Professional Documents
Culture Documents
6 questions
1. By-laws; validity; qualifications of BOD members
By-laws
are rules and ordinances made by a corporation for its own
government; to regulate the conduct and define the duties of the
stockholders or members towards the corporation and among
themselves. They are rules and regulations or private laws
enacted by the corporation to regulate, govern and control its
own actions, affairs and concerns and its stockholders or
member and directors and officers with relation thereto and
among themselves in their relation to it.
Validity;
It must be adopted within one (1) month after receipt of official notice
of the issuance of its certificate of incorporation by the SEC; with an
affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members in case of
non-stock corporations.
Corporate Entity
The corporation is possessed with a personality separate and distinct from the
individual stockholders or members.
5 questions
1. Intra-corporate Controversy
General rule: Stock corporations are prohibited from retaining surplus profits in excess of
100% of their paid-in capital stock.
Exceptions:
1. When justified by definite corporate expansion projects or programs approved by
the board of directors; or
2. When the corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring dividends without
its/his consent, and such consent has not yet been secured; or
3. When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for special
reserve for probable contingencies.
The judgment of the board of directors in the matter of declaring dividends is conclusive
except when they act in bad faith, or for a dishonest purpose or act fraudulently,
oppressively, unreasonably or unjustly or abuse of discretion can be shown so as to impair
the rights of the complaining stockholders to their just proportion of corporate profits.
Directors are not liable for declaration of dividend contrary to law, unless attended with bad
faith, gross negligence or willful and knowing assent.
The essential test of bad faith is to determine if the policy of the directors is dictated by
their personal interest rather than the corporate welfare.
Only Close Corporations are required to subject their shares to specified restrictions.
General rule: Restrictions or preferences must be contained in the articles of
incorporation and in all stock certificates to be issued by the corporation.
Exception: In close corporations, such restrictions and preferences must also be
embodied in the by-laws.
NO TRANSFER CLAUSE
No transfer of stock or interest which will reduce the ownership of Filipino citizens to less
than the required percentage of the capital stock as provided by existing laws shall be
allowed or permitted to be recorded in the books of the corporation and this restriction shall
be indicated in all of the stock certificates to be issued by the corporation.
3 questions
1. Interlocking Directors
Sec. 33. Contracts between corporations with interlocking directors. - Except in cases of
fraud, and provided the contract is fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking directors shall not be invalidated on
that ground alone: Provided, That if the interest of the interlocking director in one
corporation is substantial and his interest in the other corporation or corporations is merely
nominal, he shall be subject to the provisions of the preceding section insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors.
A director who owns a substantial interest in one corporation dealing with another where he
has a nominal interest is a regarded as a self-dealing director in so far as the latter
corporation is concerned.
2. Incorporation requirements
Process of incorporation:
1. Drafting the articles of incorporation
2. Preparation and submission of additional and supporting documents
3. Filing with the SEC
4. Subsequent issuance of certificate of incorporation
Contents of the articles of incorporation
1. Name
2. Purpose
3. Principal office
4. Term
5. Incorporators
6. Number of directors/trustees
7. Names, nationalities and residences of directors/trustees
8. If a stock corporation, amount of authorized capital stock, number of shares, par value,
original subscribers
9. If a non-stock corporation, amount of capital, contributors
10. Such other matters not inconsistent with law and which the incorporator may deem
necessary and convenient
11. Treasurers certificate
CORPORATE NAME
A corporation has an exclusive right to the use of its name, which may be protected by
injunction upon a principle similar to that upon which persons are protected in the use of
trademarks and trade names.
In determining the existence of confusing similarity in corporate names, the test is whether
the similarity is such as to mislead a person using ordinary care and discrimination. Proof of
actual confusion need not be shown. It suffices that confusion is probably or likely to occur.
PURPOSE CLAUSE
General limitations on the purpose clause: must be:
1. lawful
2. specific or stated concisely although in broad or general terms.
3. If there is more than one purpose, the primary as well as the secondary ones
must be specified.
4. capable of being lawfully combined.
TERM OF EXISTENCE
A corporation shall exist for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is extended. The corporate term
as originally stated in the articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by the Securities and
Exchange Commission.
