officer of a ship that is engaged in local/interisland travel.
A ship captain has three roles:
a. Represent the owner of the vessel
b. Be the technical director of the vessel
c. Represent the country where the vessel is registered.
2.) Mates (1st, 2nd, 3rd etc.)
3.) Engineers.
Contracts in Admiralty:
1.) Charter party
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2.) Bottomry
3.) Respondentia
4.) Marine Insurance
Charter Party
Definition: A contract of lease over a vessel
Kinds:
1.) Bareboat/demise, where the lessor provides only the vessel, without crew, stores (things you eat),
provisions (water and fuel).
2.) Affreightment
3.) Time-charter, or a lease for a specific term of the vessel, with stores and provisions
4.) Voyage-charter, or a lease of a vessel for a voyage or series of voyages, with stores and
provisions.
According to the Supreme Court, the true charter is the bareboat charter.
The time and voyage charter are merely subtypes of affreightment, which is a contract of carriage.
Ship Agent: Corporation representing the owner in every port where the vessel may make a call or
stop. The ship agent is in charge of provisioning the vessel.
Q: What will be the liability of a ship agent for procurement of provisions?
A: A ship agent is solidarily liable with the ship owner for contracts entered into for provisions of the
vessel. This liability is different from that of a mere agent, who is not liable if he discloses his principal
and acts within the authority given him.
Husbanding Agent: Agent in charge of freightage and settlement of averages
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Q: What are AVERAGES?

A: In admiralty, they refer to damages
Types of Averages:
1.) Gross/General Average, or damages suffered by the vessel or owners of cargo that shall benefit
not only the ship-owner but also the owners of the other cargo.
2.) Specific/Particular Average or those that do not benefit anyone.
Procedure for General Average:
1.) Captain calls a meeting with the representatives of the owners of cargo.
2.) They make a decision to throw away certain cargo.
3.) If the decision is urgent, the captain may choose from the largest and of least value proceeding to
the smallest of the most value.
Supercargoes: representatives of owners of cargoes. They sell cargo for the owner. Generally, they
are only able to use profits to buy goods. If they have a special power of attorney, they may use capital
to buy goods.
Bottomry: Loan taken by the ship-owner secured by the vessel. If the vessel sinks, the creditor loses
the right to collect and the obligation to pay is extinguished. If loan exceeds the value of the vessel, the
excess is an ordinary loan.
Respondentia: Loan taken by the cargo owner and secured by the cargo. If loan exceeds the value of
the cargo, the excess is an ordinary loan.
Marine Insurance: Insurance over the vessel or freightage, cargoes or profits expected from cargo.
Accidents in Admiralty:
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1.) Collision, or the impact of two or more moving vessels

As opposed to Allision,
the impact of one stationary and one moving vessel
2.) Arrival under stress, or when a vessel is forced to sail to the nearest port.
Q: What is the obligation of a ship captain in arrival under stress?
A: The captain must execute a MARITIME PROTEST, a sworn statement where the captain
relates what transpired.
Examples:
a. Natural calamity along route.
b. Avoidance of pirates
c. Loss of provisions
d. Accident that renders the vessel incapable of prosecuting the voyage
3.) Shipwreck
Q: Is the owner of a barge a party to a contract of carriage?
A: No, he is not a party, unless the barge is self-propelled. The contracting party is the owner of the
towing vessel.
Three zones of time in Collision:
1.) First time anytime the danger of collision appears.
2.) Second time from the time the danger appears until it becomes a practical certainty
3.) Third time from the time it becomes a practical certainty to impact.
DOCTRINE OF INSCRUTABLE FAULT:
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If there is a collision of two vessels and it cannot be determined who is at fault, each bears his own loss.
However, both ship-owners are solidarily liable for the damage to all cargoes.
WARSAW CONVENTION
What: It is an agreement among sovereign nations for:
1.) Having uniform documents in international air transportation,
2.) Fixing the liabilities for international air carriers.
Who are the parties:
The signatories are referred to as HIGH CONTRACTING PARTIES.
The Philippines was not an original party because at the time, it was not yet a state and it had no
aircraft. Ph was a party by accession to the US.
What is an INTERNATIONAL AIR TRANSPORTATION:
- One where the port of origin is in one country and the port of destination is in another
- One where the port of origin is in one country and the port of destination is in the same country but the
agreed stopping place is in another country. This often occurred when there were multiple colonies, e.g.
LA (US) Tokyo (Japan) Guam (US).
- Movement of goods by land or water to the aircraft
What documents must be uniform:
1.) Passenger Ticket, issued by the carrier
2.) Baggage Check, the white strip of long sticker with a bar code
3.) Airwaybill, it is a B/L
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Currency of Indemnity: Before, original indemnity used to be fixed in Swiss Francs; now, this was
changed to US Dollars.
What are the fixed liabilities of the carrier
1.) Death of a passenger: $100k, no question asked.
2.) Physical injuries: $100k maximum, depending on the severity of the injury.
3.) Checked-in articles: $1k per kilo UNLESS a greater value is declared and the fare corresponding
to the bigger value is paid
The value must be proven to be at least $1/kilogram;
otherwise it is only value you can prove.
4.) Hand-carried articles: $1k maximum regardless of weight and actual value
Why are liabilities fixed: Because of the different ways to assess damages for injuries or loss of goods
What to do to claim the full amount:
1.) Declare the value
2.) Pay fare according to the value
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PUBLIC SERVICE
Who may render public service
Only - Ph citizens or
- Corporations with 60% ownership by Ph citizens
Grandfather Rule: Control test where the citizenship of the corporation owning another is taken
into consideration in determining the 60% Filipino ownership
Who regulates public service
Under the 1935 Constitution, it was the Public Service Commission.
Now, it is regulated by different government agencies: DOTC, LTFRB, CAB, MARINA, LGUs (lakes,
rivers)
How to engage in public service
1. Application by petition
2. Hearing
3. Issuance of a CERTIFICATE OF PUBLIC CONVENIENCE, a written authority issued by the
government regulator to enable persons to engage in public service
DIFF WITH CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY: Latter authorizes
public service for which service, a legislative franchise is required. This is because franchises are
no longer exclusively legislative.
Requirements or Qualifications to engage in PS
1. Ph citizenship
2. Willingness to engage in PS
3. Financial capacity why:
a. Acquiring equipment to engage in PS
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b. Settling damage claims

KABIT SYSTEM it is an illegal manner of engaging PS by doing it through others where it does
not itself possess of the qualifications
PRIOR APPLICANT RULE: If two or more persons apply to render the same public service, the one
who first filed the application should be granted the authority.
Example: Boundary System where the driver pays an amount to the operator of a jeep for use of
the motor vehicle for an agreed period. According to the SC, there is an employer-employee
relationship between the driver and the operator by reason of the control test.
OLD OPERATOR RULE: If someone is already rendering the service, it must first be allowed to offer to
add the same service
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FOREIGN INVESTMENTS ACT

Purpose of law: to encourage and entice foreign investments to bring in more foreign currency. It was
formerly illegal for transactions to be paid in foreign currency or in relation to foreign currency.
Salient Features
Foreigners can own 100% of any enterprise related to exports so long as it is not covered by
Negative List A & B
Negative List A, activities reserved by the Constitution or other special laws to Filipinos
e.g. advertising, public service
Negative List B, activities that are exclusively for Filipinos
e.g. those relating to ammunition and firearms (unless the Secretary of National Defense
consents), pyrotechnics, nightclubs, beerhouses, steambaths, and massage parlours.
Inward Remittance: A foreigner may also own 100% of a domestic market enterprise if the
foreigner remits and makes an investment worth $200k or equivalent but not in areas where there
are health related risks ex. Bars, beer houses, massage parlors, sauna baths, dancing halls.
EXCEPTION TO $200k REMITTANCE:
If the enterprise advances technology, as determined by the DOST and hires more than 50
Filipino employees; the investment must also be no less than $100k; or
If the alien is a former natural-born Filipino, then he is allowed to own urban properties with an
area of 5000sqm. or rural properties up to 3 hectares. If both spouses are formerly natural born
Filipinos, their total lands must not exceed the above-stated land areas, and the land acquired
must be in different locations.
Filipino Corporations:
a. Domestic corporations must be at least 60% owned by Filipinos.
b. Foreign corporations must be 100% Filipino owned.
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INTELLECTUAL PROPERTY CODE

Governing Law: Intellectual Property Code. It is a compilation of old laws on patent, copyright, trade
marks, trade names, service names, service marks. The Code is administered by the Intellectual
Property Office. The head is the Director-General who must be at least 40 years of age and a lawyer.
The term of the Director-General is 5 years, eligible for a single re-appointment. However, the first
Director-General appointed has a term of 7 years without re-appointment.
Kinds of Intellectual Properties:
1.) Patents
2.) Copyrights
3.) Industrial Designs
4.) Layout or Topography of Integrated Circuits
5.) Trademarks and Tradenames
6.) Geographic indication
7.) Trade-Related Aspects of Intellectual Property Rights
PATENTS
What is a patent: It is issued upon an invention, granting the exclusive right to mass produce or license
the mass production of the invention.
What are patentable inventions?
1. New
2. Involves an inventive step
3. Capable of industrial application
What is NEW:
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It is new if it is not part of prior art and if it is a different technology.

eg. Heat-operated microphone
What is an INVENTIVE STEP:
GR: It involves an inventive step if it is not just newly discovered but involved a process of trying this
and that until one finds what works.
eg. X tripped and fell on carabao grass, face first and discovered its magical effect on pimples. This
cannot be patented because it is merely discovered without any inventive step. BUT IF X first tried
guava leaves, then malunggay leaves, then garlic, then chili, and then flour to make a paste to cure
pimples, then such involved an inventive step and is thus patentable.
E: Microorganisms
eg Those which improve the digestive process or eat garbage.
What is INDUSTRIAL APPLICATION:
The invention develops a new industry or an existing one for mass production of the invention. It
could lead to development of new or existing industry.
What are not patentable inventions?
1. Those contrary to law, eg substitutes for shabu or prohibited ingredients
2. Those contrary to morals or public order, eg vibrator which moves back and forth at different
speeds. HOWEVER, though these may not be patentable, they may be mass produced because
their mass production is not prohibited by law.
3. Mere concepts or ideas, eg sound makes people move
4. Mathematical solutions
5. Surgical procedures, eg horizontal cut for caesarian birth. HOWEVER, the gadgets used are
patentable.
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To whom are patents issued?

1. Inventor
2. Co-owners IF two or more invented it UNLESS there is an agreement to the contrary
3. One who first files an application IF the invention was arrived at by two or more persons
individually and independently
4. Employer IF the employee-inventor was hired to work on the invention, UNLESS there is
agreement to the contrary
eg. Chemist is hired by AVON to work on makeup products
5. Employee-Inventor IF he was hired to do something else, though he made the invention during his
working hours
eg Security guard invented something while on duty
What is the advantage in patenting ones invention: It is only the patent holder who gets the
exclusive right to mass produce the invention or to license the same.
How do you know if an invention is already patented?
The patent symbol P and number are already in the invention itself.
How long is the duration of a patent: 20y from the filing of the application
How soon does the applicant get the patent: Only god knows
What are the KINDS OF LICENSING
1. VOLUNTARY, or by agreement between the patent holder and the licensee
Can the holder just impose anything? No, there are prohibited stipulations and the list is not
exclusive. The list includes the number of products produced; prohibition on export; limit on the
price of sale; source of raw materials, which must be a person nominated by the holder; hiring of
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employees which must be recommended by the holder; any other. These are prohibited because
of the great moral ascendancy of the holder over the applicant
What is the right of a patent holder in the license:
ROYALTIES. These are not in any amount because the IPO prescribes the amount and
computation
NOTE: Patent and the patented article are two different properties that must be dealt with
separately.
2. COMPULSORY
How: A person applies with the IPO for a license to mass produce a patented article. Proceedings
are
then
held
before
the
IPO. The licensee would still be liable for royalties
When:
When the patented article is food or medicine
And it is not being mass produced despite demand for it
Or its current mass production cannot meet the demand for the product
Is any unauthorized copying of a patented article an infringement?
NO. The following do not constitute infringement:
personal and exclusive use
use by the government, BUT it must pay royalties
research and development
INFRINGEMENT
UNFAIR
COMPETITION
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Unauthorized copying
Patent
must
registered
Copying a product of
another and passing
them off as ones own.
This is a felony.
be Product may not be
patented
What are the remedies of a patent holder against infringement?

1. Civil: Injunction and Actual Damages (Royalties)
a. Prove actual damages. This is not easy, so just ask for royalties.
b. Ask for royalties
2. Criminal: ONLY IF the infringement is repeated
INDUSTRIAL DESIGN
What are INDUSTRIAL DESIGNS:
It is a combination of lines, or of colors, or of lines and colors. Lines need not be straight.
eg Shirts with stripes; floral designs; Burberry and Luis Vuitton
LAYOUT OR TOPOGRAPHY
OF INTEGRATED CIRCUITS
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What: The pattern of a mother board is intellectual property.
TRADE NAMES
What is a TRADE NAME:
The name that a person gives to his products to identify them and to distinguish them from the products
of others.
How is it different from a BUSINESS NAME: A business name is the name that a person uses to
identify his place of business.
It is governed by the Business Names Law. If using a business name different from true name,
you register with the DTI, Bureau of Domestic Trade. There is a need for a public record of who
owns businesses in order to know who to sue. This is needed for signs or printed documents.
What is a TRADEMARK
It is a sign, emblem, or mark that a person uses to identify and distinguish his products from that of
others.
What is a SERVICE NAME
It is the name, sign, emblem, or mark that is used to identify service (eg. Good Year Servitek, Rapide).
It covers both things and services.
What is the DURATION OF PROTECTION: 10y, with limitless renewals. But after five years, the owner
must file an affidavit of use (Declaration of Actual Use) of the Trademark or Trade name with the IPO
over the past period.
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Mj: Under the IPC, the Declaration must be filed 3y from filing and 1y from the fifth anniversary
(124.2, 145).
Why do you need to register Trademarks or Trade names
To enjoin the use by others or to file a suit for infringement
Certain Rules
Exclusivity: Once a TM or TN is registered in the name of a person, no other person may use a
similar or confusingly similar name or mark in connection with a similar or closely-related
product.
eg. You cant use Del Monte in connection with foodstuff but you can use it for underwear.
Trade names may be trade marks at the same time, but both must be registered to be protected.
eg Selecta is a trade name and how it is packaged is a trade mark
Trade names and Marks include service name and mark
Taste is not protected.
First to File System; prior use is not required
What is the DOCTRINE OF COLORABLE IMITATION
Under this doctrine, there is colorable imitation when a person gives his product an appearance that is
similar or confusingly similar in appearance to the product of another calculated to make the ordinary
buyer believe that his product is the same as the product of another.
Mj: Under jurisprudence, it is such a close or ingenious imitation as to be calculated to deceive
ordinary persons or such a resemblance to the original as to deceive an ordinary purchaser giving
such attention as a purchaser usually gives, as to cause him to purchase the one supposing it to
be the other.
Q: Who is an ordinary buyer?
A: Buyer relying on the general appearance, images, and color combinations of products.
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Examples:
1. Bottles of Del Monte are patented. One case involved the Sunshine brand of ketchup that used
the bottles of Del Monte because the owner of Sunshine could not afford to make his own bottles.
The manufacturer replaced the labels of the bottles but the labels had the same color combination.
Add to this the fact that the bottles had markings that they were products of Del Monte. It was not
ordinary buyers that were misled but also those that read the labels.
2. Beer na Beer Case. In the 70s, Asia Brewery created Beer na Beer (Beer housen) that had the
same taste as San Miguel (pale pilsen), but Asia Brewery also used the same shape of bottles.
The Supreme Court held that there was no unfair competition, applying the holistic test. The beer
of AB could not be mistaken for San Miguel because the prices of the former are cheaper.
TWO TESTS TO DETERMINE INFRINGEMENT:
1.) DOMINANCY TEST when the prevalent features are likely to confuse one product with
another. To determine whether there is possible confusion between products, look into the
dominant features.
2.) HOLISTIC TEST consider not just the prevalent features but also other factors. Even if
there is similarity, there is likelihood that they will not be confused with each other.
Example of Dominancy Test
1.) Converse vs Custombuilt both shoes use the same star logo
2.) Alaska All Purpose Milk vs Alacta Infant Preparation not likely to be confused with each
other because each is used for different purposes. One if infant formula, the other is cows
milk.
Examples of NOT CLOSELY-RELATED PRODUCTS
Del Monte in shoes.
Esso in cigarettes.
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What is the DOCTRINE OF SECONDARY MEANING

When a name is used so long and so exclusively to identify a product, that whenever the name is
mentioned, reference is readily made to said product, although the name is not registered because it is
not registrable, no other person may use that name in connection with a similar or closely related
product.
Why do we have this doctrine: Because not all names are registrable.
Geographic words or names
Generic
Descriptive
Names, sign, or portrait of Past Presidents, UNLESS the widow consents
Flags and simulations
Coat of arms and simulations
COPYRIGHT
Scope of Copyright
Other intellectual creations, such as books, musical compositions, adaptations, song lyrics, melodies,
photos, computer programs, and slogans.
NOTE!
Copyright is one property and the copyrighted work is another property.
There is copyright for the lyrics and another for the melody in songs.
Adaptation of musical compositions are works patterned after the works of others
Patterns of TV and radio programs are not copyrightable
Who owns copyright
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1. Intellectual creator
2. Co-creators IF 2 or more persons created the same, UNLESS there is an agreement to the
contrary. There is no first to file doctrine due to impossibility of making the same intellectual
creation.
3. Employer IF the person is hired to do intellectual creation, UNLESS there is an agreement to the
contrary.
4. Employee IF he is hired to do another thing, even though done during work hours.
5. Commissioned person: If a person is commissioned to create intellectual property, the work
belongs to the commissioner while the person commissioned owns the copyright, UNLESS there is
an agreement to the contrary
Is registration required for protection? NO. It follows the first-to-use system, NOT the first-to-file.
What is the DURATION OF COPYRIGHT: Copyright is protected from creation and lasts until the
lifetime of the copyright holder and 5y from his death (which is counted from the first day of the year
following his death).
If a person wants copyright protected, within 30d of becoming public, register the work.
Mj: BUT under the IPC, Registration is purely for recording the date of registration and deposit of
the work and shall not be conclusive as to
copyright ownership or the term of copyrights or the rights of the copyright owner, including
neighboring rights.
Advantage of Copyright: Copyright cannot be attached while it belongs to the intellectual creator.
However, when transferred to another, it may be levied. This is different from patent which can be
attached even if owned by the intellectual creator.
What are RIGHTS OF A COPYRIGHT HOLDER
1. A copyright is an economic right. Economic rights include:
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a. the right to mass produce the work or to license it;

b. the right to make other versions of the work
2. A copyright includes moral rights, or the right of the owner to demand that his authorship be
acknowledged and in a certain manner of presentation. If there are errors, he can demand
rectification of the errors.
What are the REMEDIES AGAINST INFRINGEMENT
Civil action for injunction and damages
Criminal prosecution. Repetition of infringement is not required! The very first act of infringement
is already criminal. But for the prosecution of piracy, the original is required. The law provides for
the destruction of printed materials, plates and stencils.
Are there acts of copying that are not infringing? YES
1. Personal use, one copy only
2. Quotations of portions from books, with acknowledgement
3. Fair use of legitimate computer programs, eg one computer, one program
4. Libraries with old books may reproduce these books so long as they are no longer being
published. However, this is only for library use and not for resale.
5. Rebroadcasting, which is only a simultaneous broadcasting.
Q: Whom do our intellectual property laws protect?
A: The following:
1. Citizens, nationals
2. Residents with an effective establishment
3. Residents of a country that participated in an international convention where the Philippines also
participated.
4. Citizens of countries that offer reciprocal rights to Filipinos.
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Q: May foreign corporation, not registered with the SEC as a foreign corporation, sue in our courts for
the protection of intellectual property rights?
A: Yes, Philippines is part of Paris Convention for Protection of Intellectual Property Rights.
Mj: As long as there is reciprocity.
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INSURANCE LAW
What is INSURANCE
Insurance is a contract whereby one person, known as the insurer, agrees to indemnify another person,
known as the insured, against loss, damage, or liability arising from an unknown or contingent event.
What is an ASSURANCE: It is a life insurance initiated by the beneficiary himself.
Who are the PARTIES TO AN INSURANCE
1. Insured
2. Insurer
3. Assured
What are the CHARACTERISTICS of an Insurance
1. Aleatory contract. It involves the assumption of risks
2. Indemnity contract. It is not a wagering contract where one invests and hopes to profit. In
insurance, one invests to be restored to the same status prior to the risk happening. The insured
does not expect to profit.
3. Risk-distributing. It is not a risk-shifting device as guarantees or suretyships.
Insured does not expect to profit:
ex A new car is insured against theft so that in case of loss, the insurer gives the insured money to
acquire another car.
In life, the money is given not to buy another person but to divert and assuage the feeling of loss
What is REINSURANCE
The insurer insures the same risk with another. eg Your life is insured with A for P10M. Then A finds
out that you are entering politics, and thus the chances of dying increased. A thus goes to B to reinsure
your life for P6M. Thus, when you die, A pays only P4M from his own funds, while B pays for P6M.
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Q: If the insurance company is bankrupt, can the beneficiary claim from the reinsurer? It cannot,
because there was no privity of contract. However, the beneficiary may still file with the bankruptcy
court because the claims against the reinsurer are part of the receivables of the corporation. The
reinsurance will be part of the bulk of assets of the insurance and be distributed according to the
Civil Code provisions on preference of credits
Who may be an INSURER
1. GR: Only CORPORATIONS may be insurers, NOT individuals or partnerships.
E: Insular Life (previously a limited partnership but now a mutual benefit company)
Why: In cases of individuals or partnerships, they may predecease the insured
2. Certificate of Authority (a yearly license) must be obtained from the Insurance Commissioner. The
insurer must first obtain a clearance from the IC, who will issue a formal indorsement of
incorporation papers to SEC. The Insurance Commission prescribes a minimum paid-up capital
for insurers. For non-life insurance it must be P250M, for life insurance it must be P500M. By
2016, the minimum paid-up capital required for both is P1B.
Who may be INSURED
Anyone with an insurable interest.
What is INSURABLE INTEREST
A person who has such a relationship to the thing or life insured that he will benefit from its preservation
or damnified by its loss or destruction.
Kinds of Insurance
Property or non-life, insurance over a thing
Life, over a human life
Insurable Interest in Property Insurance
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1. Existing right, eg mortgagee

2. Expectancy founded on an existing interest, eg purchaser of crops
3. Inchoate right founded on an existing right, eg SHs of a corp.
When must Insurable Interest exist?
At the time of taking the insurance and at the time of loss, EVEN IF in the interim, it does not exist.
Insurable Interest in Life Insurance
Oneself
Spouse
Descendants
Another upon whom one depends for support
One who is obliged to pay him a sum of money or whose death may delay the performance of an
obligation, eg Debtors, obligors
Another upon whose life an estate depends, eg usufructuary who sells his usufruct to another,
reservista in reserva troncal
When must Insurable Interest exist?
At the time the insurance is taken; thereafter it need no longer exist.
Q: If one is insuring a debtor, for how long is the insurance effective?
A: Theoretically, there is no limit. Insurance is effective even after payment because insurable
interest in life insurance should exist only when it is taken. However, in practice, it is only up to the
end of the obligation.
Q: What is meant by upon whose life an estate depends?
A: An example is when the assignee insures the life of an assignor. Another example is in case of
reserve troncal, the life if the reservista is insured.
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How does one get to be insured?

One must file an application for insurance coverage with the insurer. The application form asks basis
information and representations.
What are REPRESENTATIONS
These are matters truthfully stated by the application in the application form, which information may
influence the insurer in acting on the application.
What are MISREPRESENTATIONS
Untruthful statements on matters which may influence the insurer in acting on the application.
What is CONCEALMENT
It is the omission or neglect to communicate what one knows and ought to communicate.
What is the CONSEQUENCE OF MISREPRESENTATION
The misrepresentation of a material fact entitles the insurer to rescind the policy.
Who determines materiality: It is the insurer because materiality is determined by the influence
which the misrepresentation or concealment has on the insurer in assessing the risk it is to
assume.
Case of Sun Life Canada: The person applied for insurance coverage. In the application form,
there was a question on whether or not the applicant had any consultation or treatment with a
doctor for the past two years. It was not answered, and the policy was issued. The insured then
died from a plane crash. It was discovered by the insurer that the insured had been previously
hospitalized for a heart condition. The policy was therefore rescinded and refused to be paid
because of concealment of a material fact. The SC affirmed the insurer. What is concealed or
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misrepresented need not be the proximate cause of death. HOWEVER, the insurer must
refund the premiums paid.
Can the insurer rescind the policy at any time? NO. 2y!
What is the CONTESTABILITY PERIOD?
As a general rule, the insurer is entitled to rescind the policy only within two years from the last
reinstatement or from issuance of the policy. OTHERWISE, after the two-year period, the insurer
can no longer contest the insurability of the insured.
EXCEPT! In cases of FRAUD OF THE VICIOUS TYPE, the policy may be contested beyond two
years. eg When the applicant for life insurance substitutes his urine sample.
PROPERTY INSURANCE
What is OVER-INSURANCE
In PROPERTY insurance, the property is insured for a value over the value of the insurable interest. It is
a void insurance as to the excess.
eg Property is P800 worth but is insured for P1M.
Why only in property insurance: Life is incapable of pecuniary estimation. BUT IN PRACTICE,
earning capacity is taken into consideration in determining the policies.
What is the VALUE OF THE PROPERTY? Acquisition cost and replacement costs, estimated at
the value of the property at present.
What is UNDER-INSURANCE
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In PROPERTY INSURANCE, a person insures his property for an amount less than the value of his
insurable interest. This is valid.
eg Property is worth P1M but the fire insurance taken is only for P400k.
What is the effect in case of loss:
In case of total loss, the insurer pays the amount insured in full.
In case of partial loss, the insurer only pays the amount insured in proportion to the total value
of the thing insured
eg Property is worth P1M, and is insured for P400k. If the loss in estimated at P200k, the
amount of the indemnity is only 40% (400k / 1M) of P200k, which is P80k.
What is CO-INSURANCE
It is similar to co-ownership and exists only in practice. It can arise in two situations: in double insurance
and in under insurance (full and partial loss).
DOUBLE INSURANCE: When the same thing and the same interest are insured against the same
risk with more than one insurer. There are thus two or more insurers who apportions the indemnity
to the extent of the amount agreed upon under the policy. It is valid as long as the total insurance
coverage is within the insurable interest.
UNDER-INSURANCE: In case of partial losses.
Example 1: Property is worth P1M. It is insured with A for P500k, B for P300k, and C for P200k. If
there is a loss estimated at P400k, who pays the loss? Is it A because he insured the property for
P500k? NO. The indemnity is shared proportionally as follows:
Amount insured
Total amount insured
x Amount of Loss
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THUS, the liability of

A is (500k/1M) (400k) or P200k
B is (300k/1M) (400k) or P120k
C is (200k/1M) (400k) or P80k.
Example 2: If the property worth P1M is insured only for P600k (under-insurance), the owner
becomes a self-insurer to the extent of P400k and bears the risk of loss alone like someone who
did not insure his property. In this case, the property owner is considered as a co-insurer.
Example 3: In case of partial loss in under-insurance where the value of the property is P1M and
the loss is P200k, the loss is apportioned accordingly:
Insurer is (600k/1M) (200k) or P120k
Owner is (400k/1M) (200k)
or P80k
What are POLICIES

A policy is the instrument embodying the insurance.
It must be printed. What is not printed is the personal information of the insured.
Policies of insurers contain almost identical provisions because drafts are pre-approved by the
Insurance Commissioner to avoid ambiguity.
What are the KINDS OF POLICIES IN PROPERTY INSURANCE
1. OPEN, where parties agree on the maximum amount of insurance coverage and the premium is
paid on such amount, BUT the value of the thing insured is determined at the time of loss. This is
availed of when the prices of the object fluctuate.
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2. VALUED, or when the parties have already agreed on the value of the thing insured; eg Car is
valued at P1M. In case of loss, the indemnity shall be that agreed upon.
3. RUNNING, which contemplates successive insurance contracts where the insurance coverage
over goods sold are transferred to goods which serve as replenishment. Insurance coverage on
some things, after they have been disposed of, shall also apply to the replacements. eg. Merchant
on his inventory and structure; Grocery
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LIFE INSURANCE
What is Life Insurance: It is the policy where the insurer agrees to pay the indemnity in case the
insured dies. It includes casualty insurance, which also insures against death, whether natural or
accidental
What are the KINDS OF POLICIES IN LIFE INSURANCE
1. TERM, or when the insurance coverage is for a definite period agreed upon at the beginning. The
parties agree on a period of insurance coverage. The premium is low because it does not have
non-forfeiture values.
a. If the insured survives, the policy expires.
b. As a general rule, the surviving insured does not get anything.
c. The exception is a contract of ENDOWMENT, where the insured will receive the face value
of the policy if he survives the expiration of the term but he is no longer insured. If he dies
within the term, the amount will be paid to his beneficiary.
2. ORDINARY, or when there is no term and the insured remains insured as long as he pays the
premium. The duration depends on the contract or policy. Premiums are thus payable for as long
as the insured is alive.
a. BUT THE NORMAL LIMIT IN POLICIES IS 100 YEARS OLD! Upon reaching such age, the
amount of the policy is paid because the contract of insurance had lapsed. As to the insurer,
the insured already died.
b. There are variations of life insurance. 20 pay life is when the insured pays for the full
premiums for 20 years while pay life at 65 is when the insured pays the premiums until the
age of 65.
What are NON-FORFEITURE VALUES IN ORDINARY LIFE INSURANCE
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These are living benefits. These do not exist in term insurance where the insured only gets the face
value of the policy.
a) CASH VALUE
When: From the third year of premium payment, part of every premium payment made by the insured is
set aside by the insurer for the insured. Every year, the rate of case value increases.
Example: In Year 1, the premium of P20k is paid and the insured survives. In Y2, P20k is paid and the
insured survives. At this point, the P40k paid goes down the drain if the insured survives because of the
overriding commissions of salesmen. The case value begins to accumulate on the third year. Thus, in
Y3, from the premium of P20k, the cash value is P1k and the rest goes down the drain. In Y4, the cash
value is now P2k, and so on. The longer you pay premium, the more goes to the cash value, such that
in Y20, 80% of the premium paid is cash value.
What is its advantage: if you need money but you want to remain insured, you can first surrender the
policy and borrow the cash value. If you are unable to pay, interests are charged.
What is CASH SURRENDER VALUE
If the policy is returned and the premium is no longer to be paid. The insurance ceases.
b) PAID-UP INSURANCE
When: The insured, without having to pay additional premium, is insured for the rest of his life at an
amount corresponding to the cash value, and no longer at the original amount. The insured is fully paid
for the rest of his/her life but for a lower amount of insurance.
Example: Insurance is originally for P1M, but now, he is insured only for P600k to be paid from his cash
value.
c) EXTENDED TERM INSURANCE
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When: When the insured is no longer paying an additional amount but is still insured at the same price,
but only for a specified duration.
Example: The insured is originally insured for P1M, for 21y5m. If he dies, the beneficiaries get the
amount in full. If he survives, the policy lapses.
What is the nature of these non-forfeiture values? They are alternative. Normally, the policy
stipulates that upon failure to pay the premium, the insurance would be converted into paid-up or
extended.
NOTE: Many insurers now offer participatory plans. The insured, although not a stockholder, receives a
portion of the net profits of the insurer.
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What are PREMIUMS