INCORPORATORS
Any number of natural persons not less than five (5) but not more than fifteen (15), all of
legal age and a majority of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the incorporators of a stock
corporation must own or be a subscriber to at least one (1) share of the capital stock of the
corporation.
THE DIRECTORS/TRUSTEES
General rule: There must be at least 5 but not more than 15 directors or
trustees in a private corporation.
Exceptions:
1. Educational corporations registered as a non-stock corporation
whose number of trustees, though not less than 5 and not more than
15 should be divisible by 5;
2. In close corporations where all the stockholders are considered as
members of the board of directors thereby effectively allowing 20
members in the board; and
3. Corporation sole.
The by-laws may provide for additional qualifications and disqualifications.
However, it may not do away with the minimum disqualifications laid down
by the Code.
Qualifications:
1. Directors must own at least one (1) share of the capital stock of the
corporation. Trustees must be members.
Disqualifications:
1. Conviction by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the date of election
or appointment.
2. Other disqualifications under applicable special laws.
A by-laws may validly provide that no person may be elected as director
unless he owns a specified number of shares required for the directorate
qualification.
It may likewise disqualify a stockholder from being elected into office if he
has a substantial interest in a competitor corporation to avoid any possible
adverse effects of conflicting interest of a director.
In order to be eligible as a director, what is material is the legal title to, not
beneficial ownership, of the stock as appearing on the books of the
corporation.
If no election is conducted or no qualified candidate is elected, the
incumbent director shall continue to act as such in a hold over capacity until
the election is held and a qualified candidate is so elected.
CAPITALIZATION
Subscribed capital stock the total number of shares and its total value for
which there are contracts for their acquisition or subscription.
Stocks shall not be issued for a consideration less than the par or issued
price thereof.
Shares of stock designate the interest or right which the stockholder has in
the management of the corporation, and in the surplus profits and, in case of
distribution, in all assets remaining after the payment of its debts.
Stock certificate is a document or instrument evidencing the interest of a
stockholder in the corporation.
Except as otherwise provided in the articles of incorporation and stated in
the certificate of stock, each share shall be equal in all respects to every
other share.
Purpose of classification:
1. To specify and define the rights and privileges of the stockholders.
Preferred stock a stock that gives the holder a preference over the holder
of common stocks with respect to the payment of dividends and/or with
respect to distribution of capital upon liquidation.
Preferred shares are presumed to be non-participating.
Limitations on preferred stock:
1. Must be issued with a stated par value; and
2. The preferences must be stated in the articles of incorporation and
in the certificate of stock, otherwise, each share shall be, in all respect,
equal to every other share.
Participating preferred shares the holders thereof are still given the right to
participate with the common stockholders in dividends beyond their stated
preference.
Types:
1. Discretionary dividend type gives the holder of such shares the
right to have dividends paid thereon in a particular year depending
on the judgment or discretion of the board of directors.
Par and no par value shares - those whose values are fixed in the articles of
incorporation which cannot be issued nor sold by the corporation at less than
par.
No par value shares those whose issued price are not stated in the
certificate of stock but which may be fixed in the articles of incorporation, or
by the board of directors when so authorized by the said articles or by the
by-laws, or in the absence thereof, by the stockholders themselves.
Voting shares gives the holder thereof the right to vote and participate in
the management of the corporation through the exercise of such right, either
at the election of the board of directors, or in any manner requiring the
stockholders approval.
Non-voting shares do not grant the holder thereof the right to vote except
under the penultimate paragraph of Sec. 6.
Only preferred and redeemable shares may be denied the right to vote.
There must always be a class or series of shares which have complete voting
rights.
Treasury shares - are shares of stock which have been issued and fully paid
for, but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means. Such shares may
again be disposed of for a reasonable price fixed by the board of directors.
Treasury shares may again be issued for a price less than par.
Treasury shares have no voting and dividend rights. Such rights are only
granted to outstanding shares of stock.
CAPITAL REQUIREMENT
Sec. 12. Minimum capital stock required of stock corporations. - Stock
corporations incorporated under this Code shall not be required to have any
minimum authorized capital stock except as otherwise specifically provided
for by special law, and subject to the provisions of the following section.