These are the amounts the insured has promised to pay the insurer to keep the policy active.
How is it computed in Property Insurance
As a general rule, they are computed on an annual basis and fully paid in advance.
How are premiums paid: CASH ON DELIVERY (COD) of policy. In the policy, there is a printed
acknowledgement of premium payment. Policies thus serve as receipts as well.
May premiums be paid on credit and in the meantime, be insured already?
These days, premiums may also be paid by credit card which is as good as cash. According to the
SC, it is not prohibited by law. THUS, when the risk happens when the premium is not yet paid, the
insurer is obliged to pay as long as the premium is paid within the credit term. The insured must thus
pay the premium first before he files his claim.
UCPB v. Masagana: Masagana procured fire insurance from an agent. It was not able to pay
immediately because of the internal processing time of the check. The policy was delivered to
Masagana, but before its check was released to the agent, fire broke and damaged the properties.
Masagana tried to pay the insurer and the insurer accepted. The following day, it filed a claim, but
the claim was rejected because premium had not been paid. The SC considered the insurer in
estoppel because it was regular procedure for the insured and insurer to pay at a date later than the
effectivity of the policy. There was a customary date of payment.
Exceptions:
o SHORT-TERM RATES, where the insurance is for a period less than 1y, thus the rate is on a
short-term rate.
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o HEIRS BOND, where the premium is computed and paid on an annual basis but for two-years
worth. This is in line with the requirement in the Rules of Court to answer for the claims of
creditors and excluded heirs in extrajudical settlements.
How is it computed in Life Insurance
It is computed annually but the frequency of payment depends on the agreement of the parties.
Annual payment is cheapest; Semi-annual or semestral is higher than the annual; Quarterly;
Monthly; Daily (for industrial life insurance taken by a group of persons) which is the most
expensive premium payment.
Note: The more premiums are paid, the higher the amounts because of high administrative costs.
When do you pay the premiums? Every time a premium is due in a life insurance policy, there is
a ONE-MONTH GRACE PERIOD. If the same is not paid, the amount is deducted from the
insurance.
Why is there a grace period? Insurers do not want their policies to lapse.
What if the insured fails to pay after 1m?
1. IF there is an AUTOMATIC PREMIUM LOAN CLAUSE, the accumulated cash value would
cover the unpaid premium as a loan.
Example: Premium is due on Dec. 15, 2012. It remains outstanding until January 22. The
policy could have lapsed already but the accumulated cash value was used as a loan to pay for
the premium. If the insured dies, the insurer pays the policy less the amount of the loan and the
interests.
2. IF there is no such clause, the policy lapses.
What are the options of the insured when the policy lapses?
He can apply for a new policy (BUT with higher rates because he is now older)
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He can apply for a reinstatement of his policy, where the premium is at the original rate,
BUT he must first pay all accrued premium and interests due in lump sum. There is no limit
as to the number of times the insured reinstates his insurance. He must either undergo the
same process for application of a new policy, or merely issue a Health Statement.
HOWEVER, it is best not to reinstate because the contestability period is renewed.
NOTE: Reinstatement is not a matter of right, but discretionary on the part of the insurer.
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What are LOSSES in Property Insurance?

1. PARTIAL, or when only a part of the thing insured is lost. There is partial loss only in property
insurance.
2. TOTAL, or when the thing is lost in its entirety.
BUT in Marine Insurance, total loss can either be:
a. ACTUAL
b. CONSTRUCTIVE
a. When more than of the thing insured is lost or damaged, or
b. When the damage is not big but to put the thing back to its original condition, more than
of its value will have to be spent
When is the insurer obliged to pay?
If the proximate cause of the loss or damage is the risk insured against, although the direct and
immediate cause is not the risk insured against.
eg House is insured against fire. During a storm, a lightning hit the electric post near the house.
The firemen directed the water against the post and as a result, the post fell and collapsed on the
roof. The damage is covered by the insurance. Though the house was not directly damaged by
the fire, it was the burning of the electric post that caused the damage.
What must the insured do in case of loss or damage?
1. He must file with the insurer: a claim for indemnity and a preliminary proof of loss or damage
eg Pictures are sufficient proof. They need not be in the same degree as required by courts.
In practice, the insurer refers the claim to an INSURANCE ADJUSTER, an independent third party
who is licensed by the Insurance Commissioner and paid by the insurer to determine the extent of
the loss or damage, and to inform the insurers who acts on his recommendation.
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Who may be a BENEFICIARY

GR: The insured may designate anyone. Beneficiary need not have insurable interest in the life of
the insured.
E:
o Those disqualified by law from making or receiving donations inter vivos
o Guilty of adultery. BUT One may designate his kabit who is single and who he sees only during
lunch because there is no adultery and no cohabitation.
o Government officers
How many beneficiaries may be designated?
1. PRIMARY, one whom the insured wants the proceeds ahead of the others
2. CONTINGENT or SECONDARY, in case the primary can no longer receive the value
NOTE: In the absence of a qualified beneficiary, it pertains to the estate of the insured.
How may beneficiaries be designated?
1. IRREVOCABLE. This is the general rule. The written consent of the beneficiary is required in
case of revocation and change.
Why require written consent? Because in effect, all rights under the policy have already
transferred to the beneficiary.
EXCEPTION TO WRITTEN CONSENT: Legal separation, where the innocent spouse may
revoke without it.
2. REVOCABLE, where the beneficiary may be changed at any time. There is a small box in the
application form if the insured wishes to the designation to be revocable.
In case of death, what are required to be filed with the insurer?
1. Death Certificate
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2. Birth Certificate, to ascertain the true statement of age when the insured applied for insurance
If there is a misrepresentation on age: This is a material misrepresentation. BUT if the twoyear contestability period has lapsed, the insurer is allowed by equity to adjust the amount of
insurance indemnity based on the true age of the insured. The premium that the insured
paid will be used to pay for an amount of insurance coverage corresponding to your true age.
If the insured is younger, this has no effect. This applies only if the insured is actually older
than his stated age.
3. Sworn Affidavit from two persons that they know the insured and that he is already dead
How to settle claims in property insurance
a. Pay the cash value
b. Replace the thing with another property of the same kind and quality
Note: This is common in motor vehicle insurance, where other insured abandoned the
insured thing to the insurer. Insurer salvages parts from the vehicles left to replace those
needed in the currently insured vehicle. However, replacement needs to be in good condition
FIRE INSURANCE
Scope of Insurance: Strictly speaking, fire insurance includes earthquake insurance, but in practice the
fire insurance excludes earthquake as a risk. The insured and insurer negotiate as to its inclusion where
the insurer checks the plans and foundation of the property.
Q: If you want to vary the policy, how do you vary it?
A: On the policy, the insurer adds a rider.
Q: What is a rider?
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A: In a policy, the rider is a strip of paper containing a stipulation varying what is printed. The rider is
glued to the policy. An authorized representative of the insurer signs it.
What are the Kinds of Fire
1. Friendly fire, used for beneficial purposes.
2. Hostile fire, damages property. When friendly fire goes out of control, it becomes hostile.
What is the amount of insurance: If you are going to insure your house or structure, the insurer will
normally insure it for acquisition or replacement cost. Higher premiums are paid for the replacement
cost.
TIP: Do not insure the foundation because it would not be destroyed by fire.
When is the insurer not liable: In fire insurance, the insurer will not be liable to pay the indemnity if
there was breach of a warranty.
- Affirmative warranty representations
- Promissory warranty undertakings ex. You will not bring into your house two tanks of LPG.
Q: What if the house burns because of the insureds negligence?
A: The insured may still recover. It is only when the insured breaches a promissory warranty or
intentionally acts to cause damage that he may not recover.
CASUALTY OR ACCIDENT INSURANCE

What is casualty insurance? Where the insurer pays indemnity upon the death of the insured or upon
the loss of certain body parties due to an accident. It is generally used only for loss of body parts but it
now includes accidental death.
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What is the scope of protection: Indemnities are added with additional premium.
What are compensable body parts? Either eye; Either arm; Either Leg
The full amount of insurance coverage is given for loss of both eyes, both arms, or both legs. If you lose
only one of each, indemnity shall only be . If you lose one arm and one leg, the indemnity is still .
In the Philippines, we do not have insurance for individual body parts.
MARINE INSURANCE
What is Marine Insurance: It is insurance over a vessel, its freightage, its cargoes, and its expected
profits from cargoes, against loss, damage, or liability arising from the perils of the sea (NOT perils of the
ship).
What is the extent of insurable interest:
OF THE SHIP OWNER: Value of the vessel, LESS the amount of loan on bottomry
OF THE CARGO OWNER: Value of the cargo, LESS the amount of loan on respondentia
Why deduct the amount of the loans: The borrower loses his interest equal to the amount loaned
because if the thing is destroyed, it need not pay.
What is the difference between fire and marine insurance:
In fire insurance, the obligation of the insurer to pay continues to exist even if the house is burned.
In marine insurance, the obligation to pay the loan, in case there are loans on bottomry and
respondentia, is extinguished if the vessel is destroyed or sinks, or when the cargo is lost. The value of
the owners interest is already paid.
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What are the PERILS OF THE SEA

These are the danger and risks related to the action of the wind and water. These are risks related to
navigation.
What are PERILS OF THE SHIP
These relate to the physical condition of the vessel, to the incompetence of the crew, or both.
NOTE: Marine insurance does not cover perils of the ship BECAUSE in every contract of marine
insurance (either over the vessel or the cargo), there is an implied warranty that the vessel is
seaworthy.
What is SEAWORTHINESS: Seaworthiness is a relative term in relation to cargoes. A vessel
may be brand new but absent any refrigerating facilities, then it would not be seaworthy for raw
meat. It would, however, be seaworthy for livestock.
Why does the warranty apply to cargo owners: Because he can choose the shipping company
to be used.
What happens when the insurer pays the insured? When the insurer pays the indemnity, he is
subrogated to the rights of the insured and can run after the person/s who cause the loss or damage.
TIP: If you are counsel for the insurer and you file a claim based on the subrogation, present a
DEED OF SUBROGATION and a COPY OF THE INSURANCE POLICY. The deed of
subrogation proves the subrogation but not the contract of insurance. Thus, prove the latter with
the best proof: policy.
What are the KINDS OF LOSSES in Marine Insurance?
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Losses may be partial or total. Total loss may be actual or constructive. There is CONSTRUCTIVE
LOSS when loss or damage is more than or even though not more than , more than of the value
shall be spent to restore it.
In constructive total loss, the insured entitled to recover as if there was actual total loss. However, the
insured has to abandon the property insured to the insurer. Abandonment may be total or unconditional.
What is the effect of deviation on the liability of the insurer:
If the deviation is proper, then there is no effect. Insurer still liable.
If improper, the insurer shall be relieved from liability.
When is deviation proper:
1. To avoid natural calamity
2. To avoid pirates
3. To save human lives
NOTE:
In marine insurance, the adjustment company and insurer must have absolutely no interest in each
other.
Authority of Insurance Commissioner is broadened, now it also has supervision of pre-need contracts.
PRE-NEED CONTRACTS are those where the corporation, in consideration of the promise of a
person to pay an agreed amount of money in cash or in installments, agrees to deliver to the latter an
agreed amount of money or to render a particular service upon arrival of a period or upon the
happening of an event.
SURETYSHIP
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What is Suretyship: As a general rule, it is not a contract of insurance but a risk-shifting device.
EXCEPT! Suretyship is part of the insurance business IF it is carried out by an insurer.
Examples of sureties: bail bonds, performance bonds; surety bond; fidelity bond.
In case of court bonds, must have accreditation from the Supreme Court, renewed on a monthly basis.
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NEGOTIABLE INSTRUMENTS
LAW
Applicability of the Law:
It is an obsolete law but there are still provisions which are still in practice. Thus, it must be read it with
the Civil Code.
What are INSTRUMENTS
These are instruments of credit which involve money except when the instrument gives the holder the
right to deliver another thing. They could be either a promissory note or a bill of exchange, known as
money substitutes. They can be assigned or negotiated.
When negotiated: If the instrument qualifies as negotiable under section 1.
When assigned: If it does not qualify under sec. 1
What are PROMISSORY NOTES
These instruments of credit where the obligor who borrows money from another or incurs the obligation
to another, binds himself to pay.
What is a BILL OF EXCHANGE
It involves obligations but instead of the obligor binding himself to pay, he orders another person to pay.
What are the REQUIREMENTS FOR NEGOTIABILITY
a. PROMISSORY NOTE
1. It must be in writing and signed by the maker
2. It must contain an unconditional promise to pay a sum certain in money
3. It must be payable on demand, or at a fixed, or determinable future time
4. It must be payable to order or bearer
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1.
2.
3.
4.
5.
b. BILLS OF EXCHANGE
It must be in writing and signed by the drawer
It must contain an unconditional order to pay a sum certain in money
It must be payable on demand, or at a fixed, or determinable future time
It must be payable to order or bearer
The drawee must be named or indicated therein with reasonable certainty
Who are the parties in a Promissory Note?

1. MAKER of the promise
2. PAYEE, to whom the promise is made
Who are the parties in a B/E: There are two original parties
1. DRAWER, who signs the B/E
2. PAYEE
3. DRAWEE who is ordered to pay the instrument BUT who does not become a party EVEN IF his
name appears on the instrument UNTIL he accepts the B/E and becomes a party as ACCEPTOR.
1st Requirement:
IN WRITING AND SIGNED
2ND: A. UNCONDITIONAL PROMISE OR ORDER
What is a CONDITION
Under the Civil Code, it is a future or uncertain event, or past event unknown to the parties. It may either
be Suspensive or Resolutory, which are valid, or Potestative, which is void.
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SUSPENSIVE CONDITION: It holds in abeyance the demandability of the obligation. As long as it

is not fulfilled, the creditor cannt demand the fulfillment of the obligation.
RESOLUTORY CONDITION: One which puts an end to an obligation.
What is required in the NIL:
There must be no suspensive or resolutory condition.
It is also invalid to stipulate that the amount would be paid from a particular fund. BUT in a B/E
ONLY, IF payment is not from a particular fund, but its reimbursement is from a particular fund, the
instrument is still negotiable.
Why is it required to be unconditional:
To serve the purpose of negotiable instruments, which is to facilitate commercial transactions where one
can transact without having cash on hand.
Q: If the instrument does not meet the requirements of sec.1, or it is non-negotiable, is it valid?
A: YES, negotiability is different from validity. It is also transferrable but by assignment.
2nd: B. PAY A SUM CERTAIN IN MONEY
What does it mean: What is to be paid is sure to be money.
GR: Instruments involve money
E: The instrument is still negotiable if it gives the holder the right to demand the delivery of another
thing. The right must be given to the holder, and NOT the drawer, maker, or drawee. Otherwise,
the instrument is only non-negotiable; it is still valid. eg I promise to pay P20k on or before April
2, 1992, or at the option of the holder, I agree to deliver a pig instead.
Example: Promise to pay bearer one thousand is INVALID because it stated no currency.
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Example: A provision for payment of interest at an agreed rate is valid. I promise to pay bearer P30k on
or before December 31, 2012, together with interest of 2% per month. This is valid. If the date of
reckoning of the interest does not appear, then it is the date of issue. If the date of issue is not stated,
then the holder may insert the true date of issue.
DATE OF ISSUE is not required in Sec. 1 but it is not totally irrelevant. It is merely not required for
negotiability but it is important in relation to the obligation to pay interests.
POSTDATED: Date of issue is stated in the future
ANTEDATED: Date of issue is stated in the past
NOTE: Ante- and post-dating do not affect negotiability but could affect rights of holder and
liabilities of maker or drawer.
Example: I promise to pay bearer P30k on or before April 2, 2012, with interest. This is valid because
the interest rate would then be the legal rate of 12% pa, if no rate is stated.
Example: I promise to pay bearer P30k on or before April 2, 2012, with interest of 30%. This is valid
even if there is no indication as to the frequency of interest payment. In such case, payment would only
be once.
What if the instrument is payable in installments
In case of stated installments, there must be certainty in the amount of every installment and date of
payment or when every installment is payable.
Example: I promise to pay B, P10k in two equal monthly installments. This is NOT NEGOTIABLE.
Though the amount is determinable, there is no indication as to when it is payable.
What is a DIVISIBLE OBLIGATION: When the amount of the obligation is payable in stated
installments, it is a divisible obligation that may be performed in parts.
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What is the Effect of a Divisible Obligation: If the obligor defaults on the first installment, the
creditor cannot sue yet for the entire obligation because the period had not yet lapsed, as provided
under the Civil Code. The creditors remedy is to put an acceleration clause.
NOTE: It is also a sum certain even if there is a proviso for compounded interests, the payment of
attorneys fees, costs of suit and expenses of litigation. Negotiability is also not affected by a statement
of the transaction that gave rise to the issuance of an instrument.
3rd: PAYABLE ON DEMAND, AT A FIXED TIME,
OR AT A DETERMINABLE FUTURE TIME
When is the instrument PAYABLE ON DEMAND
When it is so stated to be payable on demand or
When no date is mentioned as to payment (pure obligation), or
When it is payable on sight.
eg When the creditor demands payment, literally, and no period is involved. The creditor,
upon handing the money to the debtor, collects the same two minutes later.
When is it PAYABLE AT A FIXED TIME
When the obligor is to pay ON a particular date
or ON OR BEFORE a particular date.
On or before is construed favorably to the debtor. Under the Civil Code, when the period is fixed,
the creditor cannot demand payment, and neither can the debtor demand acceptance earlier than
the period. But under the NIL, the creditor must accept the amount even if it is tendered before the
expiration of the period.
When is it PAYABLE AT A DETERMINABLE FUTURE TIME
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If, for example, it is payable within 15d from the proclamation of the 2013 elected senators. It not valid if
the period states on or after April 12, 2012 because it is not determinable.
What is the remedy in case of uncertainty in period?
Ask the court to fix the period.
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4th: PAYABLE TO ORDER OR TO BEARER

What is payable to order or to bearer
These are the WORDS OR PHRASES OF NEGOTIABILITY. The instrument can also use holder or
possessor. It is important to know the presence of these words to determine the manner of
negotiation.
When is it an ORDER INSTRUMENT
A stipulation that an instrument is NON-NEGOTIABLE is immaterial because it is always payable to
order in the following cases:
Pay to Jose Cruz or order
Pay to the order of Jose Cruz
Pay to the order of Jose Cruz and Pedro (joint where there are two payees)
Pay to the order of Jose Cruz or Pedro Cruz (several)
Pay to the order of the holder of office for the time being
How is an order instrument negotiated?
By Indorsement of the holder, followed by delivery. Otherwise, the negotiation would be ineffective/
When is it a BEARER INSTRUMENT
Pay to bearer
Pay to Jose Cruz or bearer (NOT to bearer Jose Cruz where the designation of bearer is only
descriptive and thus the instrument is non-negotiable)
Pay to order of Batman (to the order of a fictitious person and such fact must be known to the
person making it so payable)
Pay to the order of Adolf Hitler (to the order of a non-existing person and such fact must be known
to the person making it so payable)
Pay to the order of cash (to the order of a payee who does not purport to be a name of any
person)
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When the last indorsement is in blank

How is a bearer instrument negotiated?
By mere delivery. Any indorsement is a mere surplusage.
What are the EFFECTS OF DELIVERY
1. If the instrument is signed and delivered but there are blanks therein, then the holder-deliveree has
the implied authority to fill in the blanks according to the true agreement of the parties
2. If the instrument is not yet delivered, then it cannot be enforced against the maker or drawer. It is
unenforceable.
3. If the instrument is already completed but not yet delivered, and it falls into the hands of a holder in
due course, then the HDC is protected and his rights are not subject to personal defenses
EXCEPT Forgery.
Who are LIABLE UNDER A NEGOTIABLE INSTRUMENT
1. PROMISSORY NOTE: Maker
2. BILL OF EXCHANGE: Drawer and the Drawee Who Accepts
3. PN/BE: Endorsers
4. Forgers
Who are Endorsers
Endorsers are persons who sign the instrument. Only those whose signature appears in the instrument
are liable thereon. In cases of negotiation by delivery, they are liable only to the immediate transferee.
What is the liability of Endorsers?
Their liability may either be general or irregular, as when they sign the instrument but they have no
concern therein.
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May they sign through agents? YES, as long as the agent discloses the principal and acts within the
scope of his authority.
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What is NEGOTIATION
Negotiation is the transfer of an instrument as to constitute the transferee the holder thereof.
What are the MODES OF NEGOTIATING AN INSTRUMENT
1. ORDER: Indorsement and Deliver
2. BEARER: Delivery
What is an INDORSEMENT
It is negotiation through the signature of the person who has the right over the instrument or document.
Where is the indorsement placed? The law is silent.
- It is customary to be made at the back so as not to confuse the endorsers signature with that of
the maker or drawer, especially in cases of PNs stating I promise to pay and there are two
signatures appear, the result being the two signatures treated as co-makers.
- It may also be made in an ALLONGE, or a separate sheet of paper attached to the instrument
where the indorsements can be made.
Are there limits on the number of indorsements?
Under the NIL, there are none. BUT under a Circular of the Monetary Board, banks are prohibited
from accepting any check with more than one endorsement to avoid forgeries against banks.
What are the KINDS OF INDORSEMENT
1. IN BLANK, when the holder merely signs his name
2. SPECIAL, when the transferee is named and the holder signs the same. The indorsement
need not contain the words of negotiability, eg Pay to Jose Cruz. Such words are required
only on the face of the instrument and not on specific endorsements.
eg Pay to order of Jose Cruz only is a special and restrictive endorsement.
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3. CONDITIONAL, as when it states Pay to X only if he graduates on March 2013. This is also a
special indorsement and which does not affect negotiability.
4. QUALIFIED, if the holder adds without recourse to his signature. There is no recourse to him
if the instrument is dishonored.
5. RESTRICTIVE, as when the endorser states Pay to Jose Cruz only or Pay to trustee only for
the purpose of collection without authority to enter into subsequent contracts. This affects and
ends the negotiability of the instrument.
What is the EFFECT OF THE SEQUENCE OF ENDORSEMENTS
The first in the list is presumed to be the first endorser. As such, subsequent transferees can run
after prior endorsers. Thus, in practice, endorsers first sign at the bottom, or sign with a date.
eg Pedro Cruz first signed the instrument. Jose Santos then endorsed it to Juan Reyes. Juan
Reyes can then run after Pedro and Jose should the instrument be dishonored.
What is the EFFECT OF A MARKED-OFF ENDORSEMENT
When a name is stricken off, the holder cannot run after the stricken off endorser and all the
endorsers subsequent to such name because they are relieved from liability as there are no more
indorsements in their favor.
Who are the HOLDERS OF AN INSTRUMENT
1. Holder for value
2. Holder in due course
Who is a HOLDER IN DUE COURSE
A holder in due course is one who acquired the instrument under the following conditions (Sec. 52)
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a. That it is complete and regular upon its face;

b. That he took it in good faith and for value;
c. That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
d. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
1st: COMPLETE AND REGULAR
When is an instrument complete? No blanks
When is it NOT REGULAR?
RE: CROSSED CHECKS: Crossing of checks, or the placing of two parallel lines on the upper left
corner of a check, makes the instrument no longer regular on its face (SIHI Case). This is because such
crossing indicates that the check is not intended for encashment but only for deposit to the bank account
of the payee. It may thus be endorsed only once, ie for deposit to the payees account.
La Suerte Cigarette Company v. SIHI: The cigarette company sold its products through agents.
The clients deposited post-dated checks with the agents who rediscounted the same with SIHI but
appropriated the proceeds. The clients refused to pay the checks because the products were not
delivered to them. SIHI thus failed to collect. It was not considered as a HDC.
If there are alterations it might not appear regular upon its face, it might be considered irregular.
2nd: IN GOOD FAITH AND FOR VALUE
When is it acquired IN GOOD FAITH:
When the transaction is above fraud.
When it is acquired FOR VALUE
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When the acquisitions is for a valuable consideration under the law on contracts, and
When the consideration is not contrary to law, morals, good customs, public order and public policy
Example: Law endorses the check he obtained from his client to a prostitute. The prostitute is not
a holder in due course because her services do not constitute a valuable consideration under the
contract law. BUT IF the check is endorsed to a massage lady or house cleaner, then the latter is
a HDC because the check was acquired legitimately.
3rd: BEFORE OVERDUE
When is an instrument overdue
When the date of payment has passed.
Example: If a PN shows that it is payable today and it is negotiated to you today, you are a HDC
because the date of payment, which is today, has not yet passed.
Example: If a check is dated 25 December 2012, but it is negotiated to you only today, 3 February 2013,
you are still a HDC. CHECKS NEVER BECOME OVERDUE AS THEY ARE ALWAYS PAYABLE ON
DEMAND. But under jurisprudence, the demand for payment must be made within a reasonable period
determined on a case-to-case basis, eg six months.
REMEDY OF THE HOLDER: Ask the drawer to re-date it with his counter-signature.
4th: NO NOTICE OF INFIRMITY OR DEFECT OF TITLE
Can the PAYEE be a HDC
As a general rule, NO because the fourth requirement contemplates a transfer, at the time it was
negotiated to him. And between immediate and direct parties (payee and maker/drawer), personal
defenses are available. The purpose of the principle of HDC is to build confidence in instruments of
credit as a money substitute.
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An exception is provided by the SC where the payee is treated as a HDC because of the peculiar
circumstances of the case. A owed B, and B owed C. B requested A to make As check payable
directly to C. C thus sued A for collection, and C was treated as a HDC.
What are the advantages of being a HDC?
1. He is not subject to personal defenses, EXCEPT Forgery, EXCEPT EXCEPT The maker can still
be liable if the forgery is ratified or due to estoppel.
2. Prior parties are liable to him
3. Subsequent transferees acquire the rights of a HDC
NOTE: While a person does not qualify as a HDC but derives his right from a HDC, then he will
have the same rights as the HDC.
Example: Client issued a check to his lawyer. Lawyer indorsed it to the store owner in payment of
his overdue account. The store owner is thus a HDC. If the store owner indorses it to a prostitute,
the latter is not a HDC but acquires the rights of the store owner who is a HDC.
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Who are the PARTIES IN A NI

A person is liable on an instrument only if his/her signature appears on it (maker, drawer, acceptor,
general indorser, irregular indorser, forger).
Irregular indorser: Person is not a party to the instrument but indorses the instrument
Per Procuration: Signing authority but with limitation.
Exceptions:
a. Person negotiating by mere delivery
The person who negotiated by mere delivery is liable to the person to whom he negotiated the
instrument (the immediate transferee)
b. Person who was duly represented by his/her agent, subject to two conditions: that the agent
discloses his principal and the agent acts within his authority.
What are the OBLIGATIONS OF THE PARTIES IN A NI
1. MAKER: To pay and to warrant the existence and capacity of the payee because he borrowed
from the payee himself
2. DRAWER: To warrant the existence and capacity of the payee; that upon presentment, the drawee
shall honor the check; if it is dishonored, then he will pay after notice
What are the STAGES OF LIFE OF A PN
1. Making
2. Negotiation
3. Payment
Q: In case of promissory notes, do they need to be presented for acceptance?
A: No, they are presented for payment.
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What are the STAGES OF LIFE OF B/E

1. Drawing/Issue
2. Presentment for Acceptance By the Drawee
Two possibilities:
- Drawee accepts
- Drawee dishonors the check by non-acceptance.
REMEMBER: The drawee is not an original party and only becomes a party as an acceptor upon
his acceptance. And in case he accepts, he is bound only by the terms of his acceptance, and not
by the terms of the b/e.
NOTE: Holder goes to the drawee, bringing the bill of exchange. There must be presentment of
instrument for acceptance.
When drawee refuses to return or destroys the bill of exchange when presented for acceptance, it
is deemed accepted.
If the bill is dishonored, the holder should give notice of dishonor to all prior parties within a
reasonable period. A party not notified shall be discharged.
3. Negotiation
4. Presentment for Payment
Why: Presentment of acceptance is not an assurance of payment. Thus, there are also two
possibilities here.
- Payment by the drawee
- Dishonor by non-payment
5. Payment/Discharge
How is PAYMENT OR DISCHARGE EFFECTED?
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1. Payment in due course by the person primarily liable, to the person entitled to receive the
payment, at the place agreed upon
What is PAYMENT IN DUE COURSE
When it is made at or after the maturity date. If payment is made before the maturity date, then
there is no discharge yet because the payor can still further negotiate the instrument. But in
practice, a fresh PN is requested after payment is already made.
Who is the person primarily liable:
For PN, maker. For B/E, acceptor. The accommodated party is also primarily liable.
Who is an ACCOMMODATION PARTY
He who signs the instrument as a maker, drawer, acceptor, or endorser but without receiving
anything of value therefor and only for the purpose of lending his name. He is liable under the
instrument even if the payee knows that he is signing only as an accommodation party.
NOTE: For one to be an accommodation party, he must have CLEAR INTENTION TO SIGN
AND TO BE BOUND AS AN ACCOMMODATION PARTY.
Who is the ACCOMMODATED PARTY
Person in whose favor it is signed.
What if the accommodation party pays the instrument?
It is not yet discharged because he can still run after the accommodated party.
2. Intentional cancellation of the instrument by the holder
Effect: The obligation is NOT extinguished. Condonation of a debt requires the acceptance of the
debtor.
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3. Any other mode of existing an obligation to pay a sum of money

Example: Compensation; Confusion of the rights of the debtor and creditor
4. Discharge of the primary party
Q: How may a party secondarily liable be relieved from liability?
a. Payment in due course by the person primarily liable
b. By discharge of a prior party
c. By striking out indorsement (this relieves not only the person whose name was stricken out but all
those after him/her)
d. Valid tender of payment by a prior party.
How to Discharge of Foreign Bills of Exchange
A domestic bill of exchange is also called an inland bill of exchange.
A bill of exchange is foreign when the parties are in different countries. If a foreign bill of exchange is
dishonored you make a protest.
Q: Who makes a protest?
A: It is made either by a notary public or a reputable member of the community in the presence of 2 or
more persons.
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What are BILLS IN SET

They are usually used in importation to facilitate payment of obligations between persons in distant
places.
How do they work
The drawer prepares the B/E in two copies, the original and the duplicate indicated as such. He makes
an instruction as follows: Pay this bill (Bill 1) if the other bill (Bill 2) is not paid. The contents are the
same. The payee then presents both bills to the drawee.
If the payee negotiates both bills to different persons with different interests, the drawer is liable only to
the one whose bill is first accepted by the drawee. The remedy of the other holder is against the payee.
What are CERTIFIED CHECKS
These are checks certified by banks to be credit-worthy, where the debtor is certified as having enough
money for the same. It is no longer used today because of the inconvenience to the banks.
Now, banks issues managers checks. The advantages are its convenience and the fact that the
obligation of the bank to pay is not affected by any garnishment of the drawers account. Its
disadvantage is the effect of the banks insolvency, making the holder an unsecured creditor of the bank.
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Certified Check
It is an ordinary check that has already been accepted by a bank with money set aside for it.
Eventually, banks stopped the practice of certifying checks and just issued managers checks. The
managers check is disadvantageous because in case of insolvency of the bank, the holder is considered
an unsecured creditor.
Bills in Set
A bill of exchange prepared with more than one copy. It facilitates payment between persons on distant
places. When one bill is lost, the other bills may take its place.
24-Hour Clearing Process
A clearinghouse is a facility of the BSP for the convenient collection of checks drawn on different banks
but deposited in another bank.
At an agreed time, representatives of banks convene in a particular place in order to swap checks. The
banks process the checks. Within 24 hours from receipt, the drawee bank must return these checks to
clearing house if it intends to dishonor them.
A BSP Circular provides that when a check is received from the clearinghouse and the check should be
returned due to insufficiency of funds, the banks should dishonor the checks. This is the reason why
overdrafts no longer occur.
SUPREME COURT RULINGS ON FORGERY
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1. As a general rule, the bank suffers the loss ultimately if what is forged is the drawers signature,
and the check is presented for over-the-counter encashment or deposit with the drawee or
collecting bank who pays.
EXCEPTIONS: The drawer is made solely or solidarily liable in some cases.
Why is the bank ultimately liable:
- The bank ought to know the genuine signature of its depositors and
- There is breach of contract by the bank, ie the specimen signature card, where it undertook to
pay only on the basis of any of the signatures therein.
2. If what is forged is the payees signature:
a. Drawee ultimately suffers the loss if the check is presented for over-the-counter encashment
because it failed to properly identify the payee and thus the drawee bank paid the wrong
person due to negligence.
b. Collecting bank ultimately suffers the loss if the check (of another bank) is presented for
deposit because of its failure to properly identify the payee and because of its breach of
warranty, that All prior endorsers guaranteed, before it presented the check in the clearing
house.
What is a CLEARING HOUSE
It is a facility of the BSP for convenient collection by banks of the checks drawn on other
banks but deposited with them.
What is the TWENTY-FOUR HOUR CLEARING RULE
Within 24h from receiving checks from the clearing house, a bank must return the checks uncleared. Otherwise, they would be cleared.
When are checks not cleared:
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DAIF: Drawn against insufficient funds.