Sec. 13. Amount of capital stock to be subscribed and paid for the purposes
of incorporation. - At least twenty-five percent (25%) of the authorized
capital stock as stated in the articles of incorporation must be subscribed at
the time of incorporation, and at least twenty-five (25%) per cent of the
total subscription must be paid upon subscription, the balance to be payable
on a date or dates fixed in the contract of subscription without need of call,
or in the absence of a fixed date or dates, upon call for payment by the
board of directors: Provided, however, That in no case shall the paid-up
capital be less than five Thousand (P5,000.00) pesos.
Rules, requirements and procedure so that a derivative suit may proceed or prosper:
1. The party bringing the action should be a stockholder as of the time the act or
transaction complained of took place, or whose shares have evolved upon him since
by operation of law. This rule, however, does not apply if such act or transaction
continues and is injurious to the stockholder or affects him specifically in some other
way. The number of shares is immaterial.
3. The stockholder bringing the suit must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other stockholders
similarly situated, otherwise, the case is dismissible.
General rule: Any foreign corporation lawfully doing business in the Philippines shall be
bound by all laws, rules and regulations applicable to domestic corporations of the same
class.
Exceptions:
1. Laws which provide for the creation, formation, organization or dissolution of
corporations; or
2. Laws which fix the relations, liabilities, responsibilities, or duties of stockholders,
members or officers of a corporation to each other or to the corporation.
Intra-corporate or internal matters not affecting creditors or the public in general are
governed not by Philippine laws but the law under which the foreign corporation was formed
or organized.
2. All claims which have accrued in the Philippines have been paid, compromised or
settled;
3. All taxes, imposts, assessments and penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political subdivisions have been paid;
4. Publication of the petition for withdrawal once a week for 3 consecutive weeks in a
newspaper of general circulation in the Philippines; and
2 questions
1. Sole Proprietorship - Where the business enterprise is not endowed
with a separate juridical personality, is less saddled with the many
requirements and regulations to which corporations are often
subjected to by law, rules and regulations.
Exempted transaction
o When accompanied with written waiver by all the
seller/mortgagors creditors
o The law does not apply to executors, administrators, receivers,
assignees in insolvency, or public officers, acting under legal
process.
o Sale or mortgage is made in the ordinary course of business.
o Sale by assignee in insolvency or those beyond the right of
creditors
o Sale of properties exempt from the attachment or execution.
Written notice of the purposed investment and the time and place of
the meeting shall be addressed to each stockholder or member at his
place or residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or
served personally.
5. Voluntary Dissolution
9. Delinquent Stockholder
10. Unpaid subscription - are not due and payable until a call is made
by the corporation for payment.
Appraisal right the method of paying a shareholder for the taking of his
property; the statutory means whereby a stockholder can avoid the conversion
of his property into another property not of his own choosing. The purpose of
the right is to protect the property rights of dissenting stockholders from
actions by the majority shareholders which alters the nature and character of
their investment. It is a right granted to dissenting stockholders on certain
corporate or business decisions to demand payment of the fair market value of
their shares.
12. Trust Fund Doctrine - Is the rule that the capital stock of a
corporation constitutes a trust fund for the benefit of its creditors as its
capital is the basis of its credit, but the trust does not arise until the
corporation becomes insolvent.
a. Exempt Securities
(Sec. 9):
1. Any security issued or guaranteed by the Government of the
Philippines, or by any political subdivision or agency thereof,
or by any person controlled or supervised by, and acting as an
instrumentality of said Government.
b. Exempt Transactions
1. Any judicial sale, or sale by an executor, administrator,
guardian or receiver or trustee in insolvency or bankruptcy.
3. Protection of Investors
4. Tender Offer Rule
7 questions
1. Accommodation Party
6 questions
1. Crossed Check
3 questions
1. Liabilities of Prior and Subsequent Parties in Forgery
Requisites:
2 questions
1. Liability of Drawee Bank in Checks
A drawee does not become liable until he accepts the bill or unless
he certifies the check. It is only from the moment the drawee accepts the
bill or certifies the check that the drawee becomes primarily liable. He
becomes liable to the holder by his unconditional acceptance.
2. Bearer Instrument
General Indorser:
Insurance Law
5 questions
1. Concealment
Requisites:
2. Material Concealment
3. Incontestability Clause
The insurer has two years from the date of issuance of the insurance
contract or of its last reinstatement within which to contest the policy,
whether or not, the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter how patent
or well founded, no longer lie.
Requisites:
3 questions
1. Insurable Interest : Life vs Property Insurance
Life Insurance:
1. It is a contract of investment.
2. Always regarded as valued policy
3. May be transferred or assigned to any person even if he has no insurable
interest.
4. The consent of the insurer is not essential to the validity of the assignment of
a life policy unless expressly required.
5. Insurable interest in the life or health of the person insured need not exist
after the insurance takes effect or when loss occurs.
6. Insurable interest need not have any legal basis.
7. Contingency that is contemplated is a certain event, the only uncertainty
being the time when it will take place.
8. The liability of the insurer to make payment is certain, the only uncertain
element being when such payment must be made.
9. May be terminated by the insured but cannot be cancelled by the insurer and
is usually a long term contract.
10. The loss to the beneficiary caused by the death of the insured can seldom
be measured accurately in terms of cash value.
11. The beneficiary is under no obligation to prove actual financial loss as a
result of the death of the insured in order to collect the insurance.
Property Insurance
1. It is a contract of indemnity.
2. May be open or valued.
3. The transferee or assignee must have an insurable interest in the thing
insured.
4. Consent, in the absence of waiver by the insurer, is essential in the
assignment of the policy
5. Insurable interest in the property insured must exist not only when the
insurance takes effect but also when the loss occurs.
6. Insurable interest must have a legal basis
7. The contingency insured against may or may not occur.
8. Liability is uncertain because the happening of the peril insured against is
uncertain
9. May be cancelled by either party and is usually for a term of one year
10. The reverse is generally true of the loss of property, i.e., it is capable of
pecuniary estimation
11. The insured is required to submit proof of his actual pecuniary loss as a
condition precedent to collecting the insurance.
2. Double Insurance
Requisites:
Accident
Suicide
1. The suicide is committed after the policy has been in force for a
period of 2 years from the date of its issue or of its last
reinstatement.
The insurer is not liable if it can show that the policy was obtained with the
intention to commit suicide even in the absence of any suicide exclusion in
the policy.
2 questions
1. Irrevocable Beneficiary
A person who insures his own life may designate his beneficiary
revocable or irrevocably. For the designation to be irrevocable, the insured
should expressly state the irrevocable designation in the policy itself (Sec.
11, Insurance Code).
If the designation of the beneficiary is irrevocable, Insured cannot:
2. Public Enemy
3. Payment of Premium
Exceptions:
1. In case of life and industrial life whenever the grace period provision
applies.
In those instances where the insured can assign his policy, his assignee may
be any person, whether or not he (the assignee) has an insurable interest in
the life of the insured. A life insurance is a property right within the capacity
of its owner to dispose of, like his other properties.
It indemnifies the insured owner against loss or damage to the car but limits
the use of the insured vehicle to:
1. Unusual violence; or
2. Extraordinary action of wind and wave; or
Banking Laws
7 questions
1. Secrecy of Bank Deposit: exceptions, garnishment
Peso Deposits
Exceptions:
Exceptions:
1. The depositor has given his written permission (ibid.)
2. Under Section 11 of the Anti-Money Laundering Act; and
3. Under Sections 27 and 28 of the Human Security Act.
Garnishment
3 questions
1. Restrictions on Loan Accommodations
XPN:
a. As the Monetary Board may otherwise prescribe for reasons of
national interest
b. Deposits of rural banks with government-owned or controlled
financial institutions like LBP, DBP, and PNB.
2 questions
1. Classification of Banks
1. Universal banks - Primarily governed by the General Banking Law
(GBL). They can exercise the powers of an investment house and
invest in non-allied enterprises and have the highest capitalization.
2. Commercial banks - Ordinary banks governed by the GBL which
have a lower capitalization requirement than universal banks and can
neither exercise the powers of an investment house nor invest in non-
allied enterprises.
3. Thrift banks These are a) Savings and mortgage banks; b) Stock
savings and loan associations; and c) Private development banks,
which are primarily governed by the Thrift Banks Act (R.A. 7906).
4. Rural banks these are mandated to make needed credit available
and readily accessible in the rural areas on reasonable terms and
which are primarily governed by the Rural Banks Act of 1992 (RA
7353).