DAUD: Drawn against uncollected deposits.
Are banks required to accept any check
NO. There is a MB Rule that banks should not accept checks presented for deposit or
encashment by anyone other than the payee.
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CORPORATION LAW
What is a CORPORATION
A corporation is an artificial being, created by operation of law, having the right of succession and the
powers and attributes which are expressly conferred by law or incidental to its existence. It is a juridical
person.
Two Kinds of Persons
1. Natural
2. Juridical artificial beings that include the State, political subdivisions, partnerships and
corporations
PARTNERSHIP
CORPORATION
Manner of Creation
GR:
By
mere - By law
agreement
of
the - By operation of law
parties. Need not be in
writing
Re: GOCCs
- GR: Created by law
E:
- E: GOCCs created
- Pship Agreement under the Corporation
must be in writing IF the Code (PNCC, CDCP)
capital
contribution
exceeds P3000
Re:
Private
- Pship Agreement Corporations
must be in a public - GR: Created by
instrument
IF
real operation of law
property is contributed - E: PNB, a private
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regardless of amount. corporation but which

OTHERWISE,
the was created by law
pship agreement is void
because
it
was
- A limited partnership previously a GOCC
is also not created by but
has
been
mere agreement of the privatized
parties
Name Used
Any name as long as it Corporation
must
is
not
similar
or always
include
the
confusingly similar to words Corporation or
the name of another Incorporated (NOT
existing partnership or Incorporation) as part
corporation
of its corporate name,
whether fully spelled
out or abbreviated.
Notes:
- Corp. or Inc. need
not be at the end, eg
Construction
and
Development
Corporation
of
the
Philippines,
Private
Development
Corporation
of
the
Philippines
- and Company, Inc.
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is a corporation
- Use in Similar or
Confusingly
Similar
Products:
case
of
Phillips, an international
corp. whose products
include electronics. In
Ph, Phillips was used
as a corporate name for
conveyor belts. THUS,
the foreign corporation
sued
the
domestic
Phillips. SC upheld the
foreign
corp.
even
when
it
has
no
exclusive right over the
surname of Phillips.
Same
Line
of
Business
Case
of
Sinclair where there
were two corporations:
First
was
the
Refractories
Corporation
of
the
Philippines, and then
there was Sinclair that
changed its name to
Industrial Refractories
Corporation of the Ph.
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SC upheld the formers

suit against the latters
use of the name
because
they
are
confusingly similar: a)
industrial is only a
descriptive word, NOT
a proper name, and b)
they are in the same
industry
Purpose
Always for profit. It is May or may not be for
found in the definition of profit
partnership itself.
Example of Non-Profit
Corporations:
Non-stock
corporations
Educational
corporations because
they
perform
governmental functions
Corporate
Sole
because they are for
religious purposes
Eleemosynary
corporations which are
for charity, eg Caritas
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Manila, Inc., ABS-CBN

Foundation,
Inc.,
Bantay-Bata, Inc.
Number of Organizers
Minimum of 2.
GR: Min. 5, Max. 15
No maximum.
E: 1 Person only for
Corporate Sole, who is
the
head
of
the
religious
sect
or
denomination
Term of Existence
Partners may agree on Cannot be for a term
any term
longer than 50 years
Extent of Liability
General partners are GR: Subscriber who is
obliged to pay the fully
paid
on
his
obligations
of
the subscription cannot be
partnership even if they obliged to contribute
are fully paid on their more.
Shareholder
subscription
may not be obliged to
contribute more than
his current participation.
E: Corporate veil is
pierced
Sharing of Profits
Shared according to the Dividends
are
agreement
of
the distributed pro-rata to
parties
the stockholders
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Management
Managed
by
all Managed by a Board of
partners.
Directors or Trustees
Decisions are made by except for corporations
the partner/s having sole
or
close
controlling interests
corporations.
Decisions are made by
a majority of the board,
in a meeting with
quorum, with every
director having only one
vote
regardless
of
shareholding
Causes of Dissolution
At will of any one of the Cannot be dissolved at
partners
will.
1) Board Resolution
(THUS at least two
persons)
2) Ratification by 2/3 of
the outstanding shares
Amount of Capitalization
No minimum amount
P5000 minimum paidup capital
Right of Succession
Does not exist in Expressly
given
to
partnership
corporations
Nature
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Both a person and a Only a person, not a

contract
contract
Relationship to Property
Partners may validly Shareholders
cant
claim they are co- claim to be co-owners
owners of properties in of corporate property
the
name
of
the
partnership
Who may organize a corporation?
Organizers of a corporation are merely organizers; they become incorporators only upon signing of the
Articles of Incorporation (AOI).
Who is an incorporator?
The signatories to the documents of incorporation. When a person signs the articles of incorporation, he
automatically becomes a corporator. These incorporators are not changed.
Notes:
- Incorporators are also corporators. If an incorporator leaves the corporation, he ceases to be a
corporator (in case of divestment of shares) BUT remains to be an incorporator. Once you are an
incorporator, you are always an incorporator.
- The terms incorporator and corporator are applicable to both stock and non-stock
corporations.
- In a stock corporation, they are called STOCKHOLDER or SHAREHOLDER
- In a non-stock corporation, they are called MEMBER.
Who may be an incorporator?
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1. ONLY NATURAL PERSONS

- Why: A juridical person cannot sign the AOI
- AS OPPOSED TO A CORPORATOR, who can be a juridical person because he does not sign
the AOI.
2. OF LEGAL AGE
3. WITH CAPACITY TO ENTER INTO A CONTRACT
4. MAJORITY MUST HAVE RESIDENCE IN THE PHILIPPINES;
* They are not necessarily required to be CITIZENS UNLESS a special law requires a bigger
participation of Filipino citizens
What is a STOCK CORPORATION
There are two qualifications
1. It has authorized capital stock divided into shares.
2. It is authorized to declare dividends from its surplus profits.
What is a NON-STOCK CORPORATION
A corporation that does not meet the two reqts., as when it has ACS but its AOI prohibits the declaration
of dividends.
FORMATION OF A CORPORATION
How to form a corporation (non/stock): File the AOI and other documents required with SEC. (This
can now be done online)
PRACTICAL MATTER: Dont make the documents of incorporation first.
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1. Check first the availability of the corporate name. Check the telephone directory for similarity in
name. If none exists, reserve the name with the SEC (30d for P40, 60d for P80) where the
proposed name is pre-approved by SEC. SEC issues a Name Verification Slip. Never lose
it! Payment of the reservation fee is stamped thereon.
2. Accomplish the AOI (in letter size). The forms are available in SEC.
3. Submit the Treasurers Affidavit. It is not required that there be authority to inspect the
deposit and back certificate of deposit.
4. Include an Undertaking to Change the Corporate Name because words can be spelled
differently, and thus it must first be determined whether there would be a similarity or confusing
similarity with existing names.
5. Registration Date Sheet form is available
Documents to be submitted to SEC:
1.) Name verification slip
2.) AOI
3.) Treasurers Affidavit
4.) Undertaking to change corporate name
5.) Registration Data Sheet
6.) By-laws (Optional, may be done at a later date)
What are the other requirements for Non-Stock Corporations
6. Modus Operandi, a short write-up on how it would be operating
What is the ARTICLES OF INCORPORATION
Article means stipulation
It s a written agreement among the corporations organizers
It contains all the information required by law
It is the prescribed document to be filed with the SEC for the purpose of incorporation
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What are the CONTENTS OF THE AOI

*Arts. 1-6 are the common provisions for non/stock
- ARTICLE 1: CORPORATE NAME
o Name must have Corporation or Incorporated, either fully spelled out or abbreviated
o It must not be misleading or misdescriptive of the business of the corp.
o Only corporations under the supervision of the Monetary Board may add Bank or Banking in its
name
o Only corporations under the supervision of the Insurance Commissioner may use Insurance in its
corporate name
o Under the SEC Rules, the following words cannot be used as the first word of a corporate name:
Philippine, National, Republic, State. Their exclusive use as such is reserved to the Ph Govt.
o It must not be similar or confusingly similar to the name of an existing corporation or partnership
- ARTICLE 2 PURPOSES
o A corporation must have only one primary purpose. The primary purpose cannot be stated briefly.
o A corporation may have many secondary purposes, as long as they are not incompatible with the
primary purpose or with one another
Incompatible purpose if banking is primary purpose, it cannot be engaged in the business of
insurance as an insurer, BUT it can sell insurance policies as bank assurances.
ARTICLE 3 TERM OF CORPORATION
o The maximum term of a corporation is 50 years.
o The term is extendible before its expiration. A filing fee is due, in the same amount as a formation
of a new corporation which is based on the ACS.
o There is no limit as to the number of extensions.
GR: Term cannot be extended earlier than 5 years before it expires.
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E: Extended earlier for justifiable reasons. eg Corp. obtains a long-term loan of 10 years, but the
term of the corp. expires in 7y. Thus, it is allowed to extend 7 years before the expiration.
o The term may be shortened for the purpose of dissolution, BUT it requires prior BIR clearance.
ARTICLE 4 PRINCIPAL PLACE OF BUSINESS OR RESIDENCE
o Before, SEC allowed corps. to state only the city or municipality where the corp. would be set up
o Now, the exact address of the corp. should be stated and detailed.
ARTICLE 5 FULL NAME, NATIONALITY, AND COMPLETE ADDRESS OF
INCORPORATORS
o FULL NAME OF INCORPORATORS: They must be 5-15 persons for both non/stock corps.
o ADDRESS: Residential or Office, NOT PO Box
THE
Q: What if 16 persons want to incorporate? Fifteen sign as incorporators and one signs as a
witness.
ARTICLE 6 has two parts: a) Number of Directors, and b) Full Names, Nationality, and Address of the
Incorporating Directors
o NUMBER OF DIRECTORS
Stock: 5-15 Members
Non-Stock: At least 5
*The number can be even or odd. In practice, the number is often odd but it is not a guarantee
against deadlocks.
o INCORPORATING DIRECTORS
Stock, they should have subscribed to one share.
Non-stock, they must be a member.
STOCK CORPORATIONS:
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ARTICLE 7 has two parts as well: a) AMOUNT OF ACS, NUMBER OF SHARES, AND VALUE
ASSIGNED TO EACH SHARE, and b) FULL NAME OF THE SUBSCRIBERS, NATIONALITY,
NUMBER OF SHARES SUBSCRIBED, AND VALUE OF EVERY SUBSCRIPTION.
o AMOUNT OF ACS, NUMBER OF SHARES, AND VALUE ASSIGNED TO EACH SHARE
o AUTHORIZED CAPITAL STOCK, or the maximum amount that can be capitalized, is always
expressed in pesos. eg ACS is P1M, divided into 1M shares, each share having a value of P1
o There is no minimum paid-up capital.
o What are SHARES: Units of participation, representing the breakdown of the ACS to determine the
extent of the contribution
o What is PAR VALUE: Value assigned to every share. eg P10M ACS to 1M shares THUS P10 par
value
o What is the MINIMUM PAR VALUE: 1 centavo, because it is the least denomination of Ph currency
o Is there a MINIMUM PAID UP CAPITAL: Unless laws or regulations require a minimum amount of
paid-up capital, incorporators can agree on any amount
o What is a STOCK SPLIT: When par value is divided into two shares with lower par value
eg Original par value of SMC shares was P10 each. In the 1980s, the par value of P10 was split
into P5 each. It has no effect on the investor because he has the same amount of shares.
Rationale: In the stock market, you buy shares by lots (ODD LOT if you buy less than a lot) for a
minimum price. By splitting the shares into shares with smaller values, then small investors are
accommodated by splitting the shares into more affordable shares. eg Lot of 1000 shares would
have a lesser price.
o What is a REVERSE STOCK SPLIT: Ayala Corp., the oldest Ph corporation aside from UST, has
an original par value of P1. Subsequently, they combined 50 shares into 1 share. It also has no
effect on the holdings because the value of the shares is the same. Its purpose is only for
convenience.
o Is subscription required in ACS: Yes, At least 25% of the ACS must be subscribed and 25% of
such subscription must be paid-up
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NOTE: Shares may have NO-PAR VALUE they are issued for value of at least P5. All
subscriptions to no-par value shares must always be paid in full. Payment for no-par value shares is
always capital contribution; it cannot be used for the payment of dividends. Certain corporations
cant issue no-par value shares. Examples are banks, insurance companies, trust companies, public
utilities, building and loan associations.
o FULL NAME OF THE SUBSCRIBERS, NATIONALITY, NUMBER OF SHARES SUBSCRIBED,
AND VALUE OF EVERY SUBSCRIPTION
o VALUE OF EVERY SUBSCRIPTION: Total of all subscription must be 25% of the ACS.
o SUBSCRIBERS.
It includes the non-incorporators
It is not limited to natural persons. Thus, they may be partnerships or corporations, e.g.
subsidiary and sister companies
There is no limit as to the number of subscribers
ARTICLE 8 - NAMES OF SUBSCRIBERS AND AMOUNT INDIVIDUALLY PAID ON THEIR
SUBSCRIPTION
o Total amount individually paid on the subscription must be at least 25% of the total amount
subscribed.
o It is not required that every subscriber pay at least 25%
ARTICLE 9 NAME OF TREASURER
ARTICLE 10 - PROVISION APPLICABLE TO CORPORATIONS WHOSE BUSINESS IS
RESERVED FOR FILIPINOS BY LAW
NON-STOCK CORPORATIONS
ARTICLE 7 NAMES OF CONTRIBUTORS OR DONORS AND AMOUNT INDIVIDUALLY
CONTRIBUTED TO THE CORP.
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o In non-stock corporations, amount given is not paid-up but contributions or donations.