5. Cooperative banks banks whose majority shares are owned and
controlled by cooperatives primarily to provide financial and credit
services to cooperatives. It shall include cooperative rural banks. They
are governed primarily by the Cooperative Code (RA 6938).
6. Islamic banks Banks whose business dealings and activities are
subject to the basic principles and rulings of Islamic Shari a, such as
the Al Amanah Islamic Investment Bank of the Philippines which was
created by RA 6848.
7. Other classification of banks as determined by the Monetary Board
of the Bangko Sentral ng Pilipinas.
The bank shall perform the services permitted under Subsections 53.1,
53.2, 53.3 and 53.4 as depositary or as an agent. Accordingly, it shall
keep the funds, securities and other effects which it receives duly
separate from the bank's own assets and liabilities. (The General Banking
Law of 2000, Sec. 53, par. 2)
The contract for the use of a safety deposit box should be governed by
the law on lease. Under the old banking law, a safety deposit box is a
special deposit. However, the new General Banking Law, while retaining
the renting of safe deposit box as one of the services that the bank may
render, deleted reference to depository function (Divina, Handbook on
Philippine Commercial Law).
3. BSP Jurisdiction
The BSP is a government-owned and controlled corporation that is
invested by law with corporate powers (Sec. 1, NCBA). Its functions are:
The Monetary Board is the body through which the powers and
functions of the Bangko Sentral are exercised. (Sec 6, NCBA)
4. Receivership
Disclosure Requirement
The law assures full responsibility by requiring the lender to give the
borrower all the details regarding the transaction. Under Sec. 4, any creditor
shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth,
to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
1. The cash price or delivered price of the property or service to be
acquired;
2. The amounts, if any, to be credited as down payment and/or trade-
in;
3. The difference between the amounts set forth under clauses (1) and
(2);
4. The charges, individually itemized, which are paid or to be paid by
such person in connection with the transaction but which are not
incident to the extension of credit;
5. The total amount to be financed;
6. The finance charge expressed in terms of pesos and centavos; and
7. The percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation. (Reviewer on Commercial Law,
2013 ed., Sundiang, Sr. and Aquino, pp.350-351)
5 questions
Infringement of Copyright is the use of works protected by copyright law
without permission, infringing certain exclusive rights granted to the
copyright holder, such as the right to reproduce, distribute, display or
perform the protected work, or to make derivative works
4 questions
Copyright of Commissioned Artist In the case of a work-commissioned by
a person other than an employer of the author and who pays for it and the
work is made pursuance of the commissioned the work shall have ownership
of work, but the copyright, thereto shall remain with the creator, unless
there is a written stipulation to the contrary.
3 questions
1. Trademark Infringement
The person without the owners consent, use in commerce any
reproduction, counterfeit, copy or colorable imitation of a registered
mark or the same container or a dominant feature thereof in
connection with the sale, offering for sale of any goods or services on
or in connection with which such use is likely to cause confusion, or to
cause mistake or to deceive.
2 questions
1. Copyright is an intangible incorporeal right to certain literary,
scholarly, scientific and artistic productions granted by statute to the
author or creator of the work, and giving him, his heirs and assigns
copyright or economic rights, which shall consist of the exclusive right
to carry out, authorize or prevent the following acts:
2. Infringement of Patents
a. Literal Infringement
A patentee shall have the exclusive right to make, use and sell
the patented machine, article or product for the purpose of
industry or commerce, throughout the territory of the Philippines
for the term of the patent, and such making, using or selling by
any person without authorization of the patentee constitutes
infringement of his patent (Del Rosario vs. CA, 255 SCRA 152)
b. Doctrine of Equivalents
The doctrine of equivalents provides that an infringement also
takes place when a device appropriates a prior invention by
incorporating its innovative concept and, although with some
modification and change, performs substantially the same
function in substantially the same way to achieve substantially
the same result (Smith vs. CA, 409 SCRA 33).
30.1. The person who commissions the work shall own the
patent, unless otherwise provided in the contract.
(b) it is filed within twelve (12) months from the date the earliest
foreign application was filed; and
This Court, xxx, has relied on the dominancy test rather than the
holistic test. The dominancy test considers the dominant features
in the competing marks in determining whether they are
confusingly similar. Under the dominancy test, courts give
greater weight to the similarity of the appearance of the product
arising from the adoption of the dominant features of the
registered mark, disregarding minor differences. Courts will
consider more the aural and visual impressions created by the
marks in the public mind, giving little weight to factors like
prices, quality, sales outlets and market segments.
Applying the dominancy test to the instant case, the Court finds
that herein petitioners MCDONALDS and respondents
MACJOY marks are confusingly similar with each other such
that an ordinary purchaser can conclude an association or
relation between the marks. To begin with, both marks use the
corporate M design logo and the prefixes Mc and/or Mac as
dominant features. The first letter M in both marks puts
emphasis on the prefixes Mc and/or Mac by the similar way
in which they are depicted i.e. in an arch-like, capitalized and
stylized manner. For sure, it is the prefix Mc, an abbreviation of
Mac, which visually and aurally catches the attention of the
consuming public. Verily, the word MACJOY attracts attention
the same way as did McDonalds, MacFries, McSpaghetti,
McDo, Big Mac and the rest of the MCDONALDS marks
which all use the prefixes Mc and/or Mac. Besides and most
importantly, both trademarks are used in the sale of fastfood
products. Indisputably, the respondents trademark application
for the MACJOY & DEVICE trademark covers goods under
Classes 29 and 30 of the International Classification of Goods,
namely, fried chicken, chicken barbeque, burgers, fries,
spaghetti, etc. Likewise, the petitioners trademark registration
for the MCDONALDS marks in the Philippines covers goods
which are similar if not identical to those covered by the
respondents application.
Transportation Law
5 questions
1. Limited Liability Rule : General Average Loss
4 questions
1. Prescription of Claims in COGSA
3 questions
1. Doctrine of Inscrutable Fault
Special Laws
8 questions
(1) Buyer/Exporter/Account Party one who procures the letter of credit and obliges himself to
reimburse the issuing bank upon receipt of documents of title.
(a) To pay the seller upon receipt of the draft and proper documents of title; and
(b) To surrender the documents to the buyer upon reimbursement.
The obligation of the issuing bank to pay the seller is direct, primary, absolute, definite and solidary with
the buyer, in the absence of stipulation in the letter of credit
(3) Seller/Importer/Beneficiary one who ships the goods to the buyer in compliance with a contract of
sale and delivers the documents of title and draft to the issuing bank to recover payment.
Depending on the transaction, the number of parties to the letter of credit may be increased. Thus, the
different types of correspondent banks:
* Advising/Notifying Bank the bank which conveys to the seller the existence of the credit. The bank
assumes no liability except to notify and/or transmit to the seller the existence of the letter of credit. A
notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is
only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. The
bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the
notifying bank promises to accept the draft drawn under the documentary credit
* Confirming Bank the bank which lends credence to the letter of credit issued by a lesser known
issuing bank. The bank assumes a direct obligation to the seller and its liability is a primary one as if the
bank itself had issued the letter of credit
* Negotiating Bank the bank which discounts the draft presented by the seller.
The bank buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of
the negotiation. If before negotiation, it has no liability with respect to the seller but after negotiation, a
contractual relationship will then prevail between the negotiating bank and the seller.
* Paying Bank the bank which undertakes to encash the drafts drawn by the seller.
b. Doctrine of independence
The principle of independence assures the seller or the beneficiary of prompt payment independent of
any breach of the main contract and precludes the issuing bank from determining whether the main
contract is actually accomplished or not.
Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or
existence of the goods represented by any documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any
other person whomsoever.
The settled rule in commercial transactions involving letters of credit requires that the documents
tendered by the seller must strictly conform to the terms of the letter of credit. Otherwise, the issuing
bank or the concerned correspondent bank is not obliged to perform its undertaking under the contract.
5 questions
1. Trust Receipts Law
Trust Receipt shall refer to the written or printed document signed by the
entrustee in favor of the entruster containing terms and conditions substantially
complying with the provisions of this Decree. No further formality of execution or
authentication shall be necessary to the validity of a trust receipt.