o The contributors or donors must receive nothing in exchange of their contributions
What about the By-Laws?
By-laws may be filed with AOI, if not so filed it must be filed within 30 days from issuance of certificate of
registration.
If the by-laws are filed with the AOI, it must be signed by all incorporators.
If filed later, it need only be signed by a majority of the incorporators.
What happens after the filing of the documents
Documents are filed with SEC
Application is assigned to an examiner
SEC issues a CERTIFICATE OF REGISTRATION, which is akin to a natural persons birth certificate.
It is upon such issuance that a corporation acquires juridical personality and becomes a
person. Corporation can now enter into contracts, acquire property, sue and be sued. BUT the
effectivity retroacts to the date of filing.
eg Docs are filed on 1 Feb. The order to issue a certificate of reg. was made on 13 Feb but the Cert.
of Reg. was only received subsequently. When does the corp. acquire juridical personality? On 1
Feb. or on the filing of documents, in practice, and NOT the actual preparation of the cert.
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IMPLICATION OF ACQUISITION OF JURIDICAL PERSONALITY

Re: PROPERTIES
The properties of the corporation belong to the corporation.
The SHs cannot claim that they are part-owners, as opposed to a partnership where the partners are
co-owners of the properties of the pship.
Re: LIABILITIES
The corporation can borrow money and incur other liabilities.
What if the corporation becomes bankrupt? Can the creditors sue the stockholders?
GR: No, the corporation has a distinct personality from the SHs and its liabilities are not the liabilities of
its SHs. BUT, the stockholder who did not fully pay his subscription can be obliged to remit his
subscription payment because unpaid subscription are assets of the corporation and booked as
receivables.
E: Sue the SHs by PIERCING THE VEIL OF CORPORATE ENTITY, where the obligations of the
corporation are enforced against the director, officer, or stockholder. Under this doctrine, the separate
personality of the corp. is disregarded and its liabilities are made that of the officer, director, or SH. It
has no basis in law but in jurisprudence.
What are the rules regarding the doctrine of piercing the corp. veil
1. Mere ownership of the controlling interest of a stockholder does not necessarily oblige him to pay
the debts of the insolvent corp.
2. The separate personality of the corporation may be disregarded if there is clear and convincing
evidence that the corp. is only an alter ego of the controlling stockholder.
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evidence that the corporation was purposely organized for fraud or tax evasion or to defeat public
convenience.
evidence that of two corporations, one is a mere instrumentality of the other.
How to reconcile numbers 1 and 2: Evidence required for either is different!
For Rule 1, there must be evidence that the controlling SH did not decide alone, but the
decision must have been that of the BOD.
For Rule 2, there must be evidence that the decisions were made by the controlling SH alone.
What is the INSTRUMENTALITY RULE (Rule 4)
eg. Case of Concept Builders, Inc. A manufacturing corporation (principal) was organized for the
production of pipes. It organized a subsidiary, CBI, for a construction business. The principal then
incurred liabilities to its laborers, who sued the principal and obtained a favorable decision. The
principal corporation had no properties and thus the laborers levied on the properties of CBI.
According to the SC, CBI is only a subsidiary of the judgment debtor. The fact alone that the
principal and subsidiarys BOD comprise of the same persons does not justify the piercing of
corp. entity. The fact alone that all but one of the officers of both is the same does not justify
the piercing of corp. entity. The fact alone that both share the same office does not justify the
piercing of corp. entity. BUT when these circumstances are taken together, then it appears
that CBI is a mere instrumentality of the principal as it has no mind of its own. Piercing must be
the last resort and only when there is clear and convincing evidence.
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CORPORATION BY-LAWS
What are the BY-LAWS
These are the set of house rules and regulations.
When may the By-Laws be filed
It can be filed with the AOI and other incorporation documents, in which case, it must be signed by
all of the incorporators
If it is not filed with the AOI, then if must be filed within one month from the issuance of the Cert. of
Reg., and in which case, it may be signed by at least the majority of the incorporators
What doe the By-laws contain
1. Meetings of stockholders or members
2. Directors
3. Officers
4. Stock Certificates for stock corporations
5. Corporate seal
6. Amendments of the AOI and BLs
*You can add others but these six are mandatory!
1. MEETINGS
a. ANNUAL OR REGULAR MEETINGS
State the day of the meeting; it is usually scheduled after the audited financial statements are
prepared, and it is usually after April 15 or the third Tuesday of April because a specific date
may fall on a weekend that is not favorable for attendance.
NOTICE is no longer needed as it is already provided in the BL, BUT notice is still sent in
practice.
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AGENDA: The annual meeting is the most important as it is for the purpose of the election of
directors for the following year.
b. SPECIAL MEETINGS
These are called by the president.
MANDATORY: WRITTEN NOTICE of the Date and Matters to be taken up BECAUSE the SHs
are not aware of the same. Law requires a call. There must be a written notice at least 10 days
before the scheduled meeting.
Importance of Notice on Agenda: No other matter can be taken up without the consent of all
present
c. VENUE OF MEETINGS
Meetings are held in the principal office or, if it is not big enough, then elsewhere in the city or
municipality of the principal office
eg Manila Bulletin holds its meetings in the grand ballroom of the Manila Hotel. Most publiclylisted corporations have many SHs.
d. ATTENDANCE
How:
o In person
o By proxy. PROXY has two meanings, referring to both the written authority (which need
not be embodied in a SPA) and the representative person. It is a contract of agency,
THUS, the proxy must have the capacity to enter into a contract of agency.
Practical Note: Bring the proxy (written authority) with him. Go to the corp. and present the written
authority to the corp. secretary before the meeting. The corsec will compare the signature thereon
with the signature of the SH in the corp.s specimen card to verify its genuineness.
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Are proxies revocable? YES, proxies may be revoked, expressly or impliedly, at ANYTIME,
UNLESS the proxy is issued pursuant to a contract (eg Loan secured by shares)
EXPRESS REVOCATION: When the SH himself attends the meeting after informing the proxy.
IMPLIED REVOCATION: When the SH, without telling the proxy, attends the meeting himself
What is the TERM OF PROXY:
- Proxies are valid just for one meeting, as stated in the proxy itself.
- If proxies are issued for a PERIOD, the period must not exceed five years, renewable upon
expiration for another five years.
STOCK CORPORATIONS, How Many Constitutes a Quorum: SHs representing the majority
of the outstanding shares of stock.
o Importance: In every meeting there must be a quorum at the start of the meeting. If there
is no quorum at the start of the meeting, it must adjourn. If stockholders or members
leave in the middle, there is no problem as quorum is reckoned at the start of the meeting.
o What is QUORUM: Presence of stockholders in person or by proxy representing the
majority of the outstanding shares. In a stock corp., it is the majority of the outstanding
shares that matter.
Quorum is determined at the start of the meeting.
o What are the OUTSTANDING SHARES OF STOCK: All shares issued by the
corporation, excluding treasury shares.
o What are TREASURY SHARES: Shares already issued but later reacquired by the corp.
in its own name.
o What is the difference between SUBSCRIBED, ISSUED, and OUTSTANDING: eg
Corp. has P1M ACS. Shares subscribed are 250k. The subscribed shares of 250k are
considered as ISSUED upon subscription, and, they are considered as OUTSTANDING
once issued as they are already out of the corp.
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Subscribed Issued Outstanding

o What if the same corp. from the previous example needs to raise additional capital? It
issues 300k new shares from its P1M ACS. The total shares subscribed and fully paid is
now 550k (250k earlier subscribed + 300 newly subscribed).
o What if the BOD of the same corp. decides to issue stock dividends of 20%? What would
be the basis of the 20%? The corp. would issue 20% of 550k (or 110 shares) because
dividends are distributed pro rata, according to participation.
o Upon distribution of the stock dividends, how many would be the subscribed shares? The
subscribed shares would still be 550k. The 110 shares distributed as stock dividends are
not subscribed because they are not paid for. Stock dividends are not subscribed they
are merely issued.
o How many shares are issued and outstanding? There would be 660 issued and
outstanding shares. The stock dividends are included in the issued shares.
o How many shares are unissued? Out of the OCS of 660 shares, there would be 340
unissued shares.
o What if 20k treasury shares are returned to the corp., how many OCS are there? It would
be 640k (660k less 20k treasury shares). BUT in terms of the number of subscribed
shares, there would be no difference because once shares are subscribed, they remain
as subscribed. Treasury shares are already subscribed or issued, and thus they do not
revert back to being unissued or unsubscribed shares.
o What is then the quorum? 320+1 (Half of 640 + 1)
NON-STOCK CORPORATIONS, How Many Constitutes a Quorum: Presence in person or by
proxy of at least a majority of the number of members
o What is the difference in quorum between a stock and non-stock corp.? As a general rule,
it is the majority of members. BUT, consider the number of members that would be added
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in the future. For practical purposes, define the quorum in the by-laws. It can be
majority of the members or just twenty members or any number of members present.
o What is the difference between proxy in a stock and non-stock corp.? In a non-stock
corp., proxies are allowed UNLESS the by-laws do not allow the same.
What are VOTING STOCK AGREEMENTS: In stock corporations, a Voting Trust Agreement
may be entered into. In a VTA, the stockholder entrusts his votes to a voting trustee. The term
is for a maximum of 5 years.
Proxy
1.
Available in both
stock and non-stock
corporations.
2.
Private
instrument
is
sufficient
3.
Filed with the
Corporate Secretary
4.
No delivery of
stock certificate to the
proxy
Voting Trust
Agreement
1.
Available only in
stock corporations
2.
It must be in a
public instrument
3.
Filed also with
the SEC
4.
VTA
entrusts
stock certificates to
trustee
who
in
exchange delivers to
the stockholder voting
trust certificates
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2. DIRECTORS
Who can be a director? A director must have all the qualifications provided in law and by-laws and
none of the disqualifications provided in the law and BLs.
What are the QUALIFICATIONS OF A DIRECTOR (CORP. CODE)
1. He must own at least one share (stock) or be a member (non-stock)
What is meant by ownership: Subscription is sufficient. He need not have paid for it yet,
UNLESS the BLs require payment.
What kind of share must he own? It can be a common or preferred share, BUT in practice,
preferred shares are not allowed because such are deprived of the right to elect directors and
be elected as directors.
2. Bank directors must comply with the fit and proper rule, where special law may provide for other
qualifications.
What are the DISQUALIFICATIONS OF A DIRECTOR
1. He must not have been sentenced to final judgment for a crime punishable by imprisonment
exceeding six years.
2. He must not have committed a violation of the Corporation Code within five years prior to being
elected as a director.
3. He must not be disqualified under the BLs. eg Case of Gokongwei v. San Miguel Corp. where
Gokongwei sought to be elected as director BUT he was already the director of a competing
company
Do directors receive compensation?
GR: Directors are not entitled to regular compensation
E: They may receive regular compensation IF...
o So provided in the by-laws or
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o They pass a resolution giving themselves compensation and the same is ratified by at
least 2/3 of the outstanding common shares.
Per diems: Law allows directors to receive reasonable per diems for attendance in meetings of
the board. REASONABLENESS depends on the resources of the corporation.
Profit-sharing: Law allows directors to receive share in the net profits of the corp. but it must
not exceed 10% of the net profits (of the previous year) prior to income tax.
What is the TERM OF DIRECTORS? It is as stated in the by-laws. If none is provided, then it is one
year, UNLESS he is elected only to fill a vacancy in which case, he serves only for the unexpired term.
What are the rules for EDUCATIONAL CORPORATIONS
The number of directors must be in multiples of five.
The term must expire one after the other.
If the director whose term expires is reelected, his new term would be five years.
When are there VACANCIES IN THE BOARD
Death, Resignation, Incapacity, or Removal
How to FILL VACANCIES DUE TO DEATH, RESIGNATION, INCAPACITY: There are two ways.
The expensive way is to call a special SHs meeting. The inexpensive way is for the directors
themselves to fill the vacancy IF the remaining directors still constitute a quorum.
When can there be REMOVAL OF A DIRECTOR?
GR: A director may be removed by the stockholders or members, with or without a valid reason.
E: A director representing the minority SHs may only be removed for a valid cause.
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What is the nature of a directors removal: Any act of removing a director is always an intracorporate dispute.
Who is a director representing the minority SHs: Those voted by cumulative voting.
What is CUMULATIVE VOTING
It is available only in stock corporations
Its purpose is to enable the minority SHs to have representation in the BOD
In stock corporations, one stock equals one vote. Said number of votes is multiplied by the
number of directors to be elected. The product is the total number that a SH may vote. THUS,
a SH can give all his votes in favor of a candidate.
(Number of SS) (Number of Vacancies) = Total number of votes
In non-stock corporations, one membership equals one vote. Said number is multiplied by the
number of votes to be elected. The product is the total number that a member may vote.
What is the FUNCTIONS OF THE BOD: BOD sets the policies of the corporation, which is implemented
by the officers.
When do they meet: It depends on the BLs. In practice, most corps. meet monthly (according to
the Corporation Code). There are some corps. whose investments are considered passive, and
thus, the BOD does not have to meet frequently.
What is the quorum: Quorum of BOD is the presence of the majority of the number of directors
without counting their stockholding, ie. Count per head.
Can there be proxies in board meetings: The law does not provide it, BUT done in
practice.
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When is quorum determined: At the start of the meeting.

How does the board decide: They pass a resolution, which requires the majority vote of the
directors present.
Who is a SELF-DEALING DIRECTOR: A director who enters into contracts with the corporation where
he is a director.
Is it allowed: YES as long as it is done under the following conditions:
1. His proposal was approved in a meeting of the board where there was a quorum without counting
his presence.
2. The proposal was approved by a majority of the quorum without counting his vote.
3. The terms and conditions must be fair and reasonable.
Why the requirements? A director must not take advantage of whatever information he may have
acquired as a director.
Who are INTERLOCKING DIRECTORS: When two or more corporations share a common director.
There is nothing wrong with it.
If no one attends the annual meeting of the SHs (to vote for the BOD), who manages the
corporation? The BOD manages the corp. in a hold-over capacity. Directors shall serve as such until
their successors shall have been elected and qualified.
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3. OFFICERS
Who are the OFFICERS OF A CORPORATION: President, Treasurer, Secretary, and Officers
mentioned in the by-laws or created by the BOD.
Who can be President
He must be one of the directors These are not required in others
He must be a stockholder
He cannot be the treasurer or secretary at the same time
Who can be Treasurer: No requirements. Need not be a director
Who can be Secretary: Must be a citizen and resident, but need not be a director. He takes minutes of
the meetings
Can a person hold two or more offices: YES, as long as the offices are compatible.
Who are INCOMPATIBLE OFFICERS: Treasurer cannot be the auditor.
cannot be the auditor.
The chief accountant
Who is a STOCK TRANSFER AGENT: It is another corp. that records the stock transactions of another
corporation.
What is the TERM OF OFFICE OF THE OFFICERS
As stated in the by-laws
If none, it is co-terminous with the BOD that filled it up
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At the pleasure of the BOD (as long as you are useful)

What is the COMPENSATION OF THE OFFICERS: Officers are entitled to regular compensation as
determined by the BOD. Though directors as such are not entitled to compensation, they are entitled to
compensation as officers if they are also officers.
Where can one contest the REMOVAL OF AN OFFICER: A contest against the validity of removal by
the director or officer is an intra-corporate dispute, that must be filed with the RTC of the principal office.
Can an officer enter into a contract with the corporation? YES, but he must follow the same
conditions as contracts between the director and corp.
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4. STOCK CERTIFICATES
What is the IMPORTANCE OF STOCK CERTIFICATES: Once it is issued, it is the best proof of full
payment of ones subscription to the capital stock of the corp.
When is it issued: Upon full payment of the subscription.
Note: A subscription contract is an indivisible contract. Thus, partial payment is partial payment for
all shares, and not full payment as to some, and no payment as to the rest.
Who signs the stock certificates:
The secretary, who is in charge of the Stock Transfer Book
President or anyone authorized by the BOD or BL
*Stock certs. are not individually signed for publicly-listed corps.
What is the REMEDY FOR LOSS OF STOCK CERT.
a. File an AFFIDAVIT OF LOSS with the corp. sec.
b. Cause the publication of NOTICE OF LOSS once a week for three weeks in a np of general
circulation
c. Wait one year from last publication
d. File a BOND for the value of the shares if you want to claim it earlier than one year, for such
amount and in such form satisfactory to the BOD
How to TRANSFER SHARES OF SHs
1. Publicly-listed corporations: Transferor must indorse the stock certificate
2. Not Publicly-listed corporations: Deed of Sale via stock brokers
a. OVER-THE-COUNTER TRANSACTIONS: Those between the parties themselves and involving
shares listed in a stock exchange.
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What is a STOCK AND TRANSFER BOOK OF STOCK CERTIFICATE: It is a register where stock
ownership is recorded. Corp. should register its stock and transfer book within thirty days from issuance
of certificate of registration. There is a penalty for failure to register.
NOTE: Shares are personal property and thus, they may be mortgaged or pledged.
5. CORPORATE SEAL Its design, size, shape and configuration are left with the BOD.
Q: What is the use of a corporate seal?
A: It is practically a paperweight, but real use is in making stock certificates.
6. AMENDMENTS OF AOI AND BL
What rules govern amendments: a) As provided in the by-laws, b) If none is provided, then as
provided by law.
What are the requirements for amending AOI under the law
Board resolution
Ratification by 2/3 of all outstanding shares, common and preferred, or members
What are the requirements for amending BL under the law
Board resolution
Vote of the majority of OCS, common and preferred, or members
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How are AMENDMENTS MADE:

Copy the AOI or BL verbatim, underscore the amendments, and then put in parentheses, the words
as amended. The paper is letter size.
When filed, has to be accompanied by directors certificate. This authenticates the amendment.
SEC then reviews the amended AOI or BL, and after approval, the SEC issues a certificate of filing of
amended BL or AOI.
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CORPORATE SHARES
What are PREFERRED SHARES: Shares which enjoy priority or preference over common stocks
eg Preference in the distribution of dividends or assets. (Preference in dividends normally includes
preference in assets)
eg If a corporation is new, the shares are all common because the corporation has no history of
profitability yet. Thus, when do corporations issue preferred shares? When it wants to raise
money to finance expansion programs sourced from the public.
What are PREFERRED REDEEMABLE SHARES: They are issued by the corporation but the latter
reserved the right to reacquire the same within a certain period.
What are PREFERRED REDEEMABLE CONVERTIBLE SHARES: They are preferred shares which
are redeemable within a certain period. If the corporation does not redeem it, the stockholder may have
his redeemable shares converted into common shares.
What are PREEMPTIVE RIGHTS: Right of a stockholder to be given preference or priority to subscribe
to new issues of shares of a corp.
How it works: BOD sets aside part of the unissued shares for subscription by SHs and others, but
the present SHs are preferred.
Why grant preemptive rights: To enable present SHs to maintain the present ratio of their holdings
in the corp.
Are these rights personal: Yes, preemptive rights are personal property arising from stockholders,
but they are not strictly personal.
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Are these rights waivable: YES.

Are these rights transferable: YES, either onerously or gratuitously.
Are these rights absolute: NO, because these are unavailable at some times:
1. When so provided by the AOI or BLs, eg. Filinvest
2. When new shares are issued to pay for property which the corporation needs and the owner
wants to be paid in shares
3. When shares are for payment of previously contracted debts
4. When new shares are issued to comply with the legal requirement that the corporation go
public, eg. Commercial bank becoming a universal bank
5. When the shares are issued pursuant to a stock option plan granted to officers and/or
employees of the corp.
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DIVIDENDS
What are DIVIDENDS: These are earnings of the corporation.
Who can DECLARE DIVIDENDS: Only the BOD and only when they are acting as such (and not as an
executive committee), and only when there is surplus profits.
When to declare dividends: Only when the corporation has surplus profits.
NOTE: According to the SC, no court can order the corporation to declare dividends, which is an
exercise of business judgment. No law requires the declaration of dividends BUT the corp. should
not retain earnings in excess of 100% of its paid up capital.
SURPLUS v. EXCESS: Surplus is what is outside the hand when it touches a boob. Excess is the
other boob.
What are RETAINED EARNINGS: Those not declared.
What are RESTRICTED RETAINED EARNINGS: Part of the surplus profits that is set aside for a
definite purpose.
What are SURPLUS PROFITS: It is net profits after income tax, without any impairment or diminution of
paid-up capital.
What are PAID-UP or PAID-IN CAPITAL: Total amount paid by the subscribers on their subscriptions.
It is impaired or diminished by losses.
eg Paid-up capital is P500k. After 1y, there is a loss of P70k. Thus, the net of PU is P430k. The
following year, there is a loss of P20k, bringing down the net of PU to P410k. The following year,
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there is net profit of P110k. The paid-up capital is decreased by P90k (total amount of losses) to
restore it to the original amt of P500k using the profits. The surplus would then just be P20k.
In what FORMS may dividends be declared
Cash Dividends paid in cash in the form of checks.
o What is required: Declaration by the BOD for payment or distribution, which also fixes the date
of distribution
Property Dividends paid by the properties of the corp., including the SS of another corp.
o What is required: Declaration by the BOD, with the date fixed for its distribution.
o Re: Treasury Shares: These are issued by the corp. but later on reacquired in its own name, as
when its prices are down. It can be used as property dividends BUT it must be ratified by 2/3 of
the outstanding common shares. It is not distributed as stock dividends because stock
dividends are distributed from the unissued shares.
Stock Dividends Distribution requires Declaration by the BOD and Ratification by 2/3 of the
outstanding common stocks. Vote of the preferred shares are not included because they are not
affected.
*Why is ratification required: Common SHs will suffer a dilution of their investments.
What are WATERED STOCKS: These are shares of stock that are issued by the corporation, but for
which shares, the corporation did not get the full fair value.
What if there are unpaid creditors, who can they go after:
Recipient of the watered stocks
Directors who did not object to the issuance of the watered stocks
o Includes those who abstained
o To validly object, the director must have filed a written objection with the corporate
secretary
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Appraisal Right
What is an APPRAISAL RIGHT: It is a stockholders right to demand payment of the fair value of his
shares under certain conditions:
1. There must be a board resolution authorizing:
a. Amendments of the AOI/BL that limits or restricts the existing rights of a SH
b. Investments of the corporate funds in another corporation
c. Sales or dispositions of all or substantially all of the assets of a corp.
d. Mergers or consolidations
2. The resolution must be ratified by the required number of votes, i.e. at least 2/3 of the shares
3. The stockholder demanding payment shall have voted against the ratification
a. He must be present in the meeting, in person or by proxy
b. He must not have abstained
4. He must demand payment within thirty days from ratification
5. The corporation has sufficient surplus
What is the FAIR VALUE OF THE SHARES: It can either be the par value (which remains constant), or
book value or market value (which fluctuates). (Charles: Average of market value and book value)
What is the BOOK VALUE:
Total Assets
Less: Total Liabilities
----------------------------------------Net Worth
Number of Shares
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-----------------------------------------Book Value
How come there is need for surplus profits first
o GR: Surplus profit is needed because if there is none yet payments are made, then it would be a
violation of the TRUST FUND DOCTRINE.
o What is the TRUST FUND DOCTRINE: All subscriptions, paid up and unpaid, constitute a trust
fund for the benefit of the creditors of the corporation. This is because the stockholder
promised to contribute resources, and which promise is legally enforceable against him as a
subscription receivable.
o eg. Corp. has P1000 worth of subscription. Such P1000 is the asset of the corp. as much as it
is the liability of the SH.
o E: There is no need for surplus profits if the corporation redeems redeemable preferred shares.
o EE: Surplus profits is needed for redeemable shares if after the redemption, the corporation can no
longer carry out its purpose if the shares are redeemed
Who owns the shares after payment to the SH: The corporation, as treasury shares.
TREASURY SHARES
When do shares become treasury shares:
When the corporation eliminates fractional shares in dividends, as when the shares have a value of
less than one whole share
When the corporation bids for its own shares in delinquency sale
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Do treasury shares have rights: NO, treasury shares have no voting rights or right to receive dividends
because the corporation itself cannot vote or receive dividends.
What is the NATURE OF TREASURY SHARES: These are assets of the corporation.
Is it good for a stockholder that a corporation has treasury shares: YES
DELINQUENCY SHARES
When are shares delinquent: When the corporation calls for payment of the unpaid subscription and
the SH fails to pay
What are UNPAID SUBSCRIPTIONS: If the SH is unpaid on the entire amount of subscription.
There cannot be an unpaid amount on the total number of shares BECAUSE subscriptions are
indivisible.
What is a CALL: Demand for payment
What are the REMEDIES OF A CORP. AGAINST DELINQUENCY
1. Bring an action for specific performance to collect the unpaid amount (which is an intra-corporate
dispute)
2. Sell the delinquent shares in a public auction (in a delinquency sale). This remedy is unique as the
bid is only for the amount demanded by the corporation for the least number of shares the bidder is
willing to receive for said amount
a. eg Value of delinquency shares is P100k covering 100 shares. Bidder A bids P100k for 100
shares. Bidder B bids for P100k for 75 shares. Bidder C bids for P100k for 50 shares. Bidder
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C wins. The difference between the value of the 50 shares won by C and the value of the other
50 shares belongs to the delinquent subscriber.
b. What if there is no bidder: The corp. may bid if it has sufficient surplus.
NOTES:
- When there is a definite date, no demand needed for it to become delinquent.
- If down payment, balance is payable on call. Call is a demand, formal demand to pay balance under
the Corporation Code. If not paid, becomes delinquent.
Consequences of Delinquency
1.) Delinquent subscriber shall have no voting rights.
2.) Wont receive cash dividends, they are applied to unpaid subscription.
3.) If property or stock dividend, they are withheld.
MERGERS AND CONSOLIDATION

What are MERGERS: It is the union of two or more corporations where one survives and the other is
dissolved.
What are CONSOLIDATIONS: It is the union of two or more corporations where all corporations are
dissolved and a new one is created.
Why do corporations merge or consolidate:
- To meet the minimum paid-up capital requirement of the govt. regulator, eg banks and property
insurers
- For better profits, especially in industries with limited markets
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- For better business opportunities

- For better corporate image
How do corporations merge or consolidate: Like courtship
eg Law requires a minimum paid up capital of P5B (banks). Bank A only has P2B PU. Bank B only has
P3B PU. Thus, Banks A and B can agree to merge or consolidate. Either one can conduct due
diligence on each other to find out the worth of each others assets.
- BOD of each of the corps. will pass a resolution for merger.
- Each will present their respective resolutions to their respective SHs for ratification (2/3 OCS)
- Articles of Merger or Articles of Consolidation are passed and submitted to the government
regulator, eg Monetary Board or Insurance Commissioner, which reviews it to determine whether it
is according to law. It then issues a formal indorsement. If the corps. are not subject to a govt
regulator, then the articles are filed directly with SEC.
- The merger or consolidation becomes effective upon approval by SEC of the articles.
What is the CONTENT OF THE ARTICLES OF MERGER OR CONSOLIDATION

1. Name of the corporation
2. Purpose
3. Term In mergers, there is no difference in term from that of the surviving corp.
4. Principal Office It can be changed in mergers or consolidations
5. Incorporators In mergers, they remain the same
6. Number of Directors
7. Authorized Capital Stock In mergers, amount and number of shares may not be changed but the
par value of the shares may be changed
8. Paid-up Capital Not changed
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9. Valuation of Shares IMPT for purposes of exchange because the shares of the dissolved corp.
would be exchanged for the shares of the surviving corp.
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DISSOLUTION OF CORPORATIONS
What are the CAUSES OF DISSOLUTION
1. Expiration of the term
2. Cancellation of the Certificate of Registration of the Corporation by SEC for the following reasons
a. Failure to file the by-laws within thirty days from the issuance of the cert. of reg.
b. Failure to organize within two years from the issuance of the cert. of reg.
c. Failure to carry out its primary purpose for at least five years
d. Failure to comply with the reportorial requirements of SEC
3. Order of Dissolution by the court upon finding that it is insolvent or organized purposely to commit
fraud
NOTES:
- GIS is filed within 30 days from date of annual meeting.
- AFS within 30 days from filing with SEC.
- Show cause letter in certain cases
- Liabilities are paid from assets
What happens upon dissolution: WINDING UP OR LIQUIDATION PROCESS
How long is the winding up process: Only god knows
How are the assets liquidated: The claims would be paid from the residual assets.
How are RESIDUAL ASSETS DISTRIBUTED
o Stock: Distribute first to the preferred SHs with preference as to assets. If the assets are
insufficient, they are pro-rated among the preferred SHs, and then to the common SHs.
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o Foundation: Residual assets are normally escheated to the govt as a condition by the BIR
for its tax exemption.
o Non-Stock: Members share in the residual asset.
What are LIQUIDATING DIVIDENDS: What the SHs receive as their share in the residual assets of the
dissolving corporation.
What is the INCOME OF THE CORP.: Excess of the return of capital, and not the mere return of
capital.
What are DIVIDENDS: These are fruits, but not natural, industrial, or civil fruits (under property) but
classified as other fruits.
NOTES:
Liquidating dividend to the extent of return of capital, no tax, but any increase is taxable.
Under the ROC, two years to file claim against estate. In case of dissolved corporations, 3 years. Within
this period corporate property is transferred to trustee.
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CORPORATION SOLE
What is a CORPORATION SOLE: It is a corporation organized by one person, who is the head of a
religious sect or denomination.
eg Catholic Church, Iglesia ni Kristo, Lutherans, Mormons. El Shaddai is not a corporation sole
because its preaching is the same as the Catholic Church.
What is unique about it: There is no board of directors. THUS, to protect its members, any disposition
or encumbrance of real property requires judicial approval.
EDUCATIONAL CORPORATIONS
What are ECs: It could be a stock or non-stock corp. Before, under the Education Act of 1982, all must
be organized as a non-stock corporation. But such requirement did not apply to previous corporations
because of vested rights.
Stock Educational Corporations: FEU; Ph Womens University; CEU; University of Pangasinan; NU;
MAPUA; Univ. of Manila
Non-Stock ECs: Sectarian schools
What is unique about it: The law provides that:
- its BOD must be in multiples of five
- the term of the directors is five years, BUT the term of the first batch is the agreed term that must
be staggered and thus such terms expire one after another
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CLOSE CORPORATIONS
How do you know if a corporation is close: If the AOI provides that:
the number of shareholders should not exceed twenty, or
the shares should never be listed in any exchange, or
in case any shareholder would transfer his shares, then he must first offer to transfer the same to
the other shareholders under the same terms and conditions that he would offer to nonshareholders. The offer must have a term (and not an open term), eg 30d only to acquire the
shares of the SH.
Where must these conditions appear to bind the transferees: The limit on the transferability of
shares must appear in the AOI, the by-laws, and the stock certificate. If restriction on transferability
does not appear in stock certificates but transferee was not informed of restriction, restriction does not
apply to him.
Who MANAGES A CLOSE CORPORATION:
BOD
o If there is a deadlock, a Petition for Appointment of a Provisional Director must be filed in court.
o Who is a PROVISIONAL DIRECTOR: He is appointed by the court to sit in the BOD of a close
corporation to resolved a deadlock therein. The provisional director need not comply with the
qualifications of the BOD.
o Who may be appointed a provisional director: One who has absolutely no interest in the corp.
He must not own a share and may not be a creditor.
o What is the term of the provisional director: As long as he is needed
Directly by the SHs themselves
o There is no need for an annual meeting because the most important agenda thereof is the
election of the BOD anyway because none.
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OTHER NOTES
Domestic Corporation one organized on the Philippines regardless of nationality of organizers
Foreign Corporation one organized in another country, even if organized by Filipinos.
Foreign Corporation may engage in business in the Philippines if it meets the following requirements:
1.) Register with the SEC as a foreign corporation it must give certified true copies of all
incorporation documents in country of origin. If not in English, with official translation in English.
2.) Inward remittance at the amount of prescribed capitalization.
3.) Appointment of a resident agent.
In case of bidding, must already be registered as a foreign corporation.
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SECURITIES REGULATION CODE