The entrustee shall (1) hold the goods, documents or instruments in trust for the
entruster and shall dispose of them strictly in accordance with the terms and
conditions of the trust receipt; (2) receive the proceeds in trust for the entruster
and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total
value against loss from fire, theft, pilferage or other casualties; (4) keep said
goods or proceeds thereof whether in money or whatever form, separate and
capable of identification as property of the entruster; (5) return the goods,
documents or instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of this Decree. (Sec. 9, PD 115)
c. Remedies Available
Q: What are the remedies available to the entruster against the entrustee?
ANS: If the entrustee did not comply with his obligations, he shall have the
following liability:
A) Criminal liability for ESTAFA under both the TRL and the RPC;
B) Liable for DAMAGES under Art. 33 of the NCC, without need of proving intent
to defraud because it is malum prohibitum (Prudential Bank vs. IAC, GR 74886,
December 8, 1992).
Q: What are the remedies available to the entrustee if he has been criminality
charged even though he compliedwith his obligations?
A) If the entrustee complied with his obligation before there has been a criminal
charge no criminal liability
B) If the entrustee complied with his obligation after there has been a criminal
charge but before conviction extinguishment of criminal liability
The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with
the terms of the trust receipt shall constitute the crime of estafa, punishable under
the provisions of Article Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense. (Sec. 13, PD 115)
In order that the respondents "may be validly prosecuted for estafa under Article
315, paragraph 1(b) of the Revised Penal Code,35 in relation with Section 13 of the
Trust Receipts Law, the following elements must be established:
(a) They received the subject goods in trust or under the obligation to sell the
same and to remit the proceeds thereof to [the trustor], or to return the goods if
not sold;
(b) They misappropriated or converted the goods and/or the proceeds of the sale;
(c) They performed such acts with abuse of confidence to the damage and
prejudice of Metrobank; and
(d) Demand was made on them by [the trustor] for the remittance of the proceeds
or the return of the unsold goods." (Land Bank of the Philippines vs. Lamberto
Perez, GR 166884, June 13, 2012)
1. Banks
2. Nonbanks
3. Quasibanks
4. Trust entities
5. All other institutions, their subsidiaries and affiliates supervised or regulated by
BSP
6. Insurance companies and all other institutions supervised and regulated by the
Insurance Commission
7. Securities dealers, brokers, salesmen, investment houses and other similar
entities managing securities or rendering services as investment agent, advisor, or
consultant
8. Mutual funds, closedend investment companies, common trust funds, pre need
companies and other similar entities
9. Foreign exchange, corporations, money changers, money payments, remittance
and transfer companies and other similar entities; and
10. Other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes, and other
similar monetary instruments or property supervised or regulated by SEC. (Sec.3,
R.A. 9160, as amended)
b. Covered Transactions
Note: These transactions are required to be reported to the Anti Money Laundering
Council.
c. Suspicious Transactions
Note: Numbered peso and foreign currency non-checking accounts are allowed as long as the client is
properly known or identified. (Rule 9.1.g of RA9194 as amended)
3. Amount involved is not commensurate with the business or financial capacity of the client;
4. Clients transaction may be perceived to be structured in order to avoid being the subject of reporting
under the AMLA;
5. Transaction which is observed to deviate from the profile of the client or the clients past transaction
with the covered institution;
6. Transaction is in any way related to an unlawful activity, money laundering activity or offense under
AML that is about to be, is being or has been committed; or
7. Analogous transactions.
These refer to any act or omission or series or combination thereof involving or having direct relation to
the following:
GR: Only upon order of any competent court in cases of violation of R.A. 9160, as amended.
1. Kidnapping;
2. Hijacking;
3. Drugs;
4. Arson;
5. Murder. (Sec. 11 R.A. 9160, as amended)
3 questions
1. Bulk Sales Law covered transactions; obligations of vendor
A. COVERED TRANSACTIONS
Any sale, transfer, mortgage, or assignment
1. of goods other than in ordinary course of business
2. of all or substantially all of business
3. of all or substantially all of fixtures and equipments
B. OBLIGATION OF VENDOR
Duty of seller to perform the following when transaction is within the coverage of law:
1. Make sworn statement of listing of creditors
2. Delivery of sworn statement to buyer
3. Apply the proceeds pro-rata to claims of creditors shown in verified statement
4. Written advance disclosure to creditors