What is the governing law: Securities Regulation Code
What are securities:
- These are promissory notes, bonds, and debentures
- It involves money
- They are broadly defined as instruments evidencing an investment in a commercial enterprise, ie
stock corporations
When are they used: When companies expand to address the higher demand of its operations, they
raise money by securing funds by reclassifying the original or the organizers common shares as
founders shares and issuing common shares for new investors (which requires SEC approval).
Founders Shares: Exclusive right to be elected in the BOD for a maximum period of five years
from approval. After said period, they become regular common shares and the AOI is amended.
Q: What if a corporation needs more working capital and is to be sourced from the public: There are
rules on the solicitation of investments
PUBLIC: More than 19 persons, natural or juridical
What are these RULES ON SOLICITATION OF INVESTMENTS
1. Before printing the brochures and other marketing documents, the corporation should apply for the
registration of its securities with the SEC
2. There are two forms of investments in a commercial enterprise
a. By lending money
b. By becoming a part owner of an enterprise
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What is a COMMERCIAL ENTERPRISE: One engaged in commerce, or in buying and

selling (stock corporations)
Are non-stock corporations covered by the securities law: It is still pending determination.
Non-stock corporations engage in limited commercial transactions and only for the benefit of
its members.
Investment in form of a loan / Lending money: When a corporation borrows money and signs a
promissory note
What is a PROMISSORY NOTE: It is a form of securities (where the maker promises to pay back
the amount borrowed), as when a corporation borrows money and promises to pay it back
What is a BOND: It is a promissory note with a term exceed five years, as when a corporation
promises to pay on the PN at least until after 5y
What are DEBENTURES: It is a bond secured by properties, as when a corporation secured its
investments with a real estate mortgage
Investment by being a part owner: Raising capital via stock ownership
Q: How does one make an investment, not as a loan but, as a co-investor: One can invest in shares. It
can be in preferred shares where there is a regular return of income, or in redeemable and convertible
preferred shares.
PREFERRED SHARES: Shares with the usual preferences on profits and assets. eg Those
guaranteed with a 10% per annum income or dividends. (THUS, they are payable only if the
corporation has surplus profits).
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PREFERRED REDEEMABLE SHARES: Those where the corporation reserves the right to buy it
back within a certain period.
PREFERRED REDEEMABLE AND CONVERTIBLE: Those with an added feature that if the
corporation fails to redeem the shares, the stockholder has the option to convert the preferred
shares into common shares
PREFERRED PARTICIPATING: Those which join the common stockholders in receiving
additional dividends. There are none in the Ph.
Q: If there are no profits this year and thus no dividend, what happens if there are earnings next
year: Shares could either be CUMULATIVE or NON-CUMULATIVE.
CUMULATIVE PREFERRED SHARES: Those which receive what is not received in prior years
due to absence of surplus
NON-CUMULATIVE PREFERRED SHARES: Prior profits cannot be received in the future. It
must be expressly stipulated.
What is SUFFICIENT SURPLUS: eg Corporation has P50k dividends payable, but it has P49,999.
There is surplus but no one gets any dividends because surplus is not sufficient.
Q: What if investors come in as stockholders or part owners?
A: Issue certificates of stock
Q: If investments in form of stock, what shares?
A: Shares can be common or preferred, but preferred has variations. Ex Redeemable, convertible,
cumulative, non-cumulative, participating, non-participating.
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When redeemable, corporation reserves the right to buy back shares after a certain period. Option is
with the corporation. It cant be forced to buy back shares. Redemption is a right and not a duty.
Convertible preferred shares becomes common after a certain period.
Q: Can a corporation redeem if it has no surplus profits?
A: Yes, it is not in violation of the trust fund doctrine. However, the corporation shouldnt redeem shares
if as a consequence of redemption, it wont be able to carry out its primary purpose.
Q: How do corporations entice the public: The corporation makes FINANCIAL PROJECTIONS.
1. A commercial enterprise must first apply its securities for registration with the SEC before it can
cause the printing of its marketing materials. It must file a REGISTRATION STATEMENT with
SEC. It is a document where the SEC requirements are attached.
a. Why: To protect the public from being defrauded by allowing them to determine whether the
corp. is in a sound condition
b. What is an AUDITED FINANCIAL STATEMENT: It is a schedule or breakdown of the
corporations receivables. Do not take it on its face value.
2. The form of investment can either be a promissory note, bond, debentures, certificate of preferred
or common shares. Preferred shares can be redeemable or convertible.
3. If the corporation intends to raise capital via stock ownership, it must apply for listing of its shares
in the Ph Stocks Exchange after registering the securities with SEC. If investments are in the form
of shares or equity participation, after SEC registration, corporation applies for listing with the PSE.
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What is the PHILIPPINE STOCKS EXCHANGE: It is the Philippine stock market

Why are shares listed therein
- To raise capital, by making an Initial Public Offering
- To have a convenient facility for shareholders to buy and sell shares of stock through the
exchange or LISTING BY INTRODUCTION. This is listing without the intent to raise capital
THUS, if you want to buy or sell shares, you can transact in a matter of seconds. Where there is
no market and you need eggs, you would have to look for people who sell eggs.
BUYING AND SELLING: trading
EXCHANGE: In securities law, it is a corporation organized and licensed by the SEC to put up and
operate facilities for the purpose of trading securities. It is barter or market or palengke in civil law.
Note: There used to be a PSE in Makati and in Manila. They were merged.
Note: Registration in the SEC is not a guarantee or assurance of listing in the PSE. According to the SC
(Puerto Azul Case), SEC cannot force PSE to list shares. While SEC has supervision, it may not
impose on the exchange.
Note: Not all securities are required to be registered in SEC.
What are EXEMPT SECURITIES
1. Those issued by the Ph Govt or any of its political subdivisions
Why: Because the government will never defraud its citizens
2. Those issued by Foreign Govts with diplomatic ties with the Ph
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3. Those issued by receivers in insolvency

Why: Because it undergoes judicial scrutiny
4. Those issued by corporations under the supervision of the BIR, Insurance Commission, or
HLURB
Note: Pre-need contracts are included in the jurisdiction of the IC
5. Those issued by banks other than its own shares of stock
Why: Because banks engage in daily transactions with the people. If they are required to list
securities, then it will never accept time deposits
PRE-NEED CONTRACTS: Contracts wherein a corporation, in consideration of a promise of another to
deliver an agreed amount in lump sum or in installments, agrees to deliver an agreed amount or to
render a particular service upon the arrival of a period or the happening of an event; eg educational
plans, memorial plans (which includes internment fee plans)
Example: B anticipates the death and internment expenses of his mother-in-law. Thus, he buys a
burial lot at present. Is it a pre-need contract? NO, even if it is in anticipation of a future need.
There is no particular service or delivery of money to be rendered by the corporation. Here, the
contract is a sale on installments.
What are EXEMPT TRANSACTIONS: May require prior registration, but may apply for exemption. Its
types are Certificated or Uncertificated
UNCERTIFICATED
CERTIFICATED
When
securities - When securities are
bought are sold as soon bought or sold to build
as the prices go up
up stock ownership; it is
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- These are paperless

securities,
where
ownership is evidenced
by electronic records
only. Records are also
kept by the PSE, the
broker,
and
the
salesman, thus, it is not
entirely paperless
- The broker prepares a
PURCHASE
CONFIRMATION
or
SALE CONFIRMATION,
showing the number of
shares bought or sold,
the price, and from/to
what company it was
purchased/sold, and the
commission
- Easier to sell
a long-term plan
- Stock ownership is
covered by certificates
of stock
- It takes longer to sell
because
certificated
stock ownership cannot
be sold right away as
the broker must have
these
certificates
validated first (which
takes 5 days)
How to Trade Stocks

1. Engage the services of a broker
What is a BROKER: Corporations licensed by SEC to buy and sell securities for their clients or on
their behalf.
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How much commission do brokers receive: It depends but the maximum is 2% of the
volume. They are paid because they do the legwork in the SEC and BIR.
Who are PERSONS ASSOCIATED WITH BROKERS: A corporation acts through its agents or
officers known as persons associated with brokers. They are also licensed.
Note: Only corporations can be licensed as brokers because individuals and partnerships can die.
Who are DEALERS: Corporations licensed by the SEC to buy and sell securities for its own
account.
PERSONS
ASSOCIATED
WITH BROKER
Acts for clients always
Earns commissions
Does not invest its own
money
DEALER
Acts
for
its
own
account, for itself
Males
profits
and
suffers loss
Invests its own money
Who are SALESMEN: Persons representing stock brokers inside the trading floor of the PSE and
accepting orders for buying or selling from clients of the broker. They also get a license, but a license is
issued to salesmen is also only for a specific broker
Note: All transactions in the PSE are conducted through the telephone
Note: The trading hours of the PSE is from 0930-1200, 1300-1530. It is the time when you can buy or
sell shares through the exchange
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Note: Where do you find brokers? In their offices!

Note: All participants except investors are licensed. Licensing is annual.
2. The salesman, who has a cubicle in the PSE, then makes a post of the shares that a client wants
to buy or sell, in the computer of the PSE. Orders to buy are then matched with orders to sell.
Once they are matched, the orders are removed in the computer.
Q: If shares are listed in the PSE, can you still sell directly to the buyer or buy directly from the seller?
YES, OVER-THE-COUNTER TRANSACTIONS are allowed! It is the buying or selling of shares listed in
the PSE but made directly between the parties and no longer coursed through the exchange.
ADVANTAGE:
- The buyer does not have to pay the brokers commission and stock transfer tax, and the seller
only pays CGT (if there is gain) and DST.
Note: Tax avoidance scheme is to sell shares worth P100,000 today and then the rest
tomorrow so that the tax rate applicable is only 5%.
- Hassle-free because the broker does all the work
DISADVANTAGES:
- Buyer might be buying shares covered by fictitious certificates of stock. In the PSE, certificated
stock ownership cannot be sold right away because the broker must have these certificates
validated first (which takes 5 days). (THUS, uncertificated SS are easier to sell)
- Parties themselves do the legwork
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There are 3 participants in a market:

1.) Producer
2.) Buyer
3.) Seller/Intermediary
What are the different financial markets?
1.) Money market
2.) Capital market
3.) Bond market
4.) Stock market
Money Market a source of funds, payment period not more than a year
Capital Market payment period is over a year but less than 5 years
Bond Market payment period is more than 5 years
Stock Market Source of funds for equity participation
Money market placements are made through a bank. A bank finds funds through time depositors
(usually) and after getting their consent, the amount is loaned to the borrower. The bank is a mere
intermediary.
Licensing persons associated with broker may only use the license with a particular broker. If you
move between brokers, you must get a new license.
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What is MARGIN TRADING: Trading is buy and sell. It is an arrangement with the broker where the
investor has not much money and the broker advances part of the purchase price in the form of a loan.
C: Broker does not use its own money, they use money of the client. Eventually, buyer may ask
broker to advance money. This is called margin trading, the broker pays part of the purchase price.
What are SHORT SALES: It occurs when a person sells shares he does not own while the prices are
up, but he later on buys back such same shares when the prices are down, so he can return and deliver
such shares which he had earlier sold. In other words, the seller sells shares he borrowed and does not
own, but later he has to buy the same shares. This is legal.
What are WASH SALES: These are illegal. It is a stock price manipulation.
eg Case of BW Resources, Corp. It is a bingo company, whose shares has a par value of P1.
Over the years, the market value of its shares rose to P2. Through manipulation, its market value
very quickly became P107 each. The next day, it fell to P7. THUS, those who bought the shares
at P107 suffered loss of P100 per share. It is because of this that he PSE became very strict!
PSE RULE: When there is an unusual increase or decrease in the prices of shares, the PSE
suspends the trading of the shares of such corporation to investigate the cause of the increase
or decrease. There is unusual increase or decrease when the value of the shares increases or
decreases by 10% in a days transaction.
What is a TENDER-OFFER: When a person or group of persons representing the same interests wants
to acquire: (a) at least 15% of a listed company or (b) at least 15% of a company that is not listed but
with assets worth P50M or more and with no less than 200 stockholders, each owning no less than 100
shares, (c) at least 30% of any of said companies, within a period of twelve months, makes a formal
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offer with the SEC, stating the price they are willing to pay and the terms of payment. Upon approval by
the SEC, such person or group of persons can make announcements in newspapers.
Securities Regulation Code: SEC. 19. Tender Offers. 19.1. (a) Any person or group of persons
acting in concert who intends to acquire at least fifteen per cent (15%) of any class of any equity
security of a listed corporation or of any class of any equity security of a corporation with assets of
at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders
with at least one hundred (100) shares each or who intends to acquire at least thirty per cent
(30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders
by filing with the Commission a declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of this Code as the Commission may
prescribe. Such person or group of persons shall publish all requests or invitations for tender, or
materials making a tender offer or requesting or inviting letters of such a security. Copies of any
additional material soliciting or requesting such tender offers subsequent to the initial solicitation or
request shall contain such information as the Commission may prescribe, and shall be filed with
the Commission and sent to the issuer not later than the time copies of such materials are first
published or sent or given to security holders.
OPEN: The price paid for the very first transaction of the day
CLOSE: The price paid for the last transaction of the day
LOW: The lowest price in between the trading hours
HIGH: The highest price of the day
VOLUME: All shares of the corporation traded for the day
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What are CLASS A and CLASS B SHARES: Class B shares are more expensive BUT they are exactly
the same and identical shares. They are classified to comply with the citizenship requirement of the
Constitution and only for the purpose of monitoring stock ownership.
eg MERALCO, which is engaged in public service, classified its shares into Class A and B. Class
A shares comprise 60% and are allowed only for Filipinos. Class B shares comprise 40% and are
sold to aliens. Class B shares are more expensive because there are less of it and thus the law of
supply and demand.
STRADDLE, PUT, and CALL
PUT: A contract which gives the holder the right to buy a specified number of shares for a specified price
for a particular (definite) period
CALL: A contract which gives the holder the right to sell a specified number of shares for a specified
price for a particular (definite) period
STRADDLE: Combination of both
What is BACKDOOR LISTING: It is a legal scheme where a corporation which wants to avoid the
hassle of listing instead acquires the controlling interest a corporation (2/3 of OCS) whose shares are
already listed in the PSE but which corporation is no longer operating (DOORMAN CORPORATIONS).
It then merges with the doorman corporation and in the merger, it is the doorman corporation that
survives.
Example: Case of Urban Development Bank and EI Bank. Urban Bank was a universal bank
whose shares are listed. UB, however, could no longer comply with the increased paid up capital
requirement of the BSP and it thus downgraded to a commercial bank. The result was a bank run
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Dean Eduardo Abella
and holiday; it never reopened until the EI Bank wanted its own shares to be listed and thus
acquired and merged with UDB. UDB was the surviving corp. but its name was changed to Export
and Industry Bank.
BLUE-SKY LAW any law relating to investments
INSIDER Could be a stockholder, officer, director or employee who because of relation with
corporation has information not available to public which information could influence the price of shares
of the corporation. An insider need not necessarily be a member of a corporation but one who derives
information from another.
NOTE: Original and exclusive jurisdiction over intracorporate controversies is no longer with SEC but
with the RTC having jurisdiction over the principal place of business.
FINAL NOTE: 09178012694. Text Sir for questions and, most importantly, when we pass the Bar
